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HEARINGS + 


BEFORB THE 


COMMITTEE ON INTERSTATE AND FOREIGN COMMELCE 
(Ff THE HOUSE OF REPRESENTATIVES 


SIXTY-SIXTH CONGRESS 
FIRST SESSION 


ON 


H. R. 4378 


IN THREE VOLUMES 


WO) ET: 





JULY 15—AUGUST 19, 1919 





Parts 1 to 7, Inclusive | 


Index in Volume 38 


WASHINGTON 
GOVERNMENT PRINTING OFFICE 
1919 













































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PART 1. 
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


CoMMITTEE ON INTERSTATE AND ForREIGN COMMERCE, 
House or REPRESENTATIVES, 
Tuesday, July 15, 1919. 


The committee met at 10.30 o’clock a. m., Hon. John J. Esch (chair- 
man) presiding. 

The Cuairman. The committee will come to order. The meeting 
has been called for the purpose of beginning hearings on railroad 
legislation. The only bill thus far introduced and referred to this 
committee relating to that subject matter is H. R. 4378, introduced 
by myself on the 2d day of June. There will doubtless be other bills 
offered for consideration by the committee before these hearings are 
concluded. I wish to make some suggestions at this time. 

Mr. Sims. Mr. Chairman, in connection with the hearings on that 
bill, as a matter of course, that bill can be used as a basis for any 
proposition by way of amendment. You spoke of other bills being 
introduced; I take it that any subject matter of any other bill might 
be considered in connection with this hearing. 

The Cuarrman. Yes; that is understood. 

I wish to make a few suggestions which I trust will expedite these 
hearings, and also elicit the largest degree of information possible. 

There are various associations or organizations which have plans 
they desire to present to the committee for consideration. In such 
cases, 1 would suggest that the proponents of such plans limit the 
number of representatives to present such plans to the committee. I 
make that suggestion in the interest of expedition, and make the fur- 
ther suggestion that wherever representatives appear before us with 
a given plan, they try to cover the whole field and not present cumu- 
lative testimony, so that every minute of the testimony will be cov- 
ering new grounds. 

I wish to make this further suggestion with reference to the hear- 
ings. Owing to the statement of the President in his message that 
he contemplates turning the roads back to private ownership and 
control at the end of the year, it would probably be doing a useless 
thing to give much consideration to an extension of five years of Fed- 
eral control, and in view of the widespread sentiment throughout the 
country against the Government ownership, I feel we ought not to 
spend very much time on that proposition, although I concede that 
may be involved in the course of the cross-examination of the various 
witnesses. 

There are some salient features which should concern us in the 
pending hearings. I think the provisions of the bill, H. R. 4378, so 
far as they relate to joint use of terminals, better use of equipment, 

5 


6 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


economies resulting from various forms of consolidation, the consoli- 
dation of lines, the possible amendment of the Clayton Act and the 
Sherman Antitrust Act, meet with quite general approval through- 
out the country, and therefore this and other hke problems may not 
take up very much time of the committee, although we do not wish 
to circumscribe witnesses as to the testimony they shall seek to give. 

One of the great problems we are to consider is the matter of 
credits, and credits involve the matter of rates; the question of the 
relationship of capitalization to rates may also be involved. The 
question of the regulation of stock and bond issues embraced in the 
pending bill will also invite attention on the part of both the com- 
mittee and those who appear before it; also the question as to who 
should initiate rates—should it be the regulatory body or should it 
be the carriers. 

If I gather correctly the sentiment of the country as contained in 
press notices, there seems to be a general desire to perfect the regula- 
tion of railroads before the matter of Government ownership is un- 
dertaken, and it is our hope that we may so perfect a regulating 
measure that the possibility of Government ownership may at least 
be deferred. 

There have been presented to the committee requests for hearings 
by many associations, among them the following: 

The Association of Railway Owners, as represented by Mr. War- 
field, of Baltimore. 

The Investors’ League of New England, represented by Mr. Am- 
ster. 

Another similar organization, of which Franklin Escher, of New 
York, is secretary. 

The New Iingland plan, represented by Mr. Edward J. Rich, of 
Boston. 

The plan presented by Mr. Plumb, representing the railroad 
brotherhoods. 

Plans, not yet fully perfected, looking to the creation of regions 
and systems of roads under Federal incorporation, and, I under- 
stand, a plan represented or to be represented by members of the 
Chamber of Commerce of the United States; and there may be still 
other plans. ' 

From all this, it will be observed, there is a very broad field of in- 
quiry, and it 1s the hope of the committee that those appearing be- 
fore it will concentrate their testimony upon the matter in hand and 
not wander into fields, however inviting, that have no relationship 
to the subject matter of this inquiry. . 

Before the hearing adjourns those present who desire to be heard 
can note their appearances with the clerk of the committee. 

As to the order of hearing, I thought it advisable that some repre- 
sentative of the Government should open these hearings. I invited 
Mr. Hines, the Director General, to appear, and he stated that owing 
to engagements beginning to-morrow he would not be able to appear 
this week, but thought he might be able to come next week, and I ex- 
tended an invitation to him to come next week. 

After Commissioner Clark, who is here this morning and will open 
the hearings has concluded, representatives of the Chamber of Com- 
merce of the United States will be heard, to be followed possibly by 


a 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 7 


tcpresentatives of the so-called Warfield plan, to be followed by rep- 
-resentatives of other plans, including the plans of the railway execu- 
tives, represented by Mr. Tyler, and Mr. Thom, and possibly others. 


We hope we can conclude the hearings in one month, but if further 
time is necessary in order to do the matter justice, further time will 
be allotted. | 

I think we are now ready to begin the hearing. 

Mr. Sims. Mr. Chairman, before we proceed further, you made a 
statement, if I caught it correctly, that doubtless I am uninformed. 
I understood you to say, in effct, that we would not consider seriously 
the further extension of Government control, as the President had 
determined to return the roads at the end of the-present year. It 
was stated publicly in a statement by former Director General Mc- 
Adoo, who favored further Government control by an extension for 
a period of five years, that the President was in accord with that 
view. I have never heard a word from the President, and, in fact, 
that is the only information I have. Has the chairman any informa- 
tion to the effect that the President is opposed to further extension of 


‘Government contro] by action of Congress ? 


The Cuarrman. I have no knowledge whatever on the subject. If, 
however, the Director General desires to be heard on that subject or 
any member of the Interstate Commerce Commission or other parties, 


I do not believe the committee would deny them a hearing. 


Mr. Wesstrer. Mr. Chairman, the President did state, however, in 
his recent message to Congress, that the roads would be returned to 
their owners at the end of the present calendar year. 

The CuarrmMan. I so stated. | 

Mr. Stus. Yes; because we now have the power to do so and they 
will go back automatically anyway at the end of 21 months. What 
I wanted to know was whether the President had changed his mind, 
if he was ever in favor of the five-year period of extension, or whether 


the chairman had any information as to that. I have absolutely 


none except what I have stated. 

The CuarrmaAn. I wish to state further, in view of the fact that 
the House is now considering the so-called liquor bill and will prob- 
ably continue the consideration of that bill for the balance of this 
week, and in view of the fact that this afternoon we may have to 
vote on a veto message of the President on the sundry civil bill, it 
will not be possible for the committee to hold hearings this after- 
noon, and possibly not for the balance of the week in the afternoon. 
However, that will be determined later. 

Mr. Coavy. Mr. Chairman, to-morrow will be Calendar Wednes- 
day, and we ought to be able to go along all day. 

The CuatrmMan. We will determine that a lttle later. I do not 
think our committee will be interested in anything on Calendar 
Wednesday, but we are not sure that Calendar Wednesday will not 
be set aside. 

Mr. Monracur. We have the minimum wage bill up to-morrow, 
Calendar Wednesday. 

_ The Cuatrman. Yes; we would have to be present on that. 

Mr. Barxiry. Let us go ahead now and get in as much time as we 
can to-day. 

The Cuarirman. We will be pleased to hear Mr. Clark, 


8 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


STATEMENT OF MR. EDGAR E. CLARK, MEMBER INTERSTATE 
COMMERCE COMMISSION. 


The Cuarrman. Mr. Clark, do you wish to make a consecutive 
statement before you are interrogated by members of the committee? 

Mr. Ciarx. No, Mr. Chairman; I do not think it will annoy me 
in the least to be interrupted at any time. 

Mr. Raysurn. Nevertheless, Mr. Chairman, I think we probably 
would get much more information from Mr. Clark if he were allowed 
to make his statement without interruption. 

The CHairmMan. Without objection that will be the plan pursued. 

Mr. Crark. Mr. Chairman, the purpose of the hearing, as just. 
stated by you, apparently covers the whole field of consideration of 
principles as well as details in connection with railroad legislation. 
The bill immediately under consideration is confined to amendments 
to the act to regulate commerce, and all bear upon the degree and 
manner of regulation of railroads and other carriers under private 
ownership and operation. 

In our annual report to the Congress of December 1, 1918, we out- 
lined certain principles of policy which we thought must be con- 
sidered, and in connection with that we repeated a special report 
which was made to the Congress by the commission, one member 
dissenting, on December 5, 1917. I assume you will not care to have 
those restated in the record here, but I refer to them to lay the 
foundation for suggestions which may be made later. 

The Cuarrman. Mr. Clark, is that the statement which you pre- 
sented before the Senate committee last february or last January? 

Mr. CriarK. No; I refer only to our annual report and to our 
special report to the Congress of December 5, 1917, which was prior 
to February control. 

Then, on January 7, 1919, I appeared before the Senate committee, 
and I there tendered a statement on behalf of all the members of 
the commission, except Commissioner Woolley, on whose behalf I 
read a separate statement, he being in favor of a continuance of 
Federal control. 'Those statements appear in Part II of the printed 
hearings before the Committee on Interstate Commerce of the United 
States Senate. 

We realize that a good many suggestions have been put forward, 
advocated with more or less earnestness by some and opposed with 
equal earnestness by others, which go to so-called fundamentals. We 
have not advoated them and have been hesitant about expressing 
positive opposition to them because our information with regard to 
them has been contained in printed form or what we learned in 
the hearings before the Senate committee. Several of the bills that 
have been presented to the Senate outline those different plans and 
principles. I hardly think it would be desirable or appropriate for 
me to attempt a careful analysis of those measures in advance of an 
analysis of them, being presented by the proponents. That for the 
reason that it frequently occurs in reading that one fails to catch 
exactly the intent of the author and a rereading often throws a 
different light upon a sentence. My idea is that perhaps my time 
and the time of the committee can best be used this morning by 
taking up, as briefly and concisely as possible, the provisions of this 
bill, H. R. 4378. 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 9 


Section 1 of this bill recasts the provisions of the earlier part of 
section 1 of the act in form appearing in the printed bill. That 1s 
because in some instances matter had been injected in section 1 which 
did not properly belong there, and for the purpose of securing a more 
orderly and connected sequence of the provisions of the section. 

Aside from that, I shall point out the differences between the pres- 
ent law and the pending bill. The first is that it is proposed to ex- 
tend the provisions of this act to common carriers by water as well 
as to railroads and to transportation partly by railroad and partly 
by water. That is for the reason that it has developed that under 
the present law, and the interpretation which has been placed upon 
it, common carriers by water, being free to make their port-to-port 
rates as they choose, and to change them at will, even while operated’ 
in connection with railroads under arrangements for through car- 
riage of freight which moves under through bills of lading, have 
been able to break down the relative rate adjustments, and by taking 
advantage of the opportunity of shipping under those port-to-port 
rates and going through the fiction of a reshipment at the further 
port, to defeat the through rate to which the same water carrier and 
the same rail carrier were parties. 

For example, there are coastwise vessels plying between New 
York and New Orleans and Galveston. They are owned and con- 
trolled and operated in connection with a railroad—a transcontinental 
railroad. Being free to make port-to-port rates without regulation 
or restriction, and having rates applicable from New Orleans or 
from Galveston, they have been able to use those rates in combina- 
tion, going through, as I say, the fiction of reshipment at New Or- 
leans or Galveston, in such way as to keep the rate adjustment in 
some confusion and work what we believe to be an undue discrimi- 
nation as between the shipper who can and does so use the port-to- 
port rates and the shipper who either can not or does not do so. 

In that connection, I want to refer to a suggestion that has been 
made that the bill as it now stands, or as it reads, would bring under 
the jurisdiction of the act and under the jurisdiction of the commis- 
sion the so-called “tramp” cargo-carrying vessels and all other 
water craft operating as private carriers if they carried persons or 
property for hire. 

There is room for argument as to what constitutes a common car- 
rier by water. The decisions of the courts are not entirely in har- 
mony on that point, although the weight of the decisions is to the 
effect that the question is determined by the manner in which the 
businéss is done and by the extent to which the water carrier offers 
its services to the public. It was not our thought that this act, being 
applicable to common carriers by water, would be applicable to ves- 
sels and craft of the type I have mentioned. We realize that possibly 
the future may develop a necessity for bringing all of them under 
regulation, but we do not fell that that time has arrived, and reserv- 
mg our judgment on that question, if conditions change, or if ex- 
perience develops the necessity for expansion of the regulations, we 
suggest that in order to make this point entirely clear there be in- 
serted after the word “aforesaid,” in line 5, on page 3 of the bill, 
these words: 


And provided further, That so-called ‘‘ tramp” cargo carrying vessels and 
other water craft operating as private carriers not on regular routes shall not 





10 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


be considered common carriers within the terms of this act, unless after inves- 
tigation the commission shall find that such vessels or craft are being operated 
as common carriers, in which event the provisions of this act shall apply™ 
thereto. 

The second change in section 1 is found at lines 12 and 13 on page 
2 of the bill which makes the terms of the act applicable also to 
traffic “ from an adjacent foreign country to any place in the United 
States.” 

For some reason that traffic is omitted from the provisions of the 
present act. It is not our thought that that will confer upon the 
commission, or carry the terms of the act as applicable to jurisdiction 
over rates from specific places in an adjacent foreign country to 
places in the United States. It is a general provision that puts that 
transportation under the provisions of this act and makes entirely 
clear in the statute what we have uniformly held—that we had juris- 
diction of that transportation in so far as it was performed within 
the confines of the United States, and that if the carriers should per- 
sist in maintaining a joint through rate which we found to be unduly 
prejudicial or unjustly discriminatory, we had the power to require 
the carrier operating within the United States to withdraw its concur- 
rence from that joint through rate and establish a reasonable propor- 
tional or other rate for the transportation from the boundary to 
destination in the United States. 

There is, of course, a large amount of traffic moving between 
points in the United States and points in Canada, and also points in 
Mexico. The Canadian law and the powers and jurisdiction of the 
Canadian commission differ from ours. That commission has an- 
nounced publicly its policy or its views of what ought to be the estab- 
lished policy—that a joint through rate from a point in the United 
States to a point in Canada should be under the jurisdiction of the 
Interstate Commerce Commission and a joint rate from a point in 
Canada to a point in the United States within the jurisdiction of the 
Canadian commission. “ 

We have never had any authority to agree to any jurisdiction other 
than that conferred by the act, and, of course, have never committed 
ourselves to any such proposal. On the initiative of the Canadian 
authorities several years ago, the idea of entering into a convention of 
some sort regarding that point was taken up through Judge Knapp, 
then chairman of our commission, and a member and representative 
of the Canadian commission. The State Department was consulted, 
and apparently was of the opinion that it could only be done through 
a treaty, and there it disappeared from sight. 

We have not suggested incorporating in this bill, or we do not sug- 
gest incorporating in this bill, a provision making its terms appli- 
cable to transportation within the United States or through traffic 
from a point in a foreign country to destination in a foreign country. 
That is not provided in the present act, although at one time we 
thought it was, but the United States district court, in a decision in 
188 Federal, 444, held to the contrary. There is not a large volume 
of that traflic, and we have never seen any real necessity for expand- 
ing the provisions of the law so as to govern it. 

The next change in section 1 is the proviso which begins in line 
21, on page 2, with reference to the application of the act to trans- 
portation or transmission of intelligence wholly within one State. 


RETURN OF THE RAILROADS.TO PRIVATE OWNERSHIP. 11 


This proviso reads: 


That the provisions of this act, except as expressly provided in section 13 
_ thereof, shall not apply to the transportation of passengers or prop- 
erty * * * wholly within one State. 

The difference between that and the present act is the insertion of 
the words “ except as expressly provided in section 18 thereof.” A 
further amendment to this proviso is in the first few lines of page 3 
of the bill, which make clear the jurisdiction of the act and the com- 
mission with regard to the transmission of intelligence wholly within 
one State, and not transmitted to or from a foreign country. 

Beginning in line 21, on page 3, is a definition of the term “ water,” 
as used in this act. If this is adopted as law it will be necessary to 
amend the law conferring jurisdiction of charges by water carriers 
now conferred upon the United States Shipping Board. It will be 
remembered that the Shipping Board was given jurisdiction of rates 
of transportation by water, except where it had been conferred upon 
the Interstate Commerce Commission, and we question the advis- 
ability of continuing any arrangement whereby the jurisdiction over 
these rates depends upon the extent to which it had been conferred 
upon the commission in the original act to regulate commerce and 
that conferred upon the Shipping Board. In other words, we think 
that the jurisdiction of those rates ought to rest in one body that 
can pursue a consistent policy with regard to them without occasion 
for friction with a different view entertained by somebody else or 
action by some other body without knowledge of what had been 
done by the one body. 

Beginning in line 3, on page 4, is a definition of the term “ trans- 
portation,” as used in this act. That differs from the present act 
mainly in the fact that this includes locomotives, cars, and other 
vehicles and vessels, which provisions, as appear later in the bill, are 
consonant with the jurisdiction that it proposes to confer over the 
operation of certain of these carriers. 

Beginning in line 10, on page 4, the term “ transmission,” as used 
in this act, is defined. 

Beginning in line 18 is a declaration of the duty of every common 
carrier subject to this act engaged in the transportation of passen- 
gers or property or in the transmission of intelligence to provide and 
furnish such transportation or transmission upon reasonable request 
therefor. I call attention to that language in connection with what 
I have said about the advisability of making the terms of this act 
applicable to so-called “tramp” vessels carrying full cargoes and 
going on one trip from A to B, and on the next trip from B to C, 
and then from Csto D as the traffic offers; the impracticability, at 
least under present conditions, of subjecting them to a requirement 
that they shall provide and furnish this transportation upon reason- 
able request or the requirement that they should establish through 
routes with other carriers when their service is necessarily so wholly 
indefinite and uncertain. It would also be a very difficult thing to 
establish joint rates, fares, or charges between carriers on regular 
routes and rail carriers and vessels of the type I have referred to. 

Beginning in line 1, on page 6, there is a definition of the teria 
“car service.” Retaining the term “car service,” the definition of it 
has been expanded so as to include “the use, control, supply, move- 


12 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


ment, distribution, exchange, interchange, and return of locomotives, 
cars, ‘and other vehicles used in the transportation of property, and 
the supply, movement, and operation of trains by any carrier subject. 
to this act. The use and supply of cars are new terms in the defini- 
tion of “ car service,” and they largely expand the jurisdiction of the 
act and of the commission thereunder. In a decision commonly 
referred to as the Paraffin case (384 I. C. C., 179) the commission, 

by a majority, held that it had power to require a railroad to supply 
itself with tank cars for the transportation of oil. That order of the 
commission was contested in the courts, and in 242 U, S., 208, the 
Supreme Court held that the commission had no power to enter ‘that 
order. If this language becomes law the commission would have 
power to require a carrier to provide itself with locomotives, cars, 
and other vehicles used in the transportation of property, but, as will 
appear later, that power would be controlled by a rule of law stated 
in the statute which would protect the carrier in its constitutional 
rights against an order of that kind which would impair its ability 
to” pr operly serve the public. 

The other new provision in this definition of “car service” is the 
extension of the jurisdiction to the supply, movement, and operation 
of trains. That, as will appear later, will come into play i in times of 
emergency, car shortage, etc., and in connection with the common use 
of tracks or terminals, when the public interest demands such use. 

Beginning in line 22, on page 6, 1s a provision that the commission 
may— ie 
establish reasonable rules, regulations, and practices with respect to car service, 


including the compensation to be paid for the use of any locomotive, cary or 
other vehicle not owned by the carrier using it. 


That is new and is necessary apparently in connection with the 
provision just previously discussed. It assures the owner of the 
locomotive, car, or other vehicle of reasonable compensation for its 
use by any other carrier to which it may be assigned for use. 

Beginning in line 4, on page 7, is a provision that— 
whenever the commission shall be of opinion that shortage of equipment, con- 
gestion of traffic, or other emergency requiring immediate action exists in any 
section of the country it shall have the power to set aside all existing rules. 
with regard to car service and to make just and reasonable directions with 
respect to car service and the interchange of equipment without regard to 
ownership during such emergency as in its opinion will best promote the service 
in the interest of the public and the commerce of the people, and also authority 
by order to require such joint or common use of terminals as in its opinion 
will best meet the emergency and serve the public interest, and upon such just 
and reasonable terms between the carriers as the commission may prescribe. 

That, again, protects the carrier owning a terminal in the right to 
have just “and reasonable compensation for its use. The provision 
in its entirety would confer upon the commission authority to do, in 
case of emergency in any part or all of the jurisdiction, some of the 
things which have been done by the Railroad Administration and 
which are generally conceded to be in the interest of economy in 
transportation and efficiency in the use of equipment at a time when 
the volume of transportation exceeds the capacity of the roads and 
facilities are short and their use in the most economical and efficient 
way is demanded. What I have just said goes to the use of termi- 
nals as well as to the use of equipment. 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 13 


The provision I have just referred to is followed in the same 
sentence by conferring authority upon the commission to “ give 
_ directions for preference or priority in transportation and as to em- 
_ bargoes, or movement of traffic under permits, at such time and for 
_ such periods as it may determine, and to modify, change, suspend, or 
annul them.” The history of the operation of railroads in this 
country shows that it has been necessary from time to time in differ- 
ent sections, sometimes in a much larger degree than others, to 
place embargoes against the taking of more freight until that al- 
ready on hand can be disposed of, that being about the only resort 
against a complete paralysis of the transportation agency. The 
embargo has no defined status in law, and it seems to me to be a 
temporary declination on the part of the carrier to perform its full 
common law duty as a common carrier because of conditions which 
are beyond its control. 

Tt has been demonstrated very clearly.during the congested period 
which followed the breaking out of the European war that em- 
_bargoes can be handled much better and under them much more 
efficiency can be secured if they are not in too many hands. Each 
railroad issuing embargoes at will and according to the ideas of its 
own operating officers does not produce the most harmonious results 
or the best efficiency. Of course, under Federal control, the unifica- 
tion of the carriers under that control, and with the power to 
handle the embargoes all resting in the director general, it was soon 
demonstrated that it could be much more efficiently handled through 
one head. The necessity for authority in some one to accord pref- 
erence or priority in transportation also developed during this 
trying period, and we think there, again, that that ought to be vested 
in the Federal regulating tribunal so that it may be done in a har- 
monious way and be entirely free from undue preference or preju- 
dice or any improper discrimination. 

The movement of traffic under permits is analogous to the em- 
bargo except that it embargoes the traffic before it is loaded. That 
has been done very frequently during the period of Federal control 
and, 1 think, is still in effect with regard to some traffic, but it pro- 
tects against loading a large volume of traffic that can not be 
promptly and expeditiously moved. So, we have the three provi- 
sions—preference or priority, embargoes, and movement under per- 
mits—which are so closely related to each other that they ought to 
be handled by the same authority, and they can be more efficiently 
and much better handled by a single head than by leaving every 
railroad to exercise its own judgment in those matters. 

Mr. Dewatr. Mr. Clark, would it be fair to say that what you 
have just discussed and read, commencing on line 4, page 7, up to 
the conclusion of line 9, on page 8, is a continuance of the power 
that is exercised by the director general under Federal control, vest- 
Rae powers now in the Interstate Commerce Commission ? 

r. CLrarK. Yes; it will vest in the commission some of the powers 
that have been and are being exercised by the director general. 

Mr. Dewatr. Would it be then fair to say that this would be a con- 
tinuance of the exercise of power granted to the director general 
under the emergency then existing, to wit, the war power? 


14 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Cuark. So far as preference or priority, embargoes, or move- 
ment of traffic under permits, yes. With regard to the regulation of 
the equipment, we now have power under the so-called Esch bill to 
control the movement of cars. This expands it some and takes in 
locomotives and other vehicles, although the other vehicles are rather 
nebulous at the present time. WE 

Mr. Dewatr. Mr. Clark, I beg pardon for interrupting you. 

Mr. CrarKk. That is all right, sir. : 

The provision with regard to preference or priority, embargoes, — 
and permits is followed by a provision that— 

In time of war or threatened war the President may certify to the commis- 
Sion that it is essential to the national defense and security that certain traffic — 
shall have preference or priority in transportation, and the commission shall, 
under the power herein conferred, direct that such preference or priority be 
afforded. 

That would leave in the hands of the President the same power 
he now has with regard to transportation essential to the national 
defense and security in time of war or threatened war, but it would 
be exercised through the commission by filing with the commission 
the presidential certificate for the necessity, and the commission 
would carry it out by orders issued by virtue of the authority con- 
ferred upon it by this act, so that there could be no embarrassment. 
in carrying out the Commander in Chief’s views, plans, and require- 
ments. 

The next new provision begins in line 24 on page 8. I should say 
the next new provision that I think worth while discussing, the pen- 
alty provisions as to the previous section, speaks for itself. This is 
a provision that from and after a date to be fixed by the Congress— 
no carrier by railroad subject to this act shall undertake the extension of its 
line of railroad or the construction of a new line of railroad, or shall acquire 
or operate any line of railroad or extension thereof, or shall engage in trans- 
portation under this act over or by means of such line of railroad or extension 
thereof unless it shall first obtain from the commission a certificate that the 
present or future public convenience and necessity require or will require such 
construction and, operation. 

This is followed by a like provision that no carrier by railroad 
subject to this act shall abandon any portion or all of its line of rail- 
road, or the operation thereof, unless it shall first obtain from the 
commission a similar certificate. This is carrying into this act the 
very well-known provision that applies in some other countries and 
in some of our States, commonly called the certificate of convenience 
and necessity. This probably is not as important as it would have 
been a good many years ago, and it probably will not in the future 
have as profound effect upon the railroad map as it would have had 
if it had been in effect 25 years ago; but the idea is to prevent the 
building of duplicate lines of railroad because of keen rivalry of 
certain financial interests or when the railroads so built will not 
serve the present or future convenience and necessity, and will 
simply depend for traffic upon that which they can get away from 
railroads already built, adding to the total burden of maintenance, 
capital returns, etc., which the public must pay. 

Mr. Dewatr. I suppose, Mr. Clark, that the words in line 25, “ sub- 
ject to this act,” would exclude from the operations of this provision 
any railroad which was clearly intrastate ? 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 15 


Mr. Crarx. Unless it was subject to this act. A railroad may 
_ physically be purely intrastate and still be an interstate carrier sub- 
ject to this act. 

Mr. Dewar. Yes. Pursuing that inquiry further, is it your 
thought that this provision would apply to a railroad which was ex- 
clusively within the lines of one State, although it engaged in inter- 
state commerce ? 

Mr. Cuark. Yes; if it engaged in interstate commerce in such a 
manner as to make it subject to the provisions of this act. I think it 
would apply to a new line or an extension of a line built by any 
road or system of roads that is already subject to the act, and I think 
it would apply to a new line which is not subject to this act if the 
operation of that line brought it within the terms of this act. That 
is the idea in providing here not only that they shall not construct 
it without a certificate, but that they shall not operate it without a 
certificate. 

Mr. Parker. Is not this recognition of the fact that if we are 
going to regulate the rates on the roads you also must protect the 
roads from unnecesasry competition? I know that same thing is in 
the New York State law. 

Mr. Crark. It is recognized in many of the States where State 
regulation has, perhaps, existed longer and has developed in an 
effective way. 

There follows then a provision beginning in line 19, on page 9, 
requiring the commission upon the receipt of such an application to 
cause notice thereof to be given to the railroad commission, or public 
service or utilities commission, or other appropriate authority, of 

each State.in which such line of railroad, or extension thereof, is 
proposed to be constructed or operated, or any portion or all of such 
line of railroad, or the operation thereof, 1S proposed to be aban- 
doned, and gives them the right to be heard as hereinafter provided 
with respect to the hearing of complaints or the issuance of securi- 
ties. That makes it entirely clear that no such application for a cer- 
tificate can be passed upon by the commission until it has afforded the 
fullest opportunity to the authorities of the State or States in which 
the line may be located or in which it is proposed to be abandoned 
to be heard with regard to their views, for or against. 

Then follows the provision that the commission may grant such 
an application in whole or in part, and may attach to the issuance of 
its certificate such terms and conditions as in its judgment the public 
convenience and necessity may require. 

Then follows a provision, “Any construction, operation, or aban- 
donment contrary to the foregoing provisions of this section may be 
enjoined by any court of competent jurisdiction at the suit of the 
United States, the commission, any commission or regulating body 
of the State or States affected, or any party in interest,” and the 
penalty provision for violation of the terms of the act. 

Beginning at the top of page 11 there is a provision for authority 
for the commission after hearing to require by order any carrier 
by railroad subject to this act, party to such proceeding, to provide 
itself with safe and adequate facilities for performing as a common 
earrier its car service as that term is used in this act, and to extend 
its line or lines, and a like provision with regard to common. car- 


16 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP, 


riers subject to this act engaged in the transmission of intelligence, 
with the proviso: 

That the commission shall find that such provision of facilities or extension 
is reasonably necessary in the interest of public convenience and will not 
impair the ability of the carrier to perform its duty to the public. 

That is the provision to which I referred a few minutes ago as 
the rule of law which limits the power of the commission and pro- 
vides against arbitrary action which would put a carrier in a posl- 
tion impossible of carrying out the order of the commission. 

This also has its direct connection with the provision of the sec- 
tion defining “car service,” because here 1s a definite conferring of 
authority upon the commission to require the carrier to provide itself 
with safe and adequate facilities for performing as a common car- 
rier its “car service” as that term is used in this act. The com- 
mission would, therefore, if it should find on investigation that the 
facilities are reasonably necessary in the interest of the public con- 
venience and that the carrier can acquire them without impairment 
of its ability to perform its duty to the public, require that carrier to 
acquire and use facilities which of its own volition it does not or is” 
not willing to acquire. ; 

Mr. Denison. Mr. Clark, may I ask you to state just what is meant 
by “impairment of its ability to perform its duty to the public.” 

Mr. Crark. Perhaps that is most concisely and directly answered 
by saying that it means whether or not the carrier is in position to 
pay for them. | 

Mr. Denison. That is what I wanted to know. Then in applying 
that provision the commission would take into consideration the con- 
dition of the company as well as the needs of the public. 

Mr. Crark. Oh, undoubtedly. If the carrier had money which 
would be sufficient to pay for the facilities in question, but it had 
obligations to which that money should be applied, and if it should 
appear that failing to so apply it would impair its ability to serve 
the public, the other use would be given precedence and the order 
to acquire the’ facilities would undoubtedly be withheld. 

There follows an amendment to section 2 of the present act which 
is of significance only in that it makes it applicable to common car- 
riers engaged in the transmission of intelligence as well as to those 
engaged in the transportation of passengers and property. That is 
the section of the act which prohibits unjust discrimination—the 
charging of one person more than another for a like and cen- 
temporaneous service. 

The next section of this act, being section 4, amends the second 
paragraph of section 3 of the present act. Section 3 of the present 
act is the one which prohibits undue preference and undue preju- 
dice with regard to any person, firm, corporation, locality or char- 
acter of traffic, and this brings within its provisions the carriers en- 
gaged in the transmission of intelligence, or the transmission of mes- 
sages, which is analogous to the transportation of persons or prop- 
erty by the rail carriers; but it contains a very important further 
change. It confers upon the commission authority to require the 
terminals of any carrier to be opened to the traffic of other carriers 
upon such just and reasonable terms and conditions, including just 
compensation to the owners thereof, as the commission after full 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 17. 






hearing, upon complaint or upon its own initiative, may by order 
prescribe. 

' The present paragraph of section 3 which this would amend 
requires the carriers, as does this, to afford all reasonable, proper, 
‘and equal facilities for the interchange of traffic between their re- 
| spective lines, and for the receiving, forwarding, and delivering of 
‘passengers and property, and prohibits a carrier from discriminating 
‘im its rates and charges between such connecting lines, and then it 
contains this language: 

But this shall not be construed as requiring any such common carrier to 
‘give the use of its tracks or terminal facilities to another carrier engaged in 
like business. 

That has been the subject of a great deal of difference of opinion 
and a great deal of controversy as to what constitutes giving the 
use of its terminals to another carrier engaged in a like business. 
Some say that it means the physical use; that it means they can not 

‘enter upon those terminals with their own employees and locomo- 
tives; and others say that it means that the traffic of the competing 
‘carriers shall not be given access to those terminals against the will 
of the owning carrier. | 

We have had some cases which involved that provision, but in 
each one there has been included as the principal point the question 
-of discrimination, and we have ordered that, discrimination removed 
jin several instances. In one case our order was contested but was 
later sustained by the Supreme Court of the United States. 

Quite a few years ago in the Covington Stock Yards case (1389 
U. S., 128), the Supreme Court used language which amounted to 
about this: That if this carrier owning the stockyards were required 
to accept the traffic of its competitor and transport it to its stock- 
yards for unloading and for the use of the facilities of the stock- 
yards, it would be taking its property in a very effective sense. 
This has been relied upon in the main by those who contend that this 
provision of the present section 3 of the act means that giving accsss 
to the traffic of. the competing line is giving the use of the terminals. 

If this becomes law, the commission in regulating the properties 
of the carriers that are devoted to the public use would have the 
power to require the terminals of any carrier to be opened to the 
traffic of other carriers upon just and reasonable terms and condi- 
tions, including just compensation to the owner of the terminals. 

We have never been able to see that the terminals of a carrier are 
any moresacred under regulation than its main lines, and we do not 

‘see any reason why the terminals should not be subject to exactly 
the same degree of regulation that other portions of the plant are 
subject to. 

In section 5 of this bill—— 

Mr. Monracur (interposing). Mr. Clark, you spoke of stock- 
yards; do you treat them as terminals? 

_ Mr. Crarx. Oh, yes. 

Mr. Monracur. Whether they are owned by the railroads or not? 
Mr. Crarx. Whether they are owned by the railroads or not. 
Mr. Monracur. You speak of them as terminals of the carriers. 

_ Mr. Crark. If they are used by the railroads, we treat them as 
its terminals. I might suggest here, although I have not the cita- 


152894—19—voL 1——-2 





18 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


tion, that there has been a good deal of controversy and some rapid 
switching of ownership and other arrangements of the Chicago 
Union Stock Yards Co. and the Chicago Junction Railway, was it 
not? | 

Mr. Arrcutison. Yes. 

Mr. CuarK. But we held that it was still a common carrier and 
subject to our jurisdiction. That was contested, but we were sus- 
tained by the Supreme Court of the United States. 

Mr. Monracur. Would you so treat warehouses and all places of 
storage of produce intended for shipment? 

Mr. Cuarx. Yes, sir; if they are used by the carrier for storage of 
1e property. 

Mr. Monracur. Whether owned by the carriers or not? 

Mr. Cuarx. Whether owned by the carriers or not. 

Mr. Monracur. And also grain elevators? 

Mr. Cuarxk. Yes, sit. 

Mr. Monracus. And cold-storage plants? 

Mr. CuarK. Yes; every facility used by the carrier. As you 
know, of course, the rule of law has been very definitely laid down 
that the carrier is not obliged to become a warehouseman, and they 
frequently provide in their tariffs and carry it into practice that after 
a certain ‘time property left in their custody will be placed in a 
public warehouse at the expense of the owner of the property. 
When the property has been so placed in the hands of a public 
warehouseman, it goes out of the custody of the carrier and goes 
out of our jurisdiction, but so long as it is retained in a warehouse 
operated and used by the carrier itself, it is within the provisions 
of the act and under our jurisdiction. 

Mr. Montacur. Suppose it is not operated and used by the car- 
rier, but the carrier simply avails himself of what is privately owned 
and operated by taking the products therefrom into shipment, would 
it be a carrier ? 

Mr. Crark. You mean the warehouse? 

Mr. Montague. Yes. . 

Mr. Crark. No; not if the warehouse is privately owned, and, of 
course, there are millions of them where the cars are switched in at 
the platform and loaded by the shipper. 

Mr. Monractr. Then what is the line of distinction? 

Mr. Cuarx. When the carrier accepts the property for transporta- 
tion and issues its bill of lading, then it becomes subject to our 
jurisdiction. | 

Mr. Montacur. The warehouse itself? 

Mr. CuarKk. No; the property in the car. The warehouse never 
comes under our jurisdiction under those circumstances. 

Mr. Montacur. I understood you to say that those terminals were 
carriers. 

Mr. Cuark. I say if they are used by the carrier in its transpor- 
tation or in its custody of the property. At the other end, the car- 
rier may dispose of the property by putting the car at the ware- 
house of the consignee. The duty is upon the consignee to unload it, 
and just as soon as he has unloaded it 3 

Mr. Monracur. Would a stockyard then be a common carrier ? 

Mr. Crark. I did not say a stockyard would necessarily be a com- 
mon carrier, but if the stockyard is used by a common carrier sub- 


eed 


t 








RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 19 


ject to this act for the purpose of loading or unloading live stock 
transported by it, it is a facility of that carrier and subject to our 
jurisdiction. 
_ The Cuarrman. Gentlemen, we will have to conclude the hearings 
for this morning, and without objection we will meet to-morrow 
morning at 10 o’clock. Will you be ready to go on, Mr. Commis- 
sioner, at that time? 

Mr. CriarK. Yes. 

(The committee thereupon took a recess until Wednesday, July 16, 
1919, at 10 o’clock a. m.) 


COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE, 
Houser or REPRESENTATIVES, 
Wednesday, July 16, 1919. 


The committee met at 10 o’clock a. m., Hon. John J. Esch (chair- 
man) presiding. 


STATEMENT OF MR. EDGAR E. CLARK, MEMBER INTERSTATE 
COMMERCE COMMISSION—Resumed. 


The CHarrman. Mr. Clark, will you resume your testimony? I 
think we had reached section 5. 

_ Mr. Crark. Yes, Mr. Chairman. At the time of adjournment I 
was just about to comment on section 5 of this bill, which would 
amend the first paragraph of section 5 of the commerce act. 

The present act, as is well known, in this paragraph prohibits any 
form of pooling of freights or the earnings upon freights. Experi- 
ences had during the war have led to the conviction that this provi- 
‘sion is not necessarily in the public interest, and this bill, therefore, 
proposes that, under regulation and with approval of the commission, 
there shall be relaxation of those limitations upon the activities of 
the carriers. 

The amended section starts out with the rule: 

That, except upon specific approval by order of the commission as in this sec- 

lion provided, it shall be unlawful for the carriers to enter into any contract, 
agreement, or combination with any other common carrier or carriers for the 
pooling of freights of different and competing roads or to divide between them 
the aggregate or net proceeds of the earnings of such railroads or any portion 
thereof. 
It then provides that the commission may, if after hearing it is of 
the opinion that the unification, consolidation, or merger by purchase, 
lease, stock control, or in any other way of two or more carriers sub- 
ject to the act, or of the ownership or operation of their properties or 
of designated portions thereof, or that the pooling of their traffic, 
earnings, or facilities to the extent indicated by the commission, will 
be in the interest of better service to the public or economy in opera- 
tion, or otherwise of advantage to the convenience and commerce of 
the people, the commission shall have authority by order to approve 
and authorize such unification, consolidation, merger, or pooling under 
such rules and regulations and for such consideration as the commis- 
sion may find to be just and reasonable in the premises. 







20 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


It then provides that the commission may from time to time, fe 
good cause shown, make supplemental orders deemed necessary or 
appropriate and thereby modify or set aside provisions of previ 
orders as to the extent of pooling or as to the rules, regulations, 
terms, conditions. or consideration in respect of any unification or 
consolidation of operation, and not of ownership or of pooling, so 
previously approved and authorized. sae : 

It will be noted that this does not include any provisions for the 
commission by supplemental order to modify or set aside the provi- 
sions of a previous order which permits the merging or consolidation 
of the ownership of two or more properties, the idea being that 
the ownership has been merged there has been a change of contro 
and ownership of the securities and stocks of the reorganized prea 
erty as compared with the previously existing properties, whict 
could not by an order of the commission justly or perhaps lawfully 
be undone: but, ¢&xcept where there has been a change of ownership. 
the commission would be authorized by supplemental order to 
modify any previous ‘order. 

It then provides that carriers affected by any such order of the 
commission shall be, and are hereby, relieved from the operation of 
certain laws restricting their activities in that direction in so far 
as may be necessary to enable them to carry into effect any unifica- 
tion, consolidation, merger, or pooling so approved. - | ; 

Incidentally, I call attention to a typographical error in the | 
word in line 16 on page 14. It should be * effect.” ; 

Mr. Tuom. Mr. Chairman, may I suggest an inquiry at this point 
to the committee? ‘4 

The CHatrman. Yes, Mr. Thom. ; 

Mr. Txuom. I would like for the committee to ask the witness 
whether there are not in the constitutions and statutes of many 
States prohibitions on such consolidations and whether these provi- 
sions here releasing merely against the Federal antitrust acts would 
be adequate without negativing those statutes and constitutions. 

Mr. CrarK. It is my idea, Mr. Chairman, that the language in 
lines 15 and 16, on page 14, fully cover that poimt. Without reading 
it in full, but giving the essence of it, it would read that the carriers 
affected by any such order shall be, and they are hereby, relieved 
from the operation of all other restraints or prohibitions by law 
im so far as may be necessary. 

Mr. Tom. I had not noted those words. 

Mr. Crarx. This provision, Mr. Chairman, involves a substantial 
change in the governmental policy and would effect a substantial 
change in the policy of some of the States with regard to mainte- 
nance of every degree and feature of competition which is fostered 
by existing laws. It would make possible under private control 
and operation of the roads the utilization of many economies which 
would be possible under a unified control or the operation of all the 
roads as one system. 

Two competing single-track linese between two important com- 
mercial centers might, under an arrangement made pursuant to this 
authority, be used as a double-track road for the carriage of through 
freight and for through-passenger service as well. Two single-track 
roads of that nature, or even a double-track road and a single-track 
road, one of which had adverse grades against the current of traffic 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 74 


and the other had them in the opposite direction, might be utilized 
to great economy by obviating the necessity of lifting the tonnage 
‘over the adverse grade. That would be especially true, for ex- 
‘ample, on roads moving a large tonnage of coal. The loads could 
be taken over the easier grade and the empties taken back, with 
“neither of them meeting the difficulties of the adverse grades. 

{. There are many other considerations which move to the view that 
this would be a sound departure from present policy. Consolida- 
‘tions for operation and division of the traffic made under careful, 
‘yeasonable, and open arrangements, approved by the commission, are 
not, as we think, antagonistic to the public interest, while it is to the 
public interest that every reasonable economy in operation shall be 
effected, because the expenses of operation must all be paid by the 
public. 7 

Section 6 of this bill proposes an amendment to the fourth para- 
graph of section 5 of the present act with regard to the authority 
of the commission to permit the continuance of water service when 
there is an ownership direct or indirect in the water line by a rail- 
road. 

This was recommended by the commission in its annual report to 
the Congress to meet two or three actual situations which came before 
us in investigations under which it could not be held that there was 
no competition or possibility of competition between the rail line 
and the water line; but it also appeared abundantly that there were 
‘no other interests ready to take over the water line, and that the 
only effect of divorcement would be an abandonment of the water 
service, and a continuance of the water service was urged by a cloud 
of witnesses from among the shippers who would be affected in point 
of service, and frequently in the matter of rates, by the withdrawal 

of the water service. 

Jt is therefore suggested here that the commission might also ex- 
tend the time during which the service by water may continue to be 
operated, even where it finds that competition may be excluded, pre- 
vented, or reduced, if it also finds that the service is in the interest of 
the public and of advantage to the convenience and commerce of the 
people, and that a discontinuance thereof would be substantially 
injurious to the commerce of the localities affected. 

The CrarrmMan. Does that affect the Panama Canal act? 

Mr. Cuark. That is an amendment of a part of section 5 of the 
commerce act, which had its origin in the Panama Canal act. 

Speaking for myself, parenthetically, on this, Mr. Chairman, I 
think it is fair to say that it is my observation that the shipping 
public has received no benefit from any divorcement of rail and 
water carriers under the provisions of the Panama Canal act. We 
were obliged by the terms of that act to require the divorcement of 
the Lakes lines from the roads in official classification territory. The 
net result of that was a less satisfactory and liberal water service, 
an increase in rates, and finally the substantial abandonment of the 
service between Lake Erie ports and Lake Michigan ports. 

_ The same thing can be said of other instances, one on Chesapeake 
Bay. Originally, two railroads were built in the lower peninsula of 
Maryland, and in order to extend their lines to Baltimore, and more 
fully serve the localities and territory they had entered, they ac- 
quired boat lines which operated on the navigable rivers reaching 





22 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


numerous competitive points with the railroads, and also operated 
to Baltimore. In the course of time, these railroads were acquired 
by the Pennsylvania Railroad, and in acquiring them it also ac- 
quired their boat lines. When we came to investigate that, under the 
Panama Canal act, there was pretty general insistence on the part 
of the Baltimore interests that the divorcement should be required, 
and under the provisions of the law we entered an order requiring it. 
It then developed that their idea that somebody else would take up 
that water service was a mistake, and the only thing the railroad 
could do under the order would be to discontinue the service. Then 
we received most urgent appeals from the Baltimore interests, and 
from the people who were served by those boat lines, many of whom 
had no other transportation except by driving many miles across the 
country to the railroad over very bad roads, to extend the time and 
permit a continuance of the operation. 

I cite only those two cases as indicative of the facts that have de- 
veloped under that law and from which my judgment that the ship- 
ping public has never received any benefit from the necessary opera- 
tion of that law is formed. . 

The CuarrmMan. Mr. Commissioner, I have had’ sent around to 
members of the committee and persons in the audience a committee 
print of this bill showing the new language inserted, which is printed 
in italics, and other shght modfications indicated by various marks 
which I think will facilitate our consideration of the amendments to 
which you have called attention. 

Mr. CrarK. Yes. Section 7 of this bill proposes an amended first 
paragraph of section 6 of the commerce act. This is the provision 
which requires railroads and water carriers, so far as they are sub- 
ject to our jurisdiction, to publish, post, and file with the commission 
schedules showing all their rates and fares and charges. 

The substance of the amendments carried in section 7 of this bill 
is to make the same requirements applicable to common carriers 
under the act engaged in the transmission of intelligenee. Under the 
present law they are not required to file their tariffs. 

Section 8 of this bill proposes an amended paragraph 7 of section 6 
of the commerce act. There, again, in line 20, on page 16—the lines I 
have referred to do not jibe, I see, with this committee print—the pro- 
visions of the section are made applicable to carriers engaged in the 
transmission of intelligence. At the end of this section of this bill 
there is a proviso which is a repetition of one now jn the act, but in 
reading this over, and without having had opportunity to consult 
my colleagues on this suggestion, this thought occurs to me, which 
seems to me must be taken care of. The present act does not require 
the carriers engaged in the transmission of intelligence to file or post 
schedules of their charges. This bill would require them to do so, 
and without some provision in the act that requirement, as well as 
the prohibition against engaging in the business except under tariffs 
so filed, would become effective upon approval of the act. It there- 
fore seems essential that there should be a provision with regard to 
those common carriers which would give them a reasonable time 
within which to prepare and file their schedules, and so I suggest 
that at the end of this section there be added substantially these 
words: 


A ne 


( 


! 


. 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 28 


4 And provided further, That the requirements for filing and posting schedules 
of charges for transmission of intelligence, and the prohibition against engaging 


or participating in such transmission except under schedules so filed and posted, 
shall become effective four months from the date of approval hereof. 


Section 9 of this bill proposes to amend two paragraphs under (a) 


of the thirteenth paragraph of section 6 of the commerce act, and 
deals with the powers of the commission originally conferred in the 
Panama Canal act over arrangements for interchange of passengers 


and property between rail and water carriers. 

It will be noted that, first, there are the inserted words which 
authorize the commission to establish physical connection between 
these lines and the dock at which the interchange of passengers or 
property is to be made, making it entirely clear that the purpose is to 
perfect an arrangement for the interchange. Then, it is provided 
that the commission may require either or both the rail and water 
carrier to construct a suitable dock. That is intended to obviate a 
nullification of the intent and purpose of the act to require through 
routes and joint rates between rail and water carriers wherever they 
are in the public interest, by the absence of a dock and the unwilling- 
ness on the part of either or both of the carriers to arrange for the 
construction of a suitable dock at which the interchange can be 
effected. It is then provided that this dock shall be considered a 
terminal within the meaning of that term as used in other sections 
of this act, and that the provisions of this paragraph shall extend 
to cases where the dock is not owned by any carrier. 

There are instances in which the interchange is made over docks 
that are not owned by either of the carriers, sometimes under a 
lease of the entire dock property, and sometimes under an arrange- 
ment for right to dock there and use it to the extent necessary for 
the carrier or carriers involved. This amended section would 
authorize the commission to determine and prescribe the terms and 
conditions upon which these docks and connecting tracks will be 
operated, and to determine either in the construction or operation 
of the docks and tracks what sums shall be paid to or by either 
carrier. Ordinarily, if the carriers could effect a mutually satisfac- 
tory arrangement for compensation of each other, or from one to the 
other, the commission would not be called upon to exercise this 
power, but in the event of an irreconcilable difference between them 
there must of necessity be some one who can decide it. 

Then, there follows a provision that for the protection of the 
carrier’s rights all “construction required by the commission under 
the provisions of this paragraph shall be subject to the same restric- 
tions as to findings of public convenience and other matters as is 
construction required under section 1 of this act.” which would 
include the provision referred to yesterday, that the order of the 
commission should not be such as would impair the ability of the 


carrier to perform its common carrier service. 


I have been asked. Mr. Chairman, by a member of the committee, 
to elaborate a little more on the question of terminals and their use, 
and, perhaps, this is an appropriate place to get it in somewhat con- 
nectedly. . 

A railroad serving places where large volumes of traffic originate 
or terminate, naturally at such points as well as at other points, 
has encouraged the location of industries on its line and on its 










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® 7 — 6 
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24 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. — 


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terminal tracks. and in the competition with carriers it has ver 
often occurred that pains have been taken: to get them so loca 
that they would be served exclusively by the carrier on whose track 
they are located. Now, if you have two competing railroads betwe 
two important centers, originating and receiving large volumes ¢ 
traffic. if there be on the rails of each at terminal A competin 
manufacturers or producers of the same commodity, and on the 
terminals of each at point B consumers or receivers of that com 
modity, and each read insists upon confining its terminals to the 
traffic which it hauls, it necessarily follows that the consumers at 
on road No. 1 could not buy im competition on road No. 2 at 2 
because there would be either no rate or arrangement for the trans 
portation and delivery, or it would be so substantially higher that 
it would not be available. We have had cases before us m whieh 
the charges in instances of that kind were as high as $40 a car 
the delivery from the terminal of one road to the terminal of the 
other. and they were admittedly made prohibitive because they lid 
lo 




























not want to interchange the traffic between the termimals. We 
not think that is sound policy to be pursued by a common carrié 
operating under a public franchise and whose primary and prin- 
cipal duty is to serve the public. 7 
It is perfectly natural for a railroad to be jealous of its terminz 
because if it has advantageously located terminals and can kee . 


I: 


them closed it can insure itself to the line haul of all traffic and th 
retention of all of the earnings. As I said yesterday, we do not 
think that the terminals of a railroad are any more sacred from re + 

bc 





lation than the main line. The law authorizes the commission 
require the establishment of through routes and joint rates involvim 
the use of the main linés and some of the terminals, necessarily, ane 
in the event of the railroads’ inability to agree upon a division @ 
those rates the commission is authorized to determine it. We do 
not see why the same rule of law, the same principle, should no 
apply to the terminals as distinguished from the individual join 
haul. The idea of requiring the carriers, under proper conditions 
to meet and serve the public necessity by making its terminals oper 
to the traffic of other roads carries with it the intent and the prov. 
sion that the compensation to be received by the owning road shal 
be reasonable and adequate for the use of its property. qq 

It just occurs to me that there was a very interesting case decide 
by the courts involving the jurisdiction within the switching limits 
of the city of Detroit, where the court held very clearly that th 
terminals were not at all free from regulation and sustained an orde 
of the State commission requiring the one road to accept and trans 
port the traffic of the other. (Grand Trunk Ry. v. Michigan R,1 
Com., 231 U. S., 457.) 

Mr. Denison. What terminals does that include? aq 

Mr Crarx. There has never been any specific definition of it, bu 
it includes their terminal tracks, upon which they receive and delive 
freight; it would include their common-carrier used warehouses, elk 
vators, and all facilities of that kind that are used by the carrier i 
its service to the public in the receipt or delivery of freight. . 

Mr. Dentson. Freight? 

Mr. CrarK. Yes, sir. 

Mr. Denison. And it would include depots? 


' Ma 7 BUY i i I i ee =| nena 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. me 


Mr. Crark. It would include passenger terminals at which they 
receive or discharge passengers, and also, under the provisions of 
this act, the commission would have power to require the carriers 
with either individually or jointly owned passenger terminals to 


afford access thereto to another carrier that desired it and for com- 
- petitive reasons was denied it. 


Mr. Denison. And under the provisions of this act the commis- 
sion could compel the use of joint terminals? 

Mr. Crarx. It could under the terms of the bill. 

Mr. Dentson. Even where they do not have it now? 

Mr. Crark. Yes, sir; and the provisions of the amended first 
paragraph of section 5 are calculated and intended to actually 
encourage such use. It is our view that with the relaxation of the 
restrictions as is proposed in the amendment to section 5 of the act, 
in section 5 of this bill, there would be encouragement that would 
be responded to by the voluntary establishment of relations of 
this sort between the carriers under conditions mutually acceptable 
and agreeable to them which, if approved by the commission, would 
go into effect, or which might go into effect as modified by the com- 
mission if it found objections to certain provisions, but the idea of it 
all is to give the public the best service possible from the existing 
facilities at reasonable charges, to make those facilities available for 
the service of the whole public, and to protect the owning carrier in 


- compensation that is fair fer the use of its property. 


ee i 





Section 10 of this bill amending section 6 of the commerce act 


‘would authorize the commission to prescribe the maximum rates or 


the minimum rates or the maximum and the minimum rates. Under 
the present law we are limited to prescribing the reasonable maxi- 
mum rate and it sometimes happens that the competition between 
carriers or the insistence of one carrier upon its own way results in 
an unnecessary and unwarranted depletion of the revenues of all 
the carriers in a given situation, and not infrequently in undue 
preference or undue prejudice, by the insurgent or reactionary car- 
rier making the rate substantially lower that the maximum pre- 
scribed by the commission and substantially lower than would be 
earried by the competing roads and lower than any tribunal could 
find to be reasonable. 

The ready and easy way to get traffic in the good old days was to 
cut the rates. Unbridled competition of that sort does not do the 
public any good. If they have cheap transportation for a limited 
time under rates which have been cut severely, in the long run they 
will have to compensate for it, and so we think that a well rounded 
out system of regulation would confer upon the regulating body 
authority, whenever it was necessary to exercise that authority, to 
prevent that ruinous competition and prevent a dissatisfied single 
earrier from overturning the judgment of the commission and a 
scale of reasonable rates by insisting upon its right to fix anything 
it chose to fix lower than the reasonable maximum rate prescribed by 
the commission. 

This section, it will be noted, relates only to jeint rates, but later 


in the bill there is a similar provision which would go to all rates, 


fares, and charges. 
Section 11 of this bill amending section 7 of the commerce act 
effects only the change necessary to make the section applicable to 


26 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


——=_ 


common carriers subject to the act and engaged in the transmission 


of intelligence. 4 

Section 12 of this bill amending section 10 of the commerce act 
proposes changes which in substance effect only the same purpose, to 
wit, making the terms of the section applicable to the carriers en- 
gaged in the transmission of intelligence as well as those engaged in 
the transportation of persons and property. | 

Section 13 of this act amending section 13 of the commerce act 
relates to the jurisdiction of the commission, general rules of conduct, 
and so forth, involving the question of the relationship of States and 
interstate rates. It will be noted that the proviso in section 1, to 
which I referred yesterday, refers to that which is expressly pro- 
vided in section 13. I doubt if it is necessary, Mr. Chairman, for me 
to detail much of the history of this situation as it has developed 
from the original decision and the supplementay decisions and re- 
ports of the commission in the so-called Shreveport case, and the 
decision of the Supreme Court sustaining the commission. ‘ 

The law as it now stands and as it is interpreted by the commis- 
sion and by the Supreme Court authorizes the commission to require 
the removal of undue preference or undue prejudice and to correct 
differences between the levels of State and interstate rates, in doimg 
which it must prescribe the reasonable maximum interstate rates, and 
thus, by a roundabout process, it results that the commission fixes 
the level of the maximum reasonable interstate rates and requires 
the removal of the undue preference and undue prejudice found to 
exist under the State rates, which gives the carrier authority to in- 
crease, if necessary, or if it so elects, the State rates to the level of 
the interstate rates as found reasonable. 

This amended provision would require the commission when an 
investigation of this character was instituted, to cause the State or 
States to be notified of the proceedings. It would authorize the com- 
mission to confer with the authorities of any State having regulatory 
jurisdiction over the class of persons and corporations subject to this 
act with'respect to the relationship of the rate structures and prac- 
tices, and would authorize and empower the commission, under rules 
prescribed by it, to hold joint hearings with any such State regulating 
bodies on any matters wherein the commission is empowered to act, 
and where the rate-making authority-of a State is or may be affected 
by the action taken by the commission. It would authorize our 
commission to avail itself of the cooperation, services, records, and 
facilities of such State authorities in the enforcement of any pro- 
vision of this act. This section confers upon the commission 
authority— 
after full hearing, to make such findings and orders as may, in its judgment, 
tend to remove any undue preference or prejudice as between persons or locali- 
ties in State and interstate or foreign commerce, or any undue burden upon 
interstate or foreign commerce, which is forbidden and declared to be unlawful, 
and provides that such findings or orders shall be observed while in effect by 
the carriers parties to such proceedings affected thereby, any act, decision, or 
order of any State or State authority to the contrary nothwithsanding. 

This situation has been more or less troublesome. We have had a 
good many complaints of undue preference of State shippers and 
undue prejudice against interstate shippers. The Shreveport case 
was originally brought by order of the Legislature of the State of 


i eee Ne 


RETURN OF ,THE RAILROADS TO PRIVATE OWNERSHIP. 27 


Louisiana on account of undue prejudice believed to exist against 
the shippers of Louisiana and undue preference of shippers in Texas 
‘under rates prescribed by the Texas commission. Singularly enough, 
it was not very long until we had a complaint from Natchez, Miss., 
against the Louisiana rates prescribed by the Louisiana commission. 
We have had several complaints from parties in Missouri against the 
Illinois rates and we have had complaints from parties in Illinois 
against the Missouri rates. We have had the same situation pre- 
sented in New England and from various parts of the country. I 
speak of it simply to show that it is not a narrow situation that ex- 
isted only within the scope of the Shreveport case. It comes from all 
sections of the country and it results from a difference in point of 
view of commissions in different States, although they may be ad- 
joining. East St. Louis, Madison, and Granite City. Hl. and St. 
Louis and its suburbs in Missouri for a long time have been treated 
in general as a common rate district—I should say a common indus- 


_ trial district—to and from which the rates from points more than 


100 miles distant have been the same. 
Of course, there is rivalry between people on the Missouri side and 


' those on the Illinois side. There are direct competitors on both sides 


of the river and they all insist that it shall be a common-rate district, 
with the one exception, that East St. Louis is nearly on the edge of a 
substantial deposit of bituminous coal, and, of course, coal is a very 
éqmportant item in the manufacturing at any of those places. The city 
of St. Louis consumes enormous quantities of Illinois coal and the 
rates on coal to St. Louis from these southern Illinois mines are uni- 
formly 20 cents per ton higher than they are to East St. Louis. 
That is being resisted by St. Louis interests in a proceeding now 
pending before our commission, and the present situation is defended 
by the East St. Louis interests, but aside from that, as I have said, 
they are practically, if not entirely, unanimous in their desire to 
have the industrial sections on both sides of the river considered as 
one, and they do not want any disruption of that by the action of the 
State commission either in Illinois or Missouri. <A substantially 
similar situation exists at Omaha and Council Bluffs. They have 
been a common-rate community for a great many years; Kansas City, 
Mo., and Kansas City, Kans., Rock Island, Moline, and Davenport, 
and various other places where it happens that these industrial com- 
munities are on different sides of an imaginary line, but from a prac- 
tical standpoint and from a commercial standpoint they are and 
ought to be considered as one. 

There are a great many instances of this kind in the Southeast, 
Bristol, Tenn., and Bristol, Va.; Texarkana, Tex., and Texarkana, 
Ark., where the line runs down the middle of the main street. There- 
fore the necessity for authority or power somewhere to remove these 
undue preferences and undue prejudices that may result from a de- 
sire on the part of one State commission to promote the interests of 
the shippers or receivers in that State, not indulged in to the same 
extent by the State commission on the other side of the line, if undue 
preferences and undue discriminations are to be avoided. 

The idea under the proposed amended act is that every reasonable, 
feasible effort shall be made to bring the conflicting views of the 
State commissions, if they do conflict, and the views of our own com- 

-mission into harmony through a very careful investigation which 


28 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


all are invited to participate in, and in which everybody would be 
heard, and in which every reasonable effort would be made to reach 
a mutually acceptable understanding; but the possibility of inability 
to reach such an understanding would be protected by a reservation 
of the power to finally decide it, if necessary, by the Federal tribunal. 

A little later in this section—you will find it beginning in line 
19, on page 23, of the committee print, line 16, page 23 of the bill 
is a somewhat significant, and we think rather important, suggested 
change in the law. At the present time the commission’s orders re- 
main in effect for such period as is prescribed by the commission in 
its order not exceeding two years. Sometimes a decision of the com- 
mission fixing a relationship of rates, or even fixing a level of rates, 
is continued by the carriers for manv years. At other times the car- 
riers wait until the two years fixed by the statute have expired and 
immediately propose to reinstate the rates or conditions which have 
been condemned, and we do not think it is sound public policy that 
it shall be possible for any carrier that may wish to do so to have 
it in its power to reopen the same question at the expiration of two 
years. 

It has the opportunity and the privilege and the right at any time 
to petition for a reopening of the case and a rehearing in the light 
of changed conditions or newly discovered evidence or for any other 
good reason, and so it is suggested here that the orders of the commis- 
sion shall take effect within such reasonable time, not less than 30 
days—and that is the present law—and continue in force until its 
further order or for a specified period of time, according as shall be 
prescribed in the order. 

We think that with the jurisdiction that would be conferred upon 
the regulating body in this act as a whole, and the jurisdiction that 
ought to be conferred upon it and the powers that ought to rest in it, 
and the responsibilities it is obliged to assume, it is much sounder to 
permit its orders to continue in force until modified by the commis- 
sion or as limited by the commission of its own volition, rather than 
that there should be a statutory limitation under which the carrier 
can, without resorting to the usual and orderly process of seeking a 
reopening of the case and a rehearing, repon it by simply filing the 
objected to and condemned rates or provisions. 

My colleague, Chairman Aitchison, just suggests to me that in con- 
nection with a situation, such as the Shreveport case, to which I have 
referred, the order of the commission fixing the reasonable, maximum 
level of interstate rates and requiring the removal of the discrimina- 
tion where undue prejudice or preference exists, is now limited to two 
years by the statute, and therefore the carrier is protected in obey- 
ing the order of the Federal tribunal only for that period, whereas 
under this amended law the carrier would be given protection in 
carrying out the order of the Federal tribunal until the Federal trib- 
unal had limited or stricken off or modified its order. If the two- 
year limit expires, the discrimination originally found would be 
automatically re-created, and some of those matters are so trouble- 
some that they ought not to be reopened every two years because it 
sometimes takes two years to get through with one of them. 

Mr. Sims. Mr. Chairman, right in that connection I want to ask 
Mr. Commissioner Clark this question: Has it not sometimes been 





\ 


J 
| 


u 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 29 


the case that the order of the commission has been enjoined and lJiti- 
gation has continued until the whole period of two years has elapsed ? 
> Mr. Ciarxk. Yes, sir. 

Mr. Srus. In which case, then, the order never takes effect even 
though the order may ultimately be sustained by the courts? 

Mr. Cuiarx. We think it is hardly true, Judge Sims, that the order 
never becomes effective because out of some experiences in this con- 
nection, such as you have referred to, we adopted the policy several 
years ago of providing in our orders that the order shall continue in 
effect for a period of not less than two years from the date when it 
shall take effect, so that we think that if it is enjoined for a substan- 
tial part of the first: two years and then becomes effective by decision 


or dissolution of the injunction proceeding, it remains in effect two 
years from the date when it does go into effect. 


I remember in one case involving rates on through traflic between 
the Mississippi and Missouri Rivers, the Supreme Court sustained 
th order of the commission about 10 days before the two-year limit 
on the order expired. 

The next provision begins in line 3, page 24, of the committee 


print. line 1, page 24 of the bill, and refers to divisions of joint rates, 


fares, or charges as between carriers parties thereto. 
There has been a good deal of difference of opinion, both inside 


and outside of the commission, as to its powers under the present act. 
~The act now authorizes the commission to establish joint rates and 


says that if the carriers are not able to agree on a division of the 
rates so prescribed, the commission may determine those divisions 
and its decision relative thereto shall become effective as a part of 
the original order and as of the date upon which the rates became 
effective. But there have come up questions as to divisions of rates 
which had not been prescribed by the commission and which had be- 
come unsatisfactory to one or possibly more than one carrier. The 
commission originally held that it did not have jurisdiction to pre- 
seribe the divisions of a joint rate that had not been prescribed by it. 
Thereafter, the dissatisfied carrier could bring that question at issue 
by filing a revocation of its concurrence in the rates, or if it hap- 
pened to be a carrier that published the rates, by filing a cancel- 
lation of them. That was frequently protested, often suspended 
by the commission, and upon hearing it developed that the only 
difficulty was their differences as to divisions of the rates. Re- 
quiring them by order to continue the rates was, in effect, establish- 
ing those rates as joint rates, and we thereupon proceeded to prescribe 
the divisions, if they could not agree. 
. Later, by a majority vote, the commission decided that it had 
power to prescribe the divisions, even if it had not prescribed the 
rates, but that has not as yet come to rest through any final ad- 
judication. 

Under this amendment the commission would be authorized to 
prescribe the divisions of the joint rates, fares, and charges as be- 
tween the carriers, whether it prescribed the rates or not, and it 1s 
provided that if it be a rate, fare, or charge that has been pre- 
seribed by the commission, it may then, by order, make its division 
of that rate retroactive to the date upon which the rate prescribed by 
it became effective; but as to rates not prescribed by the commission, 


30 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


its order prescribing the divisions of the rate would be effective ouly 
from the effective date of the order. | 

Then follows a provision authorizing the commission in these 
cases to fix the maximum or the minimum, or the maximum and the 
minimum rates. 

The present act authorizes the commission to establish through 
routes, but provides that in doing so it shall not require a carrier 
against its will to include in such through route substantially less. 
than its entire line of railroad or of its line and that of any carrier 
owned or controlled by it which lies between the termini of the route, 
unless to do so would make the route unreasonably long. 

Here it is provided that that limitation shall be subject to the ex- 
ception of the provision in section 3, which, as you will remember, 
authorizes the commission to prescribe in times of emergency such 
through routes as will serve the public interest during the emer- 
gency. Necessarily the terminals are a part of the route, and this 
limitation upon the power of the commission would include the ex- 
ception in section 3 as to the use of terminals. 

Then, there is a provision that in time of shortage of equipment, 
congestion of traffic, or other emergency declared by the commission 
it may establish temporarily such through routes as in its opinion 
are necessary and desirable in the public interest. ‘The idea of that. 
is that the exceptional time of stress and emergency ought to be met 
with prompt action, and that the commission should have the power 
to declare that the emergency exists and proceed promptly to utilize 
the available roads, terminals, and other facilities in serving the pub- 
lic to the greatest possible extent. Under other provisions of the 
act, where the carrier was obliged to permit the use of any of its 
facilities by another carrier in a time of this kind, in the event of 
their being unable to agree as to reasonable and fair compensation to. 
be paid therefor, the commission would have power to determine 
that, but it would not be necessary under this provision for the com- 
mission to determine it before anything was done. In other words, 
it would permit action and settlement afterwards. 

The next amendment refers to the powers now conferred upon the 
commission to suspend the operation of a proposed rate, fare, or 
charge or schedule of rates, fares, or charges. 

Under the present law the commission may suspend the operation 
for a period not exceeding 120 days, and if it finds it can not decide 
the case within that time it has power to issue a supplemental order 
for an additional period not exceeding six months. 

There has been a good deal of complaint on the part of the car- 
riers about the proposed rates being prevented for so long a period 
from going into effect. I will not take the time to discuss the dif- 
_ ferences of opinion as to where the responsibility for unusual delays 
generally les, except to say that I think it will be difficult to find 
more than a very exceptional case in which the decision of the 
commission has been unreasonably delayed after the case has been 
submitted to it. But recognizing the fact that if the carrief pro- 
poses increased rates that are finally found to be reasonable, the 
suspension of them for 10 months and depriving the carrier of the 
revenue thereunder for that period is not exactly fair, accompanied 
by the fact that if the rates are permitted to go into effect and are 
later found to be unreasonable the shipper may be awarded repara- 


: RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 31 
tion, whereas the carrier can not possibly collect the higher rates 
for any traffic that moved prior to the time at which they became 
effective upon a finding that they were reasonable, it is here pro- 
posed that the right of the commission to suspend the operation of 
such rates or schedules shall be limited to a period of 120 days. 

If within that 120 days the matter can not be decided, the rates 
“will go into effect, but the investigation will proceed and the de- 
cision of the commission will be made after the rates have gone into 
effect. It is provided here that if the proceeding can not be con- 
cluded within the period of 120 days the commission may, in con- 
nection with the rates becoming automatically effective, require the 
carrier to keep an accounting of the traffic moving under those rates 
and the excess charges under the new rates as compared with the old 
rates, and that when the commission’s decision is rendered if it is 
‘found that the reasonable rates are less than those proposed and 
which have become effective, it may order the carriers to refund to 
those by whom or on account of whom the additional charges were 
paid all of the sums so received in excess of what would have been 
‘received under the rates found reasonable by the commission. It is 
analogous to the plan frequently adopted by courts in connection 
with cases before them involving questions of constitutional rights 
under rate scales prescribed by State or Federal authority. 

We think this would protect the shippers, and it would protect 
the carrier against any unreasonable delay in making effective rates 
that may later be found to be reasonable, and would substantially 
simplify the question of shippers getting such reparation as they 
might be entitled to. 

Mr. Sms. Mr. Clark, right in that connection, I once introduced 
a bill myself providing that where a rate was enjoined, the courts 
should require the carrier to keep an account of the freight paid 
to or collected by the railroads, together with the names of the 
parties that paid, and have the money paid into court, so that if the 
railroads should ultimately lose, the reparation claims could be met 
without any further proceedings by the people who actually paid 
the excessive rates. Now, in the case you refer to, after the 120 days 
have elapsed, if the rate automatically goes into effect, I gather from 
the language you use that the reparation will be made to the shipper 
or the actual company or shipper who paid the rate; but is it not 
also a fact that often those rates have been paid by the shipper, but 
collected back from the consumer of the products, and then when 
the shipper collects the difference, if he should ever do so, by way 
of reparation, he simply makes an additional profit over and above 
what he would have received by reason of having obtained the 
amount of freight which he paid, if he is a merchant, for instance, 
out of the price he obtained for his goods. Now, is there any way 
which you can suggest whereby the payer of this excessive rate, 
whether he be the nominal or actual shipper, can receive the benefit 
from the proceedings which you have just mentioned. 

Mr. Crarx: Judge Sims, that is one angle of a very interesting 
question that arises under award for reparation. The carriers have 
insisted all along that if a man who paid and bore the charges had 
correspondingly changed the prices at which he sold, he had not been 
damaged, and that he had no right to reparation. We said that 
those were commercial considerations with which we had nothing 


f 


32 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


to do; that we would not look beyond the one who paid and bore 
the freight charge, and the Supreme Court of the United States has 
somewhat recently handed down a decision in which it takes that 
position; that the man who paid his money to the carrier for an un- 
reasonable charge is enuiled; to the return of that money; that the 
carrier has exacted an unreasonable charge and is in possession of 
money which it has no right to retain, and that it can not inquire as 
to whether or not in a commercial transaction the man who paid and 
bore the charge has been able to pass it along to somebody else. 

Mr. Surs. But under existing law, the collection will be made dur- 
ing the period of suspension which you might order not exceeding 
six months, and would not involve that trouble from the fact that 
it never would be collected. 

Mr. Crark. That is very true, and the same thing would be true 
if you carried the suspension on to eternity. 

Mr. Srus. If it ought to be carried, that is just how far it ought 
to go. 

Mr. Crark. To carry the suspension that far would simply mean 
there could be no change in rates; that i is, no upward change in rates 
and no downward change if the commission saw fit to suspend it. 

Mr. Stus. Of course, I am not assuming the commission would ever 
make an order of that sort. 

Mr. Crark. It not infrequently occurs that the shipper or con- 
signor and the consignee both claim the reparation, and we have to 
decide between them. We have always held that if the consignee paid 
the freight to the carrier and deducted it from his invoice in settling 
with the consignor that he was not damaged and that the consignor 
was the one who bore the charges and was entitled to the reparation. 

This provision is that the carrier shall keep an accurate account 
in detail of all amounts received by reason of such increases, specify- 
ing by whom and on whose behalf such amounts are paid, and upon 
completion of the hearing and upon decision the commission may 
by further order require the interested carrier or carries to refund 
with interest to the persons in whose behalf such amounts were paid. 
such portion of said increased rates or charges as by its decision shall 
be found not jutified. It is not possible to provide that the carrier 
shall keep an accounting which will specify in connection with the 
commercial relations between the shipper and the receiver which one 
bore the freight, but each, I think, may be depended upon to look 
after his own interest, and if it should develop that the records show 
that the payments were made by A and in connection with their 
commercial transactions A and B should stipulate and agree that 
the burden was borne by B and not by A the carrier could accept that 
stipulation and agreement and make the payment directly to B in- 
stead of to A, but it would be required to make the payment to 
somebody. 

The Cuairman. Mr. Clark, when you revise your remarks will you 
include the citation to the decision of the Supreme Court on the mat- 
ter of reparation, unless you have it now? 

Mr. Crarx. Yes. It is the case that is commonly spoken of as the 
Darnell-Tanzer case (Southern Pacific Co. v. Darnell-Tanzer Co. 
245 U.S., 531). 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 33 


__ Section 15 of this bill proposes to amend section 16 of the commerce 
act, but only by carrying into the act appropriate provisions for 
penalties for violation of the provisions of sections 3, 18, or 15. 

Section 16 of this bill amends the 5th paragraph of section 20 of 
the commerce act, and the effect of this amendment can be stated 
in a word. It will give the commission the same access to the cor- 
respondence files of the carriers subject to its inspection as it now 
has with regard to accounts, records, and memoranda. 

The Cuatrman. Is that a result of the decision of the Supreme 

urt in the Louisville & Nashville case? 

Mr. Crarx. Yes. In that case our right of access.to the cor- 
respondence was denied by the carrier, and the Supreme Court de- 
eided that the act does not give us the right of access to corre- 
spondence. Incidentally in that case the Louisville & Nashville Rail- 
road offered to give us access to the correspondence if we would 
confine our search to the correspondence which had passed since the 
Hepburn law was enacted or became effective, to wit, August 28, 
1906. We did not think we ought to compromise any right. If we 
had the right there was no limit upon it, and if we did not have it 
we might as well find it out, and we declined to enter into any such 
agreement, and they declined to give us access to the correspondence. 

It has developed in many instances that an understanding of 
transactions which appear on the books of a carrier, the true facts as 
to an expenditure and the justification and warrant for it under the 
law, can not be found unless the correspondence which passed in con- 
nection with it is reviewed. 

In the Louisville & Nashville case, one point raised by the com- 
pany was that the files of correspondence passing between the 
counsel for the road and other officers of the road ought not to be 
subject to inspection because they were protected by rules of evi- 
dence, and in order that there may be no conflict on that point, in 
this amendment it is provided, in lines 21 and 22 on page 28 of the 
committee print, line 20, page 28, of the bill that “* Nothing in this 
section shall be construed as affecting any rule of evidence now in 
force in courts of the United States.” 

The Carman. Does that protect confidential communications 
between attorney and client? 

Mr. CuarK. That is the idea, Mr. Chairman; that where the rela- 
tionship of attorney and client exists their correspondence and com- 
munications are privileged; correspondence which passes through 
the hands or between officers of the railroad where that relationship 
does not exist is not privileged, and none of the carrier’s corre- 
spondence ought to be exempt from the right of inspection which 
this section gives to the commission over all of the other records and 
‘memoranda of the carrier. 

This brings us to section 17 of this bill, which proposes a new 
section to follow section 20 of the commerce act, to be known as 20a. 

The CHairman. I call attention to the fact that all the balance 
of the bill is new matter, although not indicated by italics. Of 
course the text of the bill shows that it is new matter because it is 
in new sections. This is practically incorporating what is known as 
the Rayburn bill which was passed by the House in a previous Con- 
gress. 


—_ 


152894—19—-voL 1——-3 


| 


34 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Cuark. Yes. I was going to say, Mr. Chairman, that I doubt 
if it would be profitable for me to discuss the details of this proposed 
section before this committee. It is in subsance, as I undersand it, 
the effect and purpose of the so-called Rayburn bill, which was the 
subject of exhaustive hearings before this committee and in connec- 
tion with which at least three members of the commission testified 
before the committee. I think I have a reference to that testimony 
if anyone desires to look it up. At the hearings before this com- 
mittee on February 9 to March 17, 1914, Commissioners Clements, 
Clark, and Meyer appeared before the committee, and their state- 
ments are found on pages 57 to 114 of the committee’s printed report 
of those hearings, and also the hearings before this committee Febru- 
ary 1 to 29, 1916, pages 33 to 57. 

Sketching it only in the most general way, it provides that from 
and after the effective date of this provision— 
it shall be unlawful for any common carrier subject to this act to issue any 
share of capital stock or any bond or other evidence of interest in or indebted- 
ness of the carrier, hereinafter collectively termed “ securities,’ unless it be 
for some lawful purpose within its corporate powers and compatible with the 
public interest, necessary or appropriate for or consistent with proper perform- 
ance by it of service to the public as a common carrier, and which will not 
impair its ability to perform that service, and then only to the extent that, 
upon application by the carrier, and after investigation the commission shall 
find the same to be reasonably necessary or appropriate for the purposes stated 
and authorize the same to be made. 


The details of the proceedings are set out and it is provided that 
the jurisdiction conferred upon the commission by this section shall 
be conclusive and plenary and the carriers subject to this act may 
issue securities in accordance with the provision of this section, 
without securing approval other than specified herein: There has 
been a good deal of complaint of the present necessity for the car- 
rier having a large system of road securing the approval of securi- 
ties or stock issues from various State commissions which now have 
authority to approve the issuance. 

It has been, I think, very pertinently stated that it would not be 
helpful to add Federal supervision and the necessity of securing 
Iederal approval to the numerous approvals now necessary. So. 
far as I am advised the provision making this jurisdiction plenary 
1s not opposed by the State commissions. It is generally conceded 
that it ought to be in one place. That is because of the necessity for 
prompt action, in order that the securities may be sold at a time 
when the sale is possible and the market will take them, and in 
order that the work to be paid for out of the proceeds of such sale 
shall not be unreasonably or'unnecessarily delayed. It is also neces- 
sary in order to avoid the conflict of opinion or view which might 
be entertained by two or more bodies having concurrent jurisdiction. 
It will be noted that it is specifically provided that “nothing herein 
shall be construed to imply any guaranty or obligation as to such 
securities on the part of the United States.” 

The Crairman. Is that very persuasive? 

Mr. Crarx. Well, I suppose, Mr. Chairman, that depends upon 
the point of view. 

The Cuatrmay. I notice that it is retained in the bill. 

Mr. Raysurn. I want to say for the record that it was put in over 
my protest. I never have seen the use of it. It was brought to the 


+= 







me RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 35 


omn 2 from the outside. I have never been able to understand 
ie necessity for putting that in the bill. Prd 

Mr. Crarx. I am not to be understood as specially advocating its 

‘tention, although I understand that it is quite generally incor- 
vorated in State statutes. . 

rther provision of the bill is one that I think was not in the 
or so-called Rayburn bill. That is that— ; 

ll issues of securities contrary to the provisions of this section shall be 

and the holder or owner of any such security so made void shall have 

ecourse against the issuing carrier and all or any of its officers, directors, 
ttorneys, or agents, jointly or severally, who participated in any way in 

reparing, hypothecating, or selling such voided security for the fulk 

Mount of damage sustained by him in respect of such void issue. 

There is some difference of opinion as to the soundness and ad- 
isability of the provision that a security issued contrary to the pro- 

tow of this section shall be declared to be void. 

_ In some of the States where regulation may be said to have 

ice a more advanced stage there is such a provision. I doubt if 





here will be any dissent from the idea that the holder or owner of 
such security unlawfully issued and either made void or found 
be worthless should have all of the recourse possible against the 
arrier and those of its officers who are responsible for the issue. 
Ve think it is salutary and wise to make the officers of the carrier. 
nsible for their part in any deviation from the pro- 
isions of this section, or in uttering any securities in violation 
. f its provisions, or in diverting to improper uses the proceeds 
of the sale of any such securities, because the purposes to which the 
wroceeds are to be put must be stated and are made a part of the 
ae paragraph on page 33 is a modification of the Clayton Act. 
| Vhat are your views in regard to that? 
» Mr. Crarx. Our views are in harmony with the provisions of this 


ill as ata They provide that it shall be unlawful for any per- 
on to hold the position of officer or director of more than one carrier 


pplication and are a condition of the granting of the authority. 
ion 18 carries the usual repealing provision. 
The Cuatmman. Before you leave that, I think the next to the 


3 to this act, unless such holding shall have been authorized 
»y the commissioner upon showing that neither public nor private 
nterest will be adversely affected thereby. This bill contemplates 
te modification of the limits now imposed upon carriers in merg- 
‘ag or consolidating or unifying their operations or earnings or their 
roperties, and we think that a strict and absolute prohibition against 
_ person holding the position of officer or director of more than 
ne carrier might be found undesirable where properties were in 
vhole or in part merged into an operating system, while their cor- 
orate entity and identity would be preserved. It might be found 
10st desirable to have a common officer or man who was a director 
a common to the properties, but only in instances where the com- 
ussion would find that neither the public nor private interest would 
e adversely affected thereby. 

r. Rarpurn. Where we know that they would take out a sepa- 
ate charter and have a separate organization, would not that make 
= necessary to have the rigidity of this rule relaxed in some instances? 

Mr. Cuarx. I think it would be most desirable. 


36 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Chairman, there is one provision in this bill that is new to 
which I did not make reference as I passed. It is on page 23 of the 
committee printed, beginning in line 14, line 11, page 23, of the 
bill, and reads: 

The commission in reaching its conclusion as to the justness and reasonable- 
ness of any rate, fare, charge, classification, regulation, or practice shall take 
into consideration the cost of labor and other operating costs, in so far as 
they become material in any case under investigation. 

I originally passed this by, but it seems desirable to comment on 
it a little. As a part of the statute it declares the rule which the 
legislature contemplates shall be followed by the administrative 
tribunal. In actual practice it will not change the rule followed by 
the commission, because the commission has recognized that the 
necessary operating costs inevitably affect the net return and that 
the net return under reasonable rates and proper management is 
what the carrier should have in proper measure and is the only 
thing that the carrier has upon which to live, beyond the mere opera- 
tion of the property. : 

In the Fifteen Per Cent case the plea of the carriers rested almost 
entirely upon the insufficiency of net earnings due to increased labor 
costs, increased cost of fuel and other matérials and supplies, and the 
decision of the commission in that case hinged and rested entirely 
upon that consideration. And so I say this being incorporated in 
the law will not change the policy or rule followed by the commis- 
sion, but still we think it desirable there, because it removes the pos- 
sibility of claiming that either the Congress has overlooked or pur- 
posely withheld recognition of the principle or that it failed to lay 
upon the commission an obligation to give consideration to it. 

Mr. Barxtry. This language seems to make it binding upon the 
commission in all cases involving rates to take into consideration 
the cost of labor and material. What would you say of the sugges- 
tion that the word “shall” be changed to “ may,” so if there should 
be a case. where it was not necessary to take into consideration the 
cost of labor and material you would not have to do-so? 

Mr. Crarx. The provision is that the commission shall take them — 
into consideration in so far as they become material in the case. 
If they are not materia] in the case, we would not have to take them 
into consideration. I think it is preferable as it is. 

The Cuatrman. The Traffic Club of Chicago, in recent resolutions, 
recommended that there should also be taken into consideration the 
cost of capital. What are your views on the advisability or neces- 
sity of including that as one of the elements to be taken into con- 
sideration by the commission in fixing the rate structure? 

Mr. Crark. I think it would be entirely appropriate to include 
that, Mr. Chairman, because I can not conceive of the commission 
ignoring it if it was pertinent and material to the issue. 

The CyarrmMan. In view of the fact that you say the commission 
has always heretofore considered the cost of labor and operation— 
you have also considered the return on capital ? 

Mr. Crarx. Yes; we have considered the return on capital. 

The CuarrMan. How about the cost of capital? 

Mr. Cuarx. I do not recall any case in which the cost of capital 
to the carrier has been material or has been advanced, excevt in a 


, “ 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 37 


‘subsidiary or ancillary way; it has been referred to, but it has not 
_been made a special point. 
~ The Cuatrrman. You have concluded your explanation of the bill, 
have you, Mr. Clark? 
» Mr. Crarx. Yes, Mr. Chairman. 
~ The Cuarrman. It is about time for the committee to recess. I 
-was going to suggest for the consideration of the committee as to the 
method of cross-examining the commissioner, that we use the recom- 
mendations of the commission in its last annual report wherein it sets 
_forth some eight or nine suggestions. Will it be possible for you, Mr. 
Commissioner, to allocate this bill to the several parts or recom- 
mendations, and we can then take up the seven or eight points and 
. determine how far and in what particular the bill carries out the 
recommendations ? 
Mr. Crarxk. I think I can do that. 
The CuAatrman. I think every member of the committee has a copy 
_of the last.annual report of the commission; if not, copies will be fur- 
nished to them, or it will be found in part two of the Senate hear- 
ings, page 235. I think it will expedite the hearings if that plan is 
pursued. 
Mr. Crarx. At the opening I suggested that I would hardly care 
to undertake an analysis of other measures that have been brought 
forward in this connection, but I should like before I conclude my 
statement to take a few minutes to refer to some general principles 
that are outstanding features of some of those proposals, from our 
point of view. 
The Cuarrman. Very well; that will be entirely satisfactory. 
The committee will recess until to-morrow at 10 o’clock. There 
will be no afternoon session to-day. 
(Thereupon the committee adjourned to meet to-morrow, Thurs- 
day, July 17, 1919, at 10 o’clock a. m.) 


COMMITTEE ON INTERSTATE AND ForREIGN CoMMERCE, 
House or REPRESENTATIVES, 
Thursday, July 17, 1919. 


The committee met at 10 o’clock a. m., Hon. John J. Esch (chair- 
man) presiding. 


STATEMENT OF MR. EDGAR E. CLARK, MEMBER INTERSTATE 
COMMERCE COMMISSION—Resumed. 


_ The Cuarrman. Mr. Clark, you will resume your testimony. I 
believe you suggested when we adjourned yesterday that it, was your 
desire to speak with regard to some general principles which you 
thought ought to control the legislation. 

_ Mr. Cuark. Yes, Mr. Chairman, and you suggested that I check 
‘up this proposed bill with the recommendations in our annual re- 
port. I will proceed along either line now, as you suggest. 

' There have been a number of suggestions, some of them in the 
form of proposed bills introduced in the Senate, for legislation 
affecting the railroads and the relationship between the railroads 


38 °© RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


and the Federal Government and the several States, which, as I said 
a day or two since, I do not care to undertake to analyze in advance 
of an analysis by their proponents, but they contain some provisions 
which I think are fundamental, and as to which I do desire to make 
some observations. 

Some of these plans propose that the country shall be divided 
into regions, in each of which there shall be a regional commission, 
which for the region shall possess and exercise all of the authority 
of the commission, subject to appeal to the commission at Wash- 
ington. 

We have never thought that that plan promised the best results. 
We think that the regulation of transportation is essentially one that 
requires the application of a uniform policy, and that the determina- 
tion of the various questions should be by one body rather than by 
several. As was pointed out by the Supreme Court in the Abilene 
Cotton Oil-case—I have not the citation to it at the moment—it is 
impossible for the reasonableness of rates to be determined by the 
various courts, with their differing opinions and necessarily conflict- 
ing opinions, and we think that what the Supreme Court there said 
in regard to decisions by the courts would apply with equal force 
to decisions by numerous commissions. ¢ 

I have attempted several times to draw in my mind some lines on 
the map, forming regions, and I can not conceive of any way in 
which regions could be logically established without ignoring or 
cutting in two traffic conditions that necessarily continue from one 
to the other, or without dividing numerous transportation systems 
and putting part in one region and part in another. Illustratively, 
the Rock Island system reaches St. Paul, Chicago, Kansas City, 
Tucumcari, N. Mex., St. Louis, Omaha, and Denver. It is difficult to 
outline a region that would include that system. It is difficult to 
outline a region that would have jurisdiction of the transcontinental 
rates and the relationship of the transcontinental rates to and from 
the terminais with those to the intermountain and intermediate terri- 
tories. 

One of these plans proposes that all of the administrative work of 
the commission, including any powers-that it may have with regard 
to consideration of proposed or initiated rates, shall be vested in one 
person who shall be a member of the President’s Cabinet in the form 
of a secretary of transportation. | 

We are not prepared to concede the soundness of that proposal. 
We do not see why one mind or one individual should have a better 
view or a sounder view of these matters than ‘a tribunal, the mem- 
bership of which changes gradually and by degrees. A member of 
the President’s Cabinet would be appointed for a term of four years 
and he might stay the term out and he might not. We think it most 
important that these matters of regulation of our common carriers 
shall be kept as completely as possible divorced from any political 
considerations or any partisan views. 

Another plan in the form of a bill which has not been, so far as I 
know, introduced, proposes to establish both the regional commissions 
and a bureau of transportation within the commission, which bureau 
shall be under the direction of one member of the commission, and 
that bureau would take over all of the administrative functions of 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 39 


‘the commission; and, incidentally, members of the commission as- 
signed to the various regions would be obliged to move approxi- 
mately once each year. We do not think those proposals have any 
‘more merit there than they have in the other measures. 

In some of these measures it is proposed that the commission shall 
-be affirmatively charged with the duty of establishing rates which 
shall produce a given percentage in each rate district of net earnings 
as compared with the book cost or investment cost, as it is called, 
of the railroads in that district, in the aggregate. 

This would be to put upon the commission the impossible. No 
man can figure out a level of rates which for the next year will pro- 
duce closely a certain percentage on a given sum of money. It is 
a simple matter to say that the revenue of the railroads for the last 
year or the average revenue for certain years has been so much, 
-and their book cost is so much, and 6 per cent on that would be so 
much, and therefore if you increase the rates by such a percentage 
you will produce that 6 per cent. Now, so far as the figures on paper 
go, that works out all right, but no man can foresee what the move- 
ment of traffic is going to be. There is a point in the making of 
rates beyond which the traffic will not move at all. There is a point 
at which increasing rates begin to reduce the volume of the traffic. 
Again, the volume of the traffic from year to year is affected by vari- 
ous conditions, over which no one has any control. 

The total amount of coal which is transported by a coal-carrying 
road. varies from year to year with the demands from manufacturers 
and with the severity of the winters. The railroads will consume 
as fuel a great deal more coal in a severe winter than in a mild win- 
ter. The same is true of all consumers of coal, and therefore you 
can not tell just what the tonnage is going to be. No one knows 
at what time a crop in a grain-growing section is going to fail, and 
it sometimes happens, and has happened within comparatively re- 
cent years, that corn or wheat has been transported into sections 
that depend mainly upon the production of corn or wheat, because 
they had total crop failures. It is a complete change in the current 
of that traffic and an entire change in the volume of it. So that when 
you undertake to place upon the commission or upon any body of 
men the duty of fixing levels of rates that are going to produce 
certain percentages on given sums of money, you put them up 
against the necessity of making a good deal of a guess. 

Again, it is proposed that the commission shall initiate the rates 
instead of the rates being initiated by the carriers; in other words, that 
the commission shall make all the rates and order the carriers to 
establish the rates so prescribed. | 

In the first place, I think it is almost a physical impossibility to: 
make all the rates for-all the carriers in this country in any one place 
or by any one committee or body unless the rate structure is to be 
made pretty rigid and inflexible and changes responsive to changes 
in traffic and in conditions are going to be infrequent. 

It is a regular and almost daily occurrence that new commodities 
or new traffic is offered for transportation. A man or a company of 
men proposes to establish an industry or a factory somewhere. They 
naturally study the questions of the raw material and: its availability, 
the availability of fuel, the markets of consumption, and the trans- 


“3 
40 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. i 


portation facilities, and the rates to and from the point of manufa 
ture or production. Under present conditions, with the carriers 
initiating the rates, they take that matter up with the local repre- 
sentatives of the carriers and between them they study these con- 
siderations out and propose or establish the rates that will accommo- 
date the traffic, and, presumably, that will compensate the carriers 
for their services. We think that it is in the interest of both the 
railroads and of the shipping public that the initiation of rates shall 
remain in the hands of the carriers, and, as proposed in this bill, be 
subject to suspension by the commission if they are protested or be- | 
lieved to be unreasonable or unduly preferential in their operation. __ 
In some of these plans it is proposed that the commission shall also | 
have responsibility for fixing the wages of the railroad employees. — | 
Heretofore the policy of the Government has been expressed in the 
arbitration acts under which conciliation, mediation, and arbitration | 
are provided for largely, if not entirely, at the Government’s ex- 
pense. We have never adopted the national policy of requiring men_ 
to work against their will. We do not know of any reason why the 
commission should be considered better qualified to exercise those 
functions of mediation, conciliation, and arbitration than other 
officers of the Government to whom those duties may be committed. 
But above all that, we think it would be an unsound public policy to 
place in one body the duty of regulating the activities of the car- 
riers and their rates and charges from which their revenues are de= 
rived, and also the fixing of the largest item in the operating ex- 
penses of the railroads, to wit, the wages of the employees. 

Personally, I believe it would develop in a few years that it would 
-be destructive of the influence and standing and opportunity for 
good of the entire plan and of the body that administers it.. The ap- 
plicants for increased wages would say, “ You can give us these 
wages and increase the rates if necessary.”. If that were done, the 
tribunal would be accused of playing to popularity among the labor 
forces and disregarding the interests of the public. If it were 
refused, and a strike occurred, they would say, on the other hand, 
that the commission was so niggardly about increasing rates that it 
had precipitated all this trouble. I do not mention this because of 
any fear on our part of unpopularity. We have enjoyed some of that 
as it is; but I speak of it, Mr. Chairman, in all sincerity as my view 
of what the future would develop. It would, I think, inevitably re- 
sult that the administrative tribunal would be between the differing 
opinions of the great mass of the people who would be in one of two 
camps, one accusing the commission of playing to favor the pro- 
ponents of still higher wages and afraid of the consequence of deny- 
ing anything of that kind, and consequently disregarding the inter- 
ests of the shippers by increasing rates to make up for increased 
wages, and the others taking the opposite view, with the result, as I 
have said, that the strength and influence of the tribunal would, in 
a few years, be sapped. j 
I do not question the advisability or the propriety of the Govern- 
ment doing all that it possibly can to adjust disputes affecting or 
even regulate, the question of wages of the employees of these car- 
riers that are essential to any industrial, commercial, or social life 


a 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 4] 









i our Nation, within such limits as the Constitution provides and 
the Congress may adopt, but I urge that whatever is done in that 
ine be placed in the hands of a tribunal that has that question to 
eal with and our commission will deal with the questions com- 
to it in the light of what is done in a legal way by another 
ribunal that considers matters without having always to bear in 
ind that if we do this we must do that. 
Some of these plans propose that the Government shall guarantee 
‘o the carriers certain earnings. These plans are in substance, I 
Ppa say, connected with what I have said with regard to charging 
he commission with the duty of making rates that will produce 
ertain net earnings. Aside from the difficulties that I have sug- 
vested, there is this difficulty that, to a certain extent is, I think, 
-ared for in some of these plans, and to some extent I have not been 
ble to convince myself that it is cared for. The operating income 
£ a railroad is what it has left out of its revenues after it has paid 
ts operating expenses, its taxes, and some of its debit and credit 
tems. The operating income necessarily is affected by the expenses 
“hat are incurred. The expenditures incurred by any carrier for 
ny of its operating purposes are almost entirely within the control 
f that carrier. 
Its expenditures for maintenance of its equipment one year vary 
reatly from those of the preceding or the succeeding year. The 
con is true of maintenance of way and structures, and IT have not 





een able to quite see how under a plan of that sort the public 
vould be protected against improvident or, perhaps, extravagant ex- 
venditures for maintenance, and other expenditures which are legiti- 
nate costs, if it should appear that the earnings under the level of 
ates of the carrier were going to produce substantially more than 
he percentage allotted to it and which it would be permitted to 
etain. Of course, it would be to the interest of every carrier to earn 
he maximum percentage that it could, and up to that limit there 
-vould be protection. But I think that the question is worthy of a 
ittle further study as to just how far that protection may be afforded 
-n the directions I have indicated. 

The fluctuating traffic to which I ane referred would necessarily 
ffect the results under which the guaranty would be given. and it 
vould, I think, follow that the rates must be sufficiently high to 
‘nsure earning ‘the guaranty, or the deficit must, of necessity, be 
aade up out of the F “ederal Treasury. I think also that any Govern- 
aent guaranty is calculated in some instances to take away the 
acentive which ought to exist in the matters of securing traffic and 
he handling of it economically and efficiently as well as of operating 
conomically the property in general. 

In connéction with these statements a great deal has been said, 
nd no doubt a great deal will yet be said, as to the reasons for 
he necessity asserted for restoring the credit of the carriers. We 
.o not with all that is said as to those reasons. In certain 
uarters it has been studiously asserted in season and out of season 
or a series of years that the credit of the carriers has been destroyed 
ry y Megardly regulation and that the commission was responsible 

their financial condition. Others, a little more liberal, say that 










~ 
= . 
i — [ = u 
~ ll : sy “ee 
7 . a | 


42 | RETURN OF THE RAILROADS TO PRIVATE ow? VERSHIP. 


‘ Sor ets a 









it is our commission and the State commissions. bined that ar 
responsible for it. Those statements are rei by some e 
after their attention has been called to the facts which refute th 
I do not want to burden this record with any voluminous statist 
or figures, but on that subject I have had some figures extract 
from the sworn annual reports of the carriers to the commission, a x 
I think they ought to be taken as the best evidence. | 

The Cuarrman. They may be incorporated in the hearings. 

Mr. Cuarx. I will leave this statement with the 

(The statement submitted by Commissioner Clark follows, haw i : 
been brought down, as far as possible, to include the years 191} 
and 1918:) 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


43 





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RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 45 


Mr. Crarx. Mr. Chairman, I just want to comment on one or two 
features of it. This statement shows, by years, from 1900 to and 
neluding 1916, the mileage of the roads, the amount of their funded 
lebt—I am speaking of the roads in the aggregate—the amount of 
their outstanding stock, the amount of the interest on their funded 
Jebt, the amount of dividends paid, the percentage of stock that 
yielded dividends, if any, and the average rate of dividends paid 
zach year for the roads that did pay dividends. It shows the 
yperating revenues, the operating expenses, the taxes, the operating 
meome, the surplus at the close of the year, the book cost of the 
property, which means the figures on the carrier’s books purporting 
to represent the cost of the property, and the percentage which the 
railway operating income is or was of the book cost of the property. 

Prior to August 28. 1906, the Interstate Commerce Commission 
had no power to fix any rate. Therefore prior to that time it could 
aot be said to be responsible for any rate or any level of rates. 

The Cuatrman. Did any of the State commissions at that time 
aave that power ? 

Mr. Crarxk. They did; yes, sir. 

Mr. Barxiry. What is that date? 

Mr. Crark. August 28, 1906, when the Hepburn Act became effec- 
tive, the commission for the first time had authority to fix a rate. 
The year ended June 30, 1907, therefore, was the first fiscal year in 
which the commission’s power could possibly have affected the earn- 
ings. In that year the carriers paid in dividends—I will read in 
round figures—$308,000,000; 67.27 per cent of the stock of the rail- 
roads yielded dividends, and the average dividend was 6.23 per cent. 
In 1908 they averaged in dividends $390,600,000 on 65.69 per cent 
of the outstanding stock, at an average rate of 8.07 per cent. I will 
not read all of these figures. In the year 1912 the average rate was 
7.17 per cent; the next year, 6.37 per cent; the next year, 7.97 per 
cent; the next year, 6.29 per cent; and in 1916, 6.48 per cent. You 
will note, if you go over these figures, a marked falling off in the 
amount of dividends paid in 1912 as compared with 1911, the sum 
being reduced by $60,000,000. That is in part at least accounted for 
by the fact that in 1911 the Oregon Short Line Railroad Co. de- 
slared a dividend of 68.68 per cent on $100,000,000 of stock and in 
1912 the same stock paid 10 per cent; the Houston & Texas Central 
Railroad Co. in 1911 declared a 20 per cent dividend on $10,000,000 
and in 1912 nothing; the Chicago, Milwaukee & Puget Sound Rail- 
way Co. in 1911 declared a dividend of 5 per cent on $100,000,000 
and nothing in 1912. A similar decline in 1915 as compared with 
‘1914 is explained in part by the fact that during the year 1914 the 
Union Pacific Railroad Co. paid extra dividends amounting to some- 
shing over $74,000.000, in round figures. 
~ Mr. Coapy. All cash dividends? 

Mr. Crarx. I understand they were. The dividend of the Union 
Pacific Railroad Co. in 1914, which I have just referred to, was, as 
‘L understand it, disbursed in part in cash, but it was mainly a distri- 
oution of the Baltimore.& Ohio stock which the Union Pacific Rail- 
oad Co. had held. | 

- During this period from 1900 to 1916 the number of miles of road 
‘covered by this statement increased about 61,000 miles. ‘The oper- 
ating income, which was $477,000,000 in 1900, was $714,000,000 in 


| 
: 
. 





46 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


1906, and it was more than that last figure in every year, exceptin 
1908, to and including 1916, in which it was over $1,000,000,000. 

The percentage of railway operating income to the book cost of 
the property was 4.52 per cent in 1900; it was 5.58 in 1906; it was. 
5.68 per cent in 1910; it fluctuated between 4.12 per cent in 1914 and 
5.68 per cent in 1910; and reached the highest point in 1916, when 
it was 5.90 per cent. It fluctuated between those figures for the sev- 
eral years. } | 

There has been a great deal said about the number of miles of road 
that were in the hands of receivers. A statement of the mileage so 
operated by receivers shows that it increased markedly from 1911 to 
1916, and that for the year ended June 30, 1916, there were 37,353 
miles being operated by receivers, but when we look at the year ended 
December 31, 1917—I point out that the fiscal year was changed at 
that time from the year ending June 30 to the calendar year, and 
that is why the figures for 1917.are for the period ending December 
31 instead of June 30—the 37,353 miles that were under receivership 
in 1916 had been reduced to 17,376 miles, or more than 50 per cent. 
It is not at all fair to say that the progressive increase in the mileage 
of railroad in the hands of receivers was in any sense the result of 
rate levels or of regulation. It was not rate levels, and it was not 
regulation that put the Rock Island into receivers’ hands. The same 
is true. of the Frisco and of the Missouri Pacific and of the Rio 
Grande and the Western Pacific and of the Wabash-Pittsburgh Ter- 
minal and the other properties that went with it in that deal—the 
Pere Marquette and the Cincinnati, Hamilton & Dayton, or the Mis- 
souril, Kansas & Texas—while I do not put the latter in quite the 
same class with the others. The history of the receiverships that I 
have named, excepting that of the M., K. & T., has been made public, 
and I assert, without any fear of successful contradiction by one who 
wants to tell the truth, that rate levels and regulation had nothing 
whatever to do with those receiverships. 

As a result of the European war and of our participation therein 
we had very abnormal conditions. They have had to be met in the 
most adequate way that could be devised and upon which hands 
could be laid, because during those times the necessity of doing that 
which ought to be done was of paramount interest. Among the steps 
taken, and, I think, wisely taken, by the Government was the taking 
over for Federal control of the transportation systems. One reason 
for the necessity of that move was the fact that the laws operated to 
prevent the carriers from doing many of the things which could be 
done and which were done under Federal control. In doing that 
the Government has assumed obligations which aggregate large sums 
of money. Conditions-have substantially changed, and the operating 
costs have been: greatly increased. Charges for transportation have 
largely increased, and yet we see from month to month a deficit from 
the operations. I have believed all the time, and still believe, that 
necessarily and properly the Government must assume, pay, and 
write off as war cost a large sum of money to square this war move. 

Tt is obvious, it seems to me, that if the roads are turned back to 
private ownership they must be able to increase the operating income 
as compared with what it is now either through a largely increased 
volume of business or through economies of operation, and by that 
I do not mean reduction of wages, because, I think, nobody suggests 


~ 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 7 47 


hat as a desirable or even possible move, or they must be faced with 
m operating deficit. One reason for taking over the railroads—at 
east one consideration moving toward that action—was the question 
of finance and a desire to obviate a situation in which the railroads 
vould be attempting large financing in competition with the Federal 
zovernment, which was borrowing large sums of money on bonds. 
Phe railroads necessarily are in the market for borrowing almost all 
he time, either for refunding purposes or for new capital. It was 
nost desirable when the Government was in the market for all the 
noney that could be raised that there should not be the competition 
xf borrowing by the railroads at necessarily higher and more at- 
ractive rates of interest. 

_ Just what is to be done in this transition period of reconstruction 
ind reorganization from the war conditions is a serious and difficult 
yroblem. I am not a financier, and I do not know, even to my own 
satisfaction, just what I think ought to be done. I think that efficient 
und sufficient transportation agencies are essential and that our Goy- 
rnment must see that they are provided either by private initiative 
ind control or by the Government itself, because without transpor- 
ation our country could not flourish, it could not prosper, and I 
loubt if it could long exist as a free nation. 

Therefore, taking all of these matters into consideration, I have 2. 
jew, which I do not present in any concrete form, that there is 
recessity for the Government lending some aid: if in no other way, 
vy loaning necessary amounts properly secured for future payment at 
sates of interest which could not be secured by the railroads in the 
ypen market. 

Mr. Dewatr. It was stated quite lately before the committee that 
nost of the roads, if not all of them, were now in debt to the Gov- 
rmnment instead of the Government being in debt to the railroad com- 
yanies. Have you any knowledge on that subject? 

Mr. Cuarx. No; I have no information on that subject, and I 
ave seen no figures upon which I could make any statement. I do 
inderstand that the administration has advanced large sums of | 
noney for expenses and improvements and equipment, etc., to vari- 
mus of the roads, ultimately to be at the expense of the carrier, 
mit I understand that it is not the plan of the Government and not 
he intent under the contracts between the director general, repre- 
enting the President, and the carriers, in pursuance of the terms 
f the Federal control act, that those sums shall be deducted from 
he average annual railway operating-income fixed by the Federal 
control act as the maximum return to be paid to the carriers for the 
ise of their properties. In other words, I think that those items to 
vhich you refer are in the same class with those which might be 
ater included along the same-line I have suggested of Government 
oans to the railroads, properly secured and payable after the re- 
onstruction or reorganization period has passed. The question of 
ow this problem shall be met is one of the broadest public policy. 

That policy might be to make the transportation systems as a 
vhole self-supporting; that is, to make the charges for transporta- 
jon support the transportation systems, including a reasonable 
‘eturn upon the value of the property devoted to-the public use. 
[he public policy might be to operate them on a level of charges 


48 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 










that did not make them self-supporting and pay the deficit 
the United States Treasury. 

It seems to me evident that if these carriers are returned to private 
ownership and control without some declaration or action by 
Congress as to the rate situations, it will inevitably follow that the 
intrastate rates which have been increased by the director general 
would automatically go back to the State rates wherever they a 
prescribed by State statutes, and probably to those formerly pre- 
scribed by the State commissions. 

The chief counsel of the commission, after looking into this ques- 
tion, expressed the opinion that after Federal control over trans- 
portation has ended, jurisdiction over intrastate rates will be where 
it was before Federal control began, namely, in the State authorities. 
It was so held by the circuit court for the county of Baker in the 
State of Oregon in a case before that court affecting a railroad which 
had been taken under Federal control and subsequently released. 

The general and guiding principle which we think should control 
jn the consideration of this question by anybody was expressed in 
our annual report submitted to the Congress in Decne a 
in which we said: 

Whatever line of policy is determined upon—— 


Mr. Dewatr. Mr. Clark, what page are you reading from? 
Mr. Crarx. The annual report of the commission submitted to the 
Congress in December, 1918. | 
Mr. Dewar. What page? | 
Mr. Crark. Page 2, the last complete paragraph on that page: | 

Whatever line of policy is determined upon, the fundamental aim or purpose 
should be to secure transportation systems that will be adequate for the 
Nation’s needs even in time of national stress or peril, and that will furnish 
to the public safe, adequate, and efficient transportation at the lowest cost 
consistent with that service. . 

Now, Mr. Chairman, if it is your pleasure, I will undertake to 
point out, as you requested yesterday, the connection between the 
points referred-to in our annual report and those covered by the 
bill H. R. 4378 

The CrarrMan. There is one question which has occurred to Col. 
Winslow in regard to your financial statement, and he would like to 
put the interrogatory before you proceed with your statement. 

Mr. Wrinstow.-I would like to ask you, Mr. Commissioner, if you 
can make a comparison for any prewar period of the percentage ot 
net earnings applicable to dividends as contrasted with the divi 
eee paid from such earnings and exclusive of special distributions 
ot assets. | 

Mr. Crarx. Yes; we can make those figures if the commi 
would care to have them. 

Mr. Wrystow. Will you be kind enough to put those figures 
the record? 

Mr. Crarx. I will; yes, sir. 

Mr. Wixsiow. And further, will it be easy for you to make a 
regation of the earnings of non-dividend-paying roads? 

Mr. CrarK. Yes; that can be done. 

Mr. Wrnstow. And follow that with the percentage of the ave 
age earnings of the dividend-paying roads exclusive of the di 
tribution of assets. ; ; 







_ Mr. Crarx. Yes, sir. 








Rate (per 
Name of road. cent). 

-labama & Vicksburg Ry. Co.: 
PemIeOUIMON =... ..-=------- 50 
1903, common........ peso 3 
ROMAIN 2... 2 ee 100 

Jabama Great Southern R. R. 

1 1916, Lo 3 
1916, “i a 1 
1917, common...............- 2 
Belg, premerred................ 1 

 Tbany "& Susquehanna R. R. 30 

Co., 1909 common. 

“ tlantic Coast Line R. R. Co., 20 

1905, common 

elt R. R. & Stock Yards Co.: 

Serr COMING toy sha... - ee - 50 

1 1916, PORN sh 5 

vuffalo ’ & Susquehanna R. R. 2 

Corporation, 1917, common. 

entral R. R. Co. of New Jersey: 

Day COMMON. 2. 2.----+--- 2 
1910, CeO oo 5-2 52-2... 4 
Rube cormuons...- 2.2 -2...... 4 
ple COMMON. 2. 2: -.--<’----- 4 
PleRCOIMINDN. -. 52. .-c.5.---- 4 
Byte COMMON O22 5-.....-.-.- 4 

Peers, Common. 2... 5... 4 
eG ycotmmon. s. .2. 2 2...-. 4 

hi 1917, sor ee al fe cee 4 
cago, Burlington uinc 

R.R.Co.: ° 4 
UCU erin 6 
1917) | a 10 

incinnati on Orleans & Texas 

Pacific Ry. 

1911, foe 2. Gee, eae 2.5 
1912) Sith 5 
JUV EU) 5 
PTA COMMON =... .2.--.-.-- 5 
LOC (Ta: 5 
JU So 6 

1 1917, VN sos ee 7 

t delaware, oe & West- 

ern R. R. Co.: 

1904, a 10 
1905, CLS: ae 10 
1906. Ci 10 
UUW) 10 
1908, Se 10 
wo i 60 
Bee COMMON 2.22... 5.-. 15 
B10, Common. .-............. 10 
Sort Common... ............. 10 
fee Common: ...,.....5.... 35 
meee, COMMON. ............... 10 
aerepComInon. 2... .22.....-. 10 
aeeseomnon.—.............. 10 
1915, CO 10 
1916, JIC a 10 
1917, ememinar ae Se eS. 10 
rele Worth & Denver City Ry. 
a913, Stamped ..........5-.... 2 
1914; ee 2 
isburg, Benin. Mount 
Joy & Lancaster R. R. Co.: 
1906, Common................ 5 
i907, Common: ...........-... 5 
Bere Common ....../....... 5 
Peeeamimmon = ....-....... 5 
focking Valley Ry. Co., 1913, 
i a rai 4.5 


152894—19—vor. 1_—4 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 





Amount. 


1, 050, 000 


234, 900 
33, 804 
156, C00 
33, 804 

1, 050, 000 


7,330, 000 


500, 000 
100, 000 
60, 000 


6, 650, 346 


494, 978 





49 


(The statement submitted by Mr. Clark is as follows: ) 


‘tatement showing extra dividends paid by steam roads, 1900 to 1917, inclusive. 


[Furnished at request of Mr. Winslow by Edgar E. Clark.] 

















Total. Remarks, 
ot A Gee Ja Stock dividend. 
“$1, 431, 500 Do. 
eae 459, 108 

1, 050, 000 

7,330, 000 Do. 

Be tary eee Do. 
600, 000 
60, 000 
Re ae et ho bag eM } 
"9,328 472 
"19,951, 038. 
"1,057, 200 
He RRR amr 
_..2..22......| Stock dividend payable in stock 
of the Lackawanna R. R. Co. 
of New Jersey. 
“" "72° 640, 530° 
ear 100,352 
$i 3 23, 652 
494,978 


50 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Statement showing extra dividends paid by steam roads, 1900 to 1917, inclusive— 








Continued. 
Name of road. beni Amount. Total. 
Illinois Central R. R. Co.: 
1905;;COMMGileeteree sense oes 1 $950,400 | Sones eorees 
1906-comMMON es. oo oe 5 475,200 4 302 eee eee 
1917, Conimolse. ee saee eee 1 1,092, 960 $2,518, 560 
Kanawha & Michigan Ry. Co., 
1OIS COmMON=5 se. ves ee eee 1 90, 000 99, 000 
Lake Shore & Michigan Southern 
Ry. Co., 1908, common and 
CUarAn eed iat. oe hes ce eee cen 2 999, 922 999, 922 
Lehigh & Hudson River Ry. Co., 6 80, 400 80, 400 
1916, common. 
Lebigh Valley Ry. Co.: 
1907 COMMON Se aenie = eee 2 SOGs (05sec oie, oats ee 
1G0S;-COMUMION sages. ese ae eee 2 S06;691- At Peewee 
LONG COMMON E eres sae 2 S06, OSLat* = soe ee 
1912, common and preferred. .; 10 6, 060, 800 8, 480, 975 
Louisville & Nashville R. R.Co., 1 600, 000 600, 000 
1908, common. 
Mahoning Coal R. R. Co.: 
1910 “Commoner tc toe 50 750: OO0RT SS Geo 
LOPL COMMON Miessee. oat eer. 50 100; 000") = 2 aac eeeeee 
19535 COMINON woes oaeeeeeee 50 LOO S000s| sek. eee 
19TA COMMON. hist oe oan 40 GOOKO008 | Ss 32 sone sees 
195s COM MOM Zea Pees eo oe 30 450,000: |). 2d ee cae 
1OR6; COMMONS ese eaeaes cee 30 450; OOOM| Sars ose-aeee 
TOI COMMON Rae ees eee 30 450, 000 4, 200, 000 
Michigan Central R. R. Co.: 
1908, COMMON scenes. 4. 2 SAAS TGOS) 6 <5 ss seeeees 
VOLS FCO OU Se one ela eraesc- 1 187, 364 062, 124 
Nashua & Lowell R. R. Co.: 
TO0G COMINON See joss 25 4 OQON) feast = be trates 
1907;-COMMONS So. ete oes .5 4; Q005| Sa sou 8. eee 
OOS COMMNION A et eee a ms) NOOO Rats aise eee 
TOO MCOMMMOM es eee ease ae .5 4, 000 16,000 
New York, Vhiladelphia & Nor- 
folk R. R. Co.: 
1904 COMIAINON sere a terete ee 2 AQ 0000s -8.roeee ae ee 
1905 ;COMIMOL 22 outa see eae 2 40, 000 80, 000 
Norfolk Southern R.R.Co., 1901, 1 20, 000 20, 000 
common. 
Noriolk & Western Ry. Co.: 
LOUG COMING IY Season ye ae 1 L170,5804: oa: Some oes 
LDLCOIMMOINS ae eee. Siok ae if 1,192, 524 2,362, 828 
Northern Ceniral Ry. Co.: 
1907;°COmnOn See eee LQ a2 AO Goe| Sas eee ee ae 
1914, coma ones. enact eee 40 Tg lod nO) sls Ac cee. eee 
1014 .COMMIOH eae eee 2 ee tae oe 10 1, 934, 250 11, 820, 419 
Pittsburgh & Lake Erie R.R.Co.: 
1910; COMMONesser ees + ees 40 6000; 000"). 2 te 522 eee 
TOLL ec OM ONeeeeena eer ee 25 D200, WOO - oe acta erator 
LOL2 SCOMIn OM. semen me te 12 3; 024,000 sec. 2 aee eee 
LOLS COMMLOM 2 cree cee eee 5 1 ADO. 400 Serna 2 cea ets 
1916-cOm mon. eee ee 20 .| 5,997, 600 21, 771, 000 
Pittsburgh, Fort Wayne & Chi- 2 394, 286 394, 286 
cago Ry. Co., 1902, common. 
Richmond, Fredericksburg & 
Potomac R. R. Co.: 
1907, common, guaranteed, 25 A ZagAZOr| He aa cee teen 
dividend obligations. 
1916, common, guaranteed, 50 1, 805, 800 2, 528, 125 
dividend obligations. 
Southern Railway Co., 1914, 2 1, 200, 000 1, 200, 000 
common. 
Union Pacific R. R. Co.: 
LO 14 COMMONS. 3 a. so ceesioae 3 6, CO825024| 3 ae oceans 
1914, Commons Pee sae 30.37) 167,30 S00 es aoe e seme 
POT COMELOD see cette 2 4,445, 832 78, 466, 204 
Grand:total se s3) ee i eee eee eee 250, 717, 673 





























e 


Remarks. . 


Stock dividend payable in shares 
of Louisville Property Co. 


Stock dividend. 
Do. 


Payable in scrip. 


Stock dividend payable in com- 
mon and preferred stock of the 
Baltimore & Ohio R. R. Co. 





In making this compilation a list of extra dividends was first made from the Financial Review published 
by the William B. Dana Co. and then each case was checked against the annual reports of the carriers 
to the Interstate Commerce Commission. Hence, the list may not be absolutely complete. 















RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 51 


* Mr. Dewar. Mr. Commissioner, you have stated, I think, that it 
-ould be advisable—if I misquote you, please correct me—for a large 
‘art of this expense to be charged off as a war cost and be paid by 
xe Government. Am I quoting you correctly? 

~ Mr. CuarK. Yes, sir. 

Mr. Dewatr. Has your commission ascertained what that charge- 
ff would be in round figures? , 

- Mr. Crarx. No; we do not have any complete figures for the ex- 
enses of the United States Railroad Administration. 

Mr. Dewar. I suppose, Mr. Clark, that could be more easily as- 
artained by the Railroad Administration itself. 

Mr. Crarx. Yes; the Railroad Administration gives out figures as 
.) the results of operation and other statistical statements which are 
ery interesting; but the question of how much should be charged 
ff by the Government as a war cost would necessarily depend upon 
1e period at which the Government lays aside the responsibility for 
heir operation, and would depend upon what is done between now 
nd the end of Federal control. At the preseut time there is a 
aonthly recurring deficit. 

_ Mr. Barxuey. Will you permit a question there? Is it possible to 
-onsider any part of this deficit as. anything other than a war cost 
-f any portion of it is to be charged off as such? 
Mr. Crarx. I do not see how it can be. 
Mr. Dewatur. Then, practically speaking, the whole deficit will 
© a war Cost. 
_ Mr. Crarx. I think so. The Government has taken these roads 
-ver under the President’s proclamation followed by the enactment 
-£ the Federal control act, in which the President was authorized 
9 contract with these carriers for the use of their properties at a 
‘laximum compensation of the average of their annual railway op- 
rating income for the three-year period stated in the act. Con- 
-cacts based on that have been made with a good many carriers that 
-re under Federal control; negotiations are pending as to others, 
nd some have not been made; but the Government has, I think, 
ommitted itself to the proposition that it will pay substantially that 
-am for the use of these properties. It has taken upon itself the 
_peration of the properties. It has taken full responsibility for the 
-1come as well as for the expenditure, and the latter has grown more 
-apidly than the former with the result that the deficit is one which 
rows out of both income and expenditures which the Government 
as-fixed and which the Government completely controls. 
_ Mr. Monrtacue. Mr. Commissioner, do you think there will be 
“tese recurring deficits when the roads come again under private op- 
ration upon the existing rates? 
- Mr. Crark. I can only give you my best judgment as I have 
1ought this matter out. I can not see how there is any hope that 
-affic will increase in volume sufficiently to overcome the deficit. I 
ssume that there will be no serious attempt to effect it by reducing 
ie Wages which have been fixed by the Government. 

Mr. Monracur. Are there any other substantial economies that 
yuld be effected that would be a factor in the problem ? 

Mr. Crarx. I think there are economies that are substantial in 
ieir character and good in their nature and effect, but they would 


52 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


fall far short of meeting any such deficit as now confronts the opera- 
tion of these properties. 

Mr. Monracur. Could there be any substantial reduction in the 
number of employees? 

Mr. Cuarx. I do not know. I do not think there could be a suffi- 
cient reduction to effect the large sum materially because the new 
terms of employment which have been fixed by the Government 
necessarily operate to require more employees for the same quantity 
of work. 

Mr. Monracur. Therefore, inevitably, a raising of rates is con- 
templated ¢ | 

Mr. Cuarx. The probability of that, or as some put it, the inevita- 
bility of that has been said by many, even of the representatives of 
the shippers to confront us. They say it is bound to come. A few 
days ago a representative of shippers from the far West, testifying 
before the Senate committee, said, “ We are up against another in- 
crease of rates and we know it.” 

Mr. Montacur. We have already had a very heavy increase of 
rates under the railway administration, have we not? 

Mr. Crark. Yes. 

Mr. Montacur. Much more than the roads asked for some while 
back. 

Mr. Crark. Yes; more of an increase at one time than the roads 
ever asked for. 

Mr. Montacur. And yet we have an accumulating deficit all the 
time. 

Mr. Crark. Yes, sir. | 

The CuarrmMan. You may now proceed, Mr. Commissioner. 

Mr. Crarx. In comparing this bill, Mr. Chairman, with the com- 
mission’s annual report submitted in December, 1918, I wish to refer 
to two paragraphs of that report which for ready reference, not being 
long, it might be well to read into the record. The first is on page 2 
of the report and reads: : | 

Whatever line of policy is determined upon the fundamental aim or purpose 
should be to secure transportation systems that will be adequate for the Nation’s 
needs even in time of national stress or peril and that will furnish to the public 
safe, adequate, and efficient transportation at the lowest cost consistent with 
that service. To this end there should be provision for (1) the prompt merger 
without friction of all the carriers’ lines, facilities, and organizations into a 
continental and unified system in time of stress or emergency; (2) merger 
within proper limits of the carriers’ lines and facilities in such part and to such 
extent as may be necessary in the general public interest to meet the reasonable 
demands of our domestic and foreign commerce; (8) limitation of railway con- 
struction to the necessities and convenience of the Government and of the public 
and assuring construction to the point of these limitations; and (4) develop- 


ment and encouragement of inland waterways and coordination of rail and 
water transportation systems. 


I shall refer to this paragraph as paragraph (a). 
The next is the first complete paragraph on page 3 and reads as 
follows: 


If the policy of private ownership and operation under regulation is con- 
tinued, the following subjects will require legislative consideration: (1) Re 
vision of limitations upon united or cooperative activities among common car- 
riers by rail or by water; (2) emancipation of railway operation from financial 
dictation; (8) regulation of issues of securities; (4) establishment of a rela- 
tionship between Federal and State authority which will eliminate the twilight 
zone of jurisdiction and under which a harmonious rate structure and adequate 


oh oni OF THE RAILROADS TO PRIVATE OWNERSHIP. 53 


ervice ean be secured, State and interstate; (5) restrictions governing the 
reatment of competitive as compared with noncompetitive traffic; (6) the 
jost efficient utilization of equipment and provision for distributing the burden 
f furnishing equipment on an equitable basis among the respective carriers; 
7) a more liberal use of terminal facilities in the interest of free movement of 
ommerce; and (8) limitations within which common-carrier facilities and 
ervices may be furnished by shippers or receivers of freight. 


I shall refer to this paragraph as paragraph (c¢). 

The first principle, referred to as 1 in paragraph (a), 1s that 
here should be provision for “the prompt merger, without friction, 
# all the carriers’ lines, facilities, and organizations into a con- 
inental and unified sy stem in time of stress or emergency.” 

We think that this is provided for on page 6, beginning with line 
using the committee print, that being the expansion of the term 
ear service,” and of the powers and duties of the commission 
hereunder. We think it is again carried out in principle on page 
4, in line 3, which refers to “the powers conferred upon the com- 
aission in section 3 to require coordination of facilities when that 

3 necessary. 

The second proposition in paragraph (a) is, “merger within 
moper limits of the carriers’ lines and facilities in such part and 
o such extent as may be necessary in the general public interest to 
aeet the reasonable demands of our domestic and foreign com- 
yerce.’ 

This is ee oeced to by provisions in this act on page 6, begin- 
ing in line 4, with reference to car service; on page 8 beginning i in 
ine, referring to authority conferred upon the commission to re- 
uire joint or common use ‘of terminals, etc.; and on page 13, begin- 
ing in line 3, where the provision relaxing the present provisions 
f law against pooling and combinations begins; on page 25, in line 
, referring to the commission’s authority under section 3; and the 
sTOVision, beginning j in line 11, authorizing the commission in times 
f shortage or emergency to establish such through rates as may be 
1. the interest of the public. 

The third proposition in paragraph (a) is “ limitation of railway 
onstruction to the necessities and convenience of the Government 
nd of the pubhe, and assuring construction to the point of these 
“mitations.” 

- Thisis provided for on page 9, beginning in line 4, a new provision, 
thich prohibits the constr uction or the abandonment of lines of rail- 
oad except upon authority of the regulating tribunal. On page 11, 
‘ne 11, there is authority for the commission to require a carrier 
€ extend its line or lines, thus insuring construction to the point of 
ese limitations. 

The fourth principle in paragraph (a) is, “development and 
acouragement of inland waterways and coordination of rail and 
: ater transportation systems.” 

This is covered in various portions of this bill: 

| On page 2, line 1, bringing transportation by water under the 
‘irisdiction of the act : on page 3, beginning in line 23, a definition 
f£ the term “ water,” as used in the act; on page 15, beginning in 
ne 1, a proposed extension of the commission’s power under the 
mendment to the act originating in the Panama Canal act; on page 
T, beginning in line 19, where there 1s provision for the commis- 


| 


2 





54. RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


sion’s requiring the interchange of traffic and the construction, if 
necessary, of a dock for that purpose; on page 19, beginning in line 
5, the prohibition against any combination or device to prevent, by 
change of time schedule, carriage in different cars, or by any other 
means the carriage of freights from being continuous; and on page 
24, beginning in line 8, where the commission is authorized to pre- 
scribe the divisions of earnings under joint rates as between all the 
carriers parties thereto, which would include the water carriers. 

Under paragraph (c) the first principle is stated as “ revision of 
limitations upon united or , cooperative activities among common 
carriers by rail or by water.” 

That is responded to on page 138, beginning in line 3, which is the 
reference to authority for pooling, ‘and so forth; on page 14, line 11, 
the relaxation of existing laws against such arrangements: and on 
page 25, in line 3. ; 

The second proposal is stated as “ emancipation of railway opera- 
tion from financial dictation.” 

I think the only point in which this bill can be said to respond 
to or touch that proposition is found on page 29, beginning in line 3, 
where the provision for supervision of issuance of capital begins. 

The third statement is “ regulation of issues of securities.” 

That is provided in section 17 of this act, which creates section 
20a of the act to regulate commerce. 

Mr. Drewaut. What page is that? 

Mr. Cuarxk. Page 29, beginning i in line 8. 

The fourth statement is “establishment of a relationship between 
Federal and State authority which will eliminate the twilight zone 
of jurisdiction and under which a harmonious rate structure and 
adequate service can be secured, State and interstate.” 

This is first responded to on page 2, in line 23, where an exception 
is made in the proviso now contained in section 1 of the act against 
its application to transportation wholly within one State; on page 21, 
beginning in line 1, where the course of action to be followed i in these 
matters is outlined and where the authority of the commission and 
the jurisdiction of the act are defined. 

The fifth is stated as “ restrictions governing the treatment of com- 
petitive as compared with noncompetitive traffic.” 

This will be indirectly, if not directly, affected by provisions on 
page 18, beginning in line 20, where the commission is authorized to 
fix the maximum or the minimum or the maximum and the minimum 
rates; on page 23, line 1, where the same provision is again stated; 
on page 24, beginning in line 3, where the commission is authorized 
to fix divisions of rates; and on page 25, in line 3, where reference 
is made to the provision in section 3 conferring power upon the com- 
mission to require the use of terminals and facilities. 

The sixth is stated as “the most efficient utilization of equipment 
and provision for distributing the burden of furnishing equipment on 
an equitable basis among the respective carriers.’ 

This is first responded to on page 4, beginning 1 in line 6, with a 
definition of the word “ transportation ” ; on page 6, beginning in 
line 4, where there i is stated the definition of the term “car service ” as 
used in the act”; on page 7, beginning in line 1, where the commission 
is authorized to establish reasonable rules, regulations, and practices 
with respect to car service, as that term is "used in the act; on page 8, 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 55 


deginning in line 1, where the commission is authorized to require 
int or common use of terminals; and on page 11, beginning in line 5, 
vhere the commission is authorized to require a carrier to provide 
tself with facilities. 

The seventh is stated as “a more liberal use of terminal facilities 
‘n the interest of free movement of commerce.” 

This is responded to on page 12, beginning in line 20, where the 
sommission is authorized to require the terminals of a carrier to be 
ypen for the traffic of other roads; on page 17, beginning in line 19, 
where the commission is authorized to require physical connection 
yetween the line of the rail carrier and the dock of the water carrier 
or if necessary to require the construction of a dock; on page 18, 
n line 4, where there is a provision that such a dock shall be con- 
sidered a terminal within the meaning of that term as used in the act; 
and on page 19, beginning in line 5, the provision against any agree- 
nent or device by which the carriage of freights is interrupted or 
orevented from being continuous. 

The eighth proposition is stated to be “ limitations within which 
sommon-carrier facilities and services may be furnished by shippers 
wr receivers of freight.” 

This eighth principle is not covered by the provisions of this pro- 
oosed act. 

Tt is a big question, and it extends through all the varying phases 
of the performance of transportation, from the furnishing of grain 
doors for the shipment of bulk grain to the operation of important 
industrial. railroads. There are many so-called tap lines or in- 
dustrial railroads that have been built by and that are operated by 
shipping interests, and in many, if not most, instances they have 
been built because the carrier with which connection was made was 
unwilling to construct a branch line to serve the purposes to be 
served. They have been constructed and operated by the owners 
and frequently by those who furnish most of the traffic transported. 
The theory or the principle that they are entitled to compensation 
out of the line haul carrier rates has been recognized. In many in- 
stances it has been carried to an extreme, and in some instances to 
an unlawful extreme. We have had many investigations of those 
questions and we have many of them still pending before us. Each 
ee has its peculiarities and has to be determined upon its own set 
of facts. 

- It would be extremely difficult, if not destructive, to at once estab- 
lish a principle which, personally, I would advocate if we were 
starting out with the construction of railroads, and that principle 
would be to require the railroad to confine itself to the transportation 
ousiness and require those who patronize the railroads to keep out 
of the railroad business. I think that would be a much more satis- 
factory condition of affairs, but at the present time that principle 
aever having been laid down and never having been followed, there 
's an interweaving of those interests which it would take a long time 
‘So unravel even if they are ever unraveled. The only thing that 
zan be done at the present time is to investigate the conditions and 
etermine the reasonable compensation which can be paid under the 
facts of the case, it being recognized as a principle, a guiding princi- 
ole, that the fact that the owner of a tap line or industrial railroad 
ilso furnishes most of the traffic transported must be considered, 


56 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


and that the allowance which would be found reasonable if there 
were no such joint ownership of interest in the railroad and in the 
traffic transported might be unreasonable and unlawful under the 
existing circumstances, because it might result, in effect, as a rebate. - 
That roblem being so intricate and applying in so many instances, it — 
is difficult to see how it can be met by any specific legislation at this | 
time. . 
2 The Cuamman. Have you concluded your direct statement, Mr. 
lark? 

Mr. Criark. Yes, Mr. Chairman. 

Mr. Sus. Mr. Chairman, in reference to the examination of Mr, - 
Clark, this bill having been introduced by yourself naturally you 
are more familiar with its provisions than anybody else, and I want 
to suggest that you examine Mr. Clark without interruption before — 
any of the rest of us undertake it, because that will make the ex-_ 
amination very much shorter and will prevent the duplication of 
questions by members not so well acquainted with the provisions of 
the bill as you are. | 

The CuarrmMan. I do not like to attempt that because I think that 
every member of the committee can elicit information of value from 
Mr. Clark. | 

Mr. Stus. From your examination you will be able to bring out, 
in case he has not made it clear, at least Just what you intended by 
the provisions of the bill. I think that would shorten the examina-_ 
tion and be helpful to all the other members of the committee. 

The CuarrMan. We will proceed for the few moments we have re- 
maining this morning, not following the consecutive order. 

Mr. Monracur. Mr. Chairman, will you continue up to the hour 
of 12 o’clock? 

The Cuarrman. We hope to utilize that time. Not having after- 
noon sessions we are not making the progress that we should. We 
want to make all the progress we can. 

Mr. Commissioner, I will take up these several points that have 
been recommended in your report as the basis of the inquiry, and I 
think those points practically cover most, if not all, of the features 
relating to the proposed legislation. 

The first point is the prompt merger without friction of all the 
carriers’ lines, facilities, and organizations into a continental and 
unified system in time of stress or emergency. You referred to the 
provision of the pending bill which seeks to give that power to the 
President in time of emergency. If I remember correctly, England 
in 1871 passed an act looking to a war emergency with reference to 
its railway systems, did it not? 

Mr. Cuark. Yes. 

The Cuarrman. When the war broke out in August, 1914, the ie 
was available and was immediately put into operation ? 

Mr. Criark. It was. 

The Cuairman. Was it your idea that we should in this legisla- 
tion follow a similar example? 

Mr. Crarx. It was our idea that this bill confers upon the com- 
mission the authority to meet all emergencies by such necessary 
merger of operations as presents itself in “time of peace, but it pro- 
vides that in time of war the President may certify to the commis- 
sion the necessities of the national defense or of the National Goy- 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 57 








‘rnment, and that the commission, under the powers conferred upon 
4 by the act, shall carry them into effect, so that it would perma- 
ently provide that the commission should be the agency through 
hich the Commander in Chief would carry out such instructions as 
-e might desire to give looking toward the consolidation of the rail- 
oads in such manner as would meet the emergency or at least pro- 
-uce the maximum of efficiency. 

- The Crarrman. So, had the provisions of the law as contemplated 
a this bill been in effect when we entered this present war, there 
vould never have been any necessity for the Federal control act? 

_ Mr. Crarx. None whatever. 

_ The Cuatrman. The legislation embraced in this bill would have 
-een sufficient to conduct the transportation as a war-emergency 
ratter ? 

Mr. Crarx. It would have been sufficient to secure the highest pos- 
ible efficiency and the largest volume of transportation out of the 
vailable or existing facilities, in so far as those in control were able 
9 devise the ways. 

The Cuarrman. Would there have been any necessity for financial 
-gislation such as under the Federal control act, which provided a 
evolving fund of $500,000,000? 

Mr. Crarx. None at all. 

_ The Cuairman. It is your opinion that the provisions of this bill 
vould be sufficient hereafter to meet a war emergency without fur- 
her legislation ? 

Mr. Crarx. I think so; and without some of the embarrassments 
fat our experience has brought about—I mean to the country as a 
thole when I say “ our.” 

The Cuarrman. Take up point 2, merger within proper limits of 
he carriers’ lines and facilities in such part and to such extent as 
lay be necessary in the general public interest to meet the reason- 
ble demands of our domestic and foreign commerce. Under the 
-xisting interstate-commerce act, and, in fact, as it was originally 
netted in 1887, there was a prohibition against mergers, was there 

ot 

Mr. Crarx. Against pooling. 

_ The Cuarmman. Against pooling. Do you believe in compulsory 
-r involuntary merger? 

_ Mr. Crarx. While it operates to meet an emergency; yes. I do 
ot see how we could compel mergers of ownership. 

| The Cuamman. There are such plans pending, are there not? 

» Mr, Crark. Some people have that idea. 

| The Carman. It is your opinion that the end to be sought, how- 
ver, namely, the elimination of many of the weak lines rendering 
‘iemselves to more unified control can be obtained through volun- 
ary mergers under the direction of the Interstate Commerce Com- 
iission rather than by special mergers through process of the courts 
nd the exercise of power? 

- Mr. Crarx. I have a very confident hope that a great deal would 
-¢ voluntarily done under the provisions of this bill. I see no in- 
aperable difficulties about the exercise of eminent domain in the 
-urchase of a property, but I confess that I do see some difficulties 
1 the Government exercising the right of eminent domain to require 
omebody to buy. You can not merge the ownership of two prop- 


58 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


erties unless you change the ownership and somebody has to take 
more than they had before and they have to pay something for it. 

The CuartrmMan. In other words, the Government may have the 
power to compel sale, but not the power to compel purchase? 

Mr. Criarx. That is my idea exactly. 

Mr. Barxirey. Unless you could compel purchase there would not 
be much of a sale? 

Mr. Cuarx. I do not think it would be very effective. 

The Cuatrrman. Would that voluntary merger, as you outline it, 
tend in a large measure to solve the problem of the so-called weak 
systems? 3 

Mr. Crark. I thik it would, Mr. Chairman. I think the com- 
mission could exercise a very strong moral influence, and having this 
authority under the law, it would be its duty in carrying it out to 
suggest these things. It might offer a suggestion which at the mo- 
ment would be scoffed at, but when thought over and worked out 
would, in the course of reasonable time, develop into something. I 
think there are numerous instances in which the carriers would be 
glad to avail themselves of the opportunity of carrying into effect 
some consolidations or mergers of ownership or operation, if they 
had the right to do so under the law. ; 

The Cuarrman. Federal incorporation is advocated very strongly 
as a means of merger. What are your ideas about Federal incorpo- 
ration ? 

Mr. Crark. Why, Mr. Chairman, I think I ought to say that my 
ideas on the proposition are not very valuable because they are those 
of a layman, but I have not been able to satisfy myself that there is 
necessity for adopting that course in order to reach the end had in 
mind, because I have the view that the power of Congress under the 
commerce clause of the Constitution has no limit in the regulation 
of commerce among the States. I think that the proviso in section 
1 of the act to regulate commerce as it was originally enacted and 
as it stands to-day is a declaration by the Congress of its refraining 
to exercise all of the power which it has. I think that Congress has 
plenary power so far as it sees fit to exercise it. I do not see the 
necessity for Federal incorporation, because the Congress can regulate 
the commerce among the States whether it is conducted by an indi- 
vidual, firm, or corporation. The act to regulate commerce in specific 
terms applies to persons operating common carriers. 

The Crarrman. It is urged in support of Federal incorporation — 
that it would increase unity of control and eliminate in a large 
measure, if not wholly, State control ? : 

Mr. Crarx. Well, my answer would be the same. I think Con- 
gress has control under either incorporation or no incorporation. I 
think that Congress can enact legislation of such a character as it 
chooses to enact. | 

The Crarrman. Have you any doubt as to the constitutional - 
right of compulsory Federal incorporation ? 

Mr. Crarx. I would not care to express an opinion on that, Mr. 
Chairman, because I am in no sense a constitutional lawyer. I might | 
add to what I just said in reply to your question that the Supreme 
Court in a long line of decisions, so far as I know, has never held 
that there was any limit upon the power of Congress, but it has held 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 59 


hat so long as the Congress fails to exercise the powers vested in it 

he States may act, but when the Congress acts and enters the field 

hen the State action must give way. 

The Cuarrman. Is there a general impression that Congress can 
jot act in many instances because of its failure to act? 

Mr. Crarx. I think there is some measure of that. The Congress, 
s I pointed out, specifically refrained from exercising the powers 
vhich it apparently felt it had in the original enactment of section 
_of the act to regulate commerce. ; 
~ The Cramrman. If Federal incorporation is sought as a remedy to 
ecure a more unified control and to eliminate the so-called 48 mas- 
ers, it could not be done expeditiously ? 

Mr. Crark. I should say that it would take a long time. 

The Cuarreman. Recalcitrant stockholders who would not want to 
urrender their stock in the original corporation would inevitably 
ring the matter into the courts? 

~ Mr. Cuarx. That is altogether probable. 

- The Cuarrman. And we would not have a determined policy until 
yossibly the Supreme Court had passed upon one or more of the 

»hases of this problem ? 
| Mr. Crarx. I think that is certain. 

The Cuairman. If that be true, would it be wise to seek Federal 
-ncorporation as one of the remedies to be enacted if we want rea- 
sonably prompt action? . 
~ Mr. Crark. I do not think that it would do to depend upon that 
is contributing to promptness. 
~ The Cuatrrman. What would be the situation of the carriers pend- 
ng the final determination of the legal propositions involved in the 
Federal incorporation ? 

Mr. Crarx. If you will pardon a slang expression, I think they 
would be “up in the air.” 

- The Cuarrman. Might not that complicate instead of tending to 
solve the problem ? 

Mr. Cuarx. I think it would, because it would bring into play the 
conflicting opinion of owners of the several properties, and there 
would be those who favored it and those who opposed it, those who 
wished to retain certain rights they might have under their present 
sharters, and some would resist any surrender of their State char- 
ters because they carry with them provisions which probably never 
would be incorporated in any Federal statute. 

The Cuarrman. You have noted several suggested plans which in- 
volve the idea that the railroads should be reduced to a few systems. 

Mr. CuarK. Yes. 

AN. Could that be done without the use of Federal 
oower ? 

Mr. Cuarx. Not in a compulsory way. I do not think it could be 
done anyway, except’ by laying the foundation for voluntary action 
in laws that permitted it to be done. 

~The Cuarrman. You intimated in your direct testimony that you 
did not believe in regions because it was quite impossible to frame 
eee ey cutting up or splitting up the existing railroad 
systems? 
» Mr. Crarx. Yes. 





60 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


The Cuarrman. If that be true, would it not create such a difh- 
culty as would be really insuperable in securing a proper adjust- 
ment or railroad matters ? ‘ 

Mr. Cuarx. I think so, Mr. Chairman, because I think that in any 
regulation, especially of the rates and of alleged prejudicial prefer- 
ences or discrimination, we must consider the traffic conditions ex- 
isting in various sections of the country rather than the geography of 
the State lines or imaginary lines drawn on a map to divide the 
country into blocks. I stated the difficulty of outlining a region 
which would include the Rock Island system. There is a definite 
traffic situation between Chicago and points east of Chicago and St. 
Paul and Minneapolis and the head of the Lakes in which the Rock 
Island is a factor. There is another rate situation involving not only 
the local, but the through traffic between the east and the west as 
between the Mississippi and the Missouri Rivers, both of which have 
been for years great basing lines. Again, the Rock Island is a factor 
there, and especially it is a factor through Kansas City and through 
the Missouri River; it is a factor in the transcontinental rates. 

The CuatrMAn. There are traffic areas or regions that have north 
and south trends and others that have east and west trends, prac- 
tically in the same geographical territory ? 

Mr. Crark. Yes, sir. 

The -CHarmman. How could you harmonize such traffic areas, 
whether by region or system, where they cross one another at right 
angles as, for instance, lines running east and west and running 
south and north to the Great Lakes? 

Mr. Crarx. I should imagine that an effort to logically combine 
the roads into a small number of systems would not attempt to 
include in one system lines which were important factors in the 
transportation in an east and west direction and also those that 
were included in a north and south direction, with competition for 
certain kinds of traffic as between the two. 

That reminds me of one more suggestion about the difficulty of 
regions geographically fixed so that they would include the same 
system. The Illinois Central system reaches the Great Lakes and 
the Missouri River. It is an important factor in the Missouri River, 
Chicago, and east of Chicago rates. Then it has a line from Chi- 
cago to New Orleans, where it is an important, if not a controlling, 
factor in the transportation between the Middle West and the Gulf 
ports, and it is a competitor with itself in a sense in exporting grain 
from the Missouri River as to whether it should go through Chicago. 
and on to New York, Baltimore, or Philadelphia or to New Orleans, 
Galveston, or Gulfport for export. 

The CHarrmMan. The committee will take a recess until 10 o’clock’ 
to-morrow morning. 

(Thereupon the committee took a recess until 10 o’clock, Friday, 
July 18, 1919.) 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 61 


CoMMITTEE ON INTERSTATE AND ForEIGN CoMMERCE, 
‘ Houser oF REPRESENTATIVES, 
Friday, July 18, 1919. 


i The committee met at 10 o’clock a. m., Hon. John J. Esch (chair- 
man) presiding. 


STATEMENT OF MR. EDGAR E. CLARK, MEMBER INTERSTATE 
COMMERCE COMMISSION—Resumed. 


The Cuairman. Mr. Commissioner, when we concluded yesterday 
morning we had practically finished our interrogatories with refer- 
ence to provision No. 2 in the recommendations of the commission 
‘in its last annual report relating to mergers. While it may not be 
| directly relating to that subject, I wish to ask a question with refer- 
‘ence to free routing. 

Under the interstate-commerce act the carrier was entitled to 
route his freight. 

_ Mr. Crarx. No, Mr. Chairman; the act to regulate commerce 
| The CuarrMan (interposing). I mean to select his carrier. 

_ Mr. Crark. You mean the shipper was entitled to do so? 

The CHarrmaAn. Did I say carrier? I should have said shipper. 
The shipper had the right to route his freight. 

/ Mr. Crarx. Yes. 

The CuHarrman. Of course, that was stopped under the Federal- 
/control act. Is any change made in that under the pending bill? 

Mr. Crark. No. sir. 
| 
/ 





| 


The Cuarrman. That privilege is retained ? 
Mr. Cuark. Yes; except that it might be set aside in case of an 
emergency by order of the commission. 
| The Cuarrman. As amending the car-service act? 
Mr. Crarx. Yes; as amending the car-service act and under em- 
bargoes and preferences and priorities. 
| The CuHarrman. And under the car-service act as amended by the 
_ pending bill you are given wide powers with reference to the preven- 
eae of congestion and also with reference to car shortage, are you 
not! 
Mr. Ciark. Very wide. 
|_ The Cuarrman. If those powers had been granted you prior to the 
| Federal-control act, would you have been enabled to have met the 
| contingencies, even of war? 
| Mr. Crarx. Well, Mr. Chairman, I think that in order to fully 
, meet them, it would also have been necessary to have had some relaxa- 
| tion of the restrictions upon the carriers, because if the statute is 
| clear against any combination of any sort between competing carriers 
| 1t is doubtful if an order of the commission would override those stat- 
| utes; but with the combined powers, we could meet any emergency 
| that could arise, in so far as it could possibly be met by the facilities 
| available. 
The Cuarrman. Taken in connection with the powers given you 
, as to priorities, preferences, and permits, you would have been able to 
| have taken care of that situation? 
| Mr. Cuarx. In so far as would have been possible with the facili- 
ties at hand. 












62 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


The Cuarrman. I now pass on to No. 3: “ Limitation of railway 
construction to the necessities and convenience of the Government 
and of the public, and assuring construction to the point of these 
limitations.” } st ; 

Is this introducing a new principle in matters of railroad legisla- 
tion ? 

Mr. Cuarx. In so far as Federal regulation is concerned, it is. 

The Carman. It has, however, been adopted by some of the 
States ? 

Mr. Crark. It has. ; 

The CrairmMan. What do you know as to the success of its opera- 
tion in the States that have adopted it? 

Mr. Crarx._I understand that it has been generally successful, and 
I have never heard of any serious criticism of it or of its operation. — 

Mr. Raysurn. Mr. Chairman, may I interrupt there? 1 wonder if 
the commissioner knows and can give us the names of the States in 
which that has been inaugurated for the record here. 

Mr. Crarx. I could prepare and put in the record a complete list, 
I think, which could be prepared from an analysis of the State stat- 
utes. I know that it is in use and has been actively used in New 
York and Wisconsin, which are two of the most progressive of the 
States in State regulation. 

Mr. Rayzurn. I thought it might be informing if we knew the 
names of those States. 

The Cuarrman. I think it would be very valuable information to 
have, and if it could be prepared we would like to have it introduced 
in the record. 

Mr. Crark. I think I can get that information. 

Mr. Thom tells me that in a hearing before the Senate committee 
Mr. Bledsoe introduced a statement which gave the information 
which Mr. Rayburn has just asked for. 

The CyarrMan. Very well; if you can promptly secure that it 
can be inserted. 

Mr. Crarx. I will secure that statement and compare it with 
others, and put in a statement in response to your request. 

The Cuatrman. Would the exercise of this power on the part of 
the Federal Government involve any legal difficulties so far as the 
States are concerned ? 

Mr. Crarx. I do not think so. I think that it is clearly within 
the power of the Federal Government in so far as the provisions of 
this act go, which are limited to carriers subject to this act. | 

The Cuarrman. Would the exercise of this power on the part of 
the Federal commission in any way tend to stabilize securities of the 
company that had been given a certificate ? | 

Mr. Crarx. It seems to me inevitable that it would have that 
tendency and that effect. The principle underlying this is that a 
carrier, having been given a franchise to enter a field, ought to be 
protected against unnecessary and wasteful competition of other and 
rival carriers, and it ought to be required to cultivate that field to 
the extent that the public necessity requires. 

You will remember a few years ago, as an instance of this, there 
was the keenest kind of rivalry between the roads that were com- 
monly known as the Harriman interests and the Hill interests in the 
Northwest. The Hill interests had practically all of the lines in 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 63 


he States of Washington and Oregon excepting the north and 
outh line of the Southern Pacific, which terminated at Portland. 
“he Harriman lines scouted the idea of building a line through the 
Jes Chutes Canyon serving a part of the State of Oregon which 
‘hey said was not worth building into; but Mr. Hill had a different 
lea after a few years, and he started to build in there, and immedi- 
‘tely the Harriman lines, with most feverish haste and lavish ex- 
enditure, started and constructed a parallel line, so that that ter- 
itory which was thought not worth serving with one railroad was 
arved with two expensively built railroads under rival conditions 
‘hen cost was largely disregarded, and now the territory and the 
-ublic have two roads to support. 

- The Cuarrman. Would the construction of the Western Pacific be 
nother illustration ¢ 

- Mr, Crark. I think it would be a striking illustration, and added 
) that would be the Wabash-Pittsburgh Terminal system. 
The CwHatrman. If this power to issue these certificates wer 
ranted the commission, would it or not hereafter tend to lessen the 
-roblem of the weak sisters ? 

Mr. Crarx. I think it would; yes, sir. 

The CuairmMaAn. In other words, there might not be the possi- 
ility of new weak sisters being added to the present large list ? 

Mr, Crark. Yes; there are numerous weak sisters now to be sup- 
-orted that never would have been built if this law had been in 
ffect, and this would give its measure of protection to the weak 
sters against other weak sisters coming in against them. 

The Cuarrman. If a section of the country not now supplied by a 
oad desires a road, but the trunk line is financially unable to make 
1e construction and yet the commission felt it ought to be made, 
‘ould you advise Government aid in such construction ? 

Mr. Crark. I think, speaking for myself alone, Mr. Chairman, 
1at within certain limits I would advise it. 

The Cuarrman. Otherwise the convenience 

Mr. Cuark (interposing). Otherwise the convenience of the people 
1ust go unsatisfied and unserved, unless some independent company 
vas willing to build in there while the one that naturally ought to 

-uild in there could not. 

The Cuatrman. It was contended in the Newlands hearings that 
ereaiter practically there would be little or no new construction 
‘'y independent lines, and that whatever construction was done would 
-ave to come from existing lines; would that be your view? 

_ Mr. Crarx. No; I would not be inclined to accept that as con- 
-usive. Railroads are sometimes built without regard to what the 
»sults of their operation are going to be. It is just a question of 
‘oating the securities and building it and getting the speculative 
-Ivantages that go with those times. 

_ The CHatrman. Of course, the speculative element would be elimi- 
‘ated if we give you the control over stock and bond issues. 

Mr. Ciarx. That would be true, yes; but you could not very well 
mtrol the situation to which we have been referring simply by 
-ithority to control stock and bond issues, unless you also had this 
-ablic convenience and necessity authority, because if you could not 
ontrol the question of whether or not the line was needed and ought 
» be built, you could not refuse to approve issues of bonds and 


| 
ir 











64 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


securities that were within reasonable limits if the line was to be 
built. 

Mr. Monracur. Mr. Chairman, if it does not disarrange your 
program at all, will you permit me to suggest or to ask at this point 
that Mr. Commissioner Clark put in the record-the construction, 
by decades, for the past 50 years, or certainly the past 30 years, of 
railroads in America. I suppose those figures are obtainable? 

Mr. Crarx. Oh, undoubtedly. You want it simply in miles? 

Mr. Montacue. Yes; the mileage of construction in the past 50 
years, especially since the Cullom Act, and more especially since the 
act of 1906. My reason for asking for that is because I want to 
see whether the ratio of construction has been increasing or de- 
creasing during that period. | 

The Cuarrman. In that connection, the Bureau of Railway Sta- 
tistics publishes that information year by year, but it would be well 
to segregate those statistics. 

Mr. Monracue. I thought, Mr. Chairman, for the benefit of the 
Members of the House we should have those facts in the record. 

Mr. Crarx. I will supply those figures, but I will make this ex- 
planation of them at this time, that it must be expected that they 
will show a gradual decrease in new construction, and even though 
the hand of the Government is withheld entirely, that must be true 
as the years roll by, because the possible field is more completely 
occupied year by year as construction goes on. : 

Mr. Monracue. I did not mean to intimate that the commission 
should not accompany its figures with any explation it might care 
to make. I will be very glad to receive such explanation. 

The CHarrMan. The record shows 

Mr. Monracue (interposing). Mr. Chairman, I want to just ask 
one other question in this connection. Has not the construction of 
railroad mileage in this country for the past five years been almost 
negligible? 

Mr. Crarx. I think it has been small. 

The CHatrman. I think the average construction is about 1,000 
miles per annum. 

Mr. Ciarx. I could get those figures. 

Mr. Montacus. That includes double trackage and things of that 
sort. 

Mr. Cxuarx. I have not those figures here. I could show it for the 
class 1 roads, but that might not reflect construction.- It might re- 
flect changes in ownership of existing roads. 

The Cuarrman. But it is a fact that construction has materially 
lessened or slackened in the last five years? 

Mr. Crarx. I think so. 

Mr. Monracue. Mr. Commissioner, what is your opinion as to the 
availability of capital in America for any new construction now or im 
the past four or five years? 

Mr. Cuiarx. Despite the fact that the Government has borrowed 
money in unprecedented sums, and without claiming to possess any 
technical or absolute knowledge in the premises, it is my judgment 
that there is abundant capital seeking investment in attractive fields. 

Mr. wend hot How attractive is the field? Is it sufficiently at- 
tractive { , . 





RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 65 


Mr. Cuarx. I do not think at this time investments in railroads 
2 especially attractive to the investors of this contry; and without 
y desire to be hypercritical, I think it only fair to say that I do 
t quite see how it could be expected to be when the railroads or the. 
ancial interests that represent them or control them have been busy 
w since 1910 in asserting, in season and out of season, that they 
| not have any credit. 

Mr. Sims. Right in that connection, the question referred to the 
t four or five years. The European war broke out five years ago, 
d war was declared on the 1st of August or the last of J uly, 1914, 
d since that time there have been no normal credits in Europe or 
_America. 

Mr. Crarx. There have been no normal credits and no normal con- 
ions of construction of railroads. 

The Cuarrman. Recommendation No. 4 relates to the development 
d encouragement of inland waterways and coordination of rail and 
/ter transportation systems. You went over this quite fully in your 
ect testimony, and I will not delay long on that. You believe the 
ae has come when there must be a coordination of rail and water 
onsportation ? 

Mr. Crarx. I think that, in so far as it is possible to economically 
d satisfactorily utilize water transportation, it ought to be en- 
waged, and that it ought not to be suppressed by unfair competi- 
‘n of rail carriers or by unreasonable refusals to join in through 
ites and arrangements for through carriage. 

The Cuarrman. In brief, what do you do in this bill that encour- 
2s inland water transportation ? 

Mr. Crarx. We make possible the more liberal treatment of 
‘ough routes and joint rates with rail carriers. We bring the 
nmon carriers by water within the provisions of this act. It 
thorizes the commission to determine the divisions of the rates 
ich they shall receive irrespective of whether or not the commis- 
n had prescribed the rates, and it confers upon the commission 
‘hority to require docks at which interchange of traffic can be 
de where the public convenience would be best served thereby. 
The Cuarrman. And you modify the Panama Canal act in order 
permit water lines although railroad-owned and although the 
eration of the water line may, in a way, lessen competition if the 
aration of the water line is conducive to the public interest. 

Mr. Cuark. Yes, sir. 

Che Cuarrman. You made the rather startling statement yester- 
y, I think it was, that the operation of the Panama Canal act in 
1ying ownership and operation by rail lines of water lines had 
ulted in no benefit or‘advantage to the American people. 

Mir; Crark. That is my judgment, Mr. Chairman, after participat- 
4 on every case that has come up under that act and observing the 
ults. : 

Che Cuarrman. You suggested in your testimony that the tramp 
amer ought not to be included within the operation of the bill for 
» present, at least. 

Mr. Crarx. Yes, sir. 


152894—19—vo1 1——5 




















66 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 

The CHarrmMan. Although you thought possibly, based upon the 
opinion of your solicitor, that the tramp might be included within 
the purview of the bill as written. 

Mr. Crarx. I do not think there is any doubt of the right of Con- 
gress to include them, but I think under present conditions, and in 
the light of all we know on the subject to-day, it would be unwise to 
do so. I do not think that the competition of the so-called tramp 
boats with the character of water carriers that we generally have in 
mind when we speak of common carriers by water, in the hight of this 
act, afford a troublesome competition with the common carrier boat 
lines. It has abundantly appeared in cases before us that the Lake lines 
prior to their divorcement—and the same thing is true since—did not 
and do not care to carry bulk grain except in limited quantities and 
when that limited quantity is readily available and is desired to fill 
out a cargo on an eastbound boat. The great mass of the grain from 
the head of the Lakes during the season of navigation moves in 
cargo lots. It may move to any of the lower lake ports for domestic 
distribution for milling, or it may move for export. It may move 
through the American port for export or it may move through Mon- 
treal. A tramp boat at Duluth would take a cargo of grain for any 
of the Canadian ports just as readily as she would for an American 
port if it offered and it was to her advantage to take it. 

The CuarrMan. In the proviso which you suggested yesterday as 
an amendment to the part of the bill relating to water lines you 
used the term “ocean tramp.” There are Lake tramps, are there 
not, and would that cover both? 

Mr. Crark. I do not think I used that term, Mr. Chairman. 

The Cuamman. I thought you did in the amendment which you 
suggested, but perhaps not. At any rate I have received some com~ 
munications from Lake traflic people to the effect that they thought 
the Lake tramp should be also excluded from the provisions of the 
bill. | 

Mr. Ciarx. The proviso I suggested I am very sure did not refer 
to ocean tramps. It referred to so-called tramps, cargo-carrying} 
vessels and other craft operating as private carriers. I have the 
proviso here and it reads: | 





And provided further, That so-called “tramp” cargo-carrying vessels anf! 
other water craft operating as private carriers, not on regular routes, shal! 
not be considered common carriers within the terms of this act, unless afte® 
investigation the commission shall find that such vessels or craft are being’ 
operated as common carriers, in which event the provisions of this act shalt 
apply thereto. 

Now, ocean tramps would not be under our jurisdiction in any 
sense except as they were engaged in coastwise trade, even if the 
tramp vessels were included in the provisions of the act, because the 
definition of the term “ water,” as used in this act, includes only 
the 3-mile limit and vessels permitted to engage in the coastwise 
traffic of the United States. | 

The Cuarrman. Yes; and from port to port, which would also 
cover from coast to coast. | 

Mr. Crark. Yes; in coastwise trade. 

The Cuatrrman. Would the powers granted in this bill to the com- 
mission to fix minimum as well as maximum rates be an aid to inland 
water transportation ? 


rt 


| RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 67 


' Mr. Crark. We think so; yes, sir. 

~ The Cuarrman. With reference to the long and short haul clause, 
‘would this power of the commission to fix minimum as well as maxi- 
mum rates help you in solving many of the questions as to de- | 
partures under the long and short haul clause ? 

~ Mr. Crarx. I can not see that it would have any substantial effect 
‘im that connection, Mr. Chairman. 

The Cuatrman. Do you believe that departures under the long 
and short haul clause should be confined only to where there is 
actual water competition or to where it is even only potential? 

_ Mr. Crarn. We originally granted relief on account of potential 
water competition, but a gvod while ago we changed that policy and 
declined to grant relief on account of water competition unless it 
was active and actual. I think that the question of relief under the 
fourth section of the act, under the long and short haul rule, is really 
of more importance as between competing rail lines than it is as be- 
tween the rail lines and the water lines, because an absolute long and 
short haul rule as between competing rail lines must result in a de- 
pression of the intermediate rates on the circuitous route below 
what would be found to be reasonable, or the withdrawal of that 
circuitous route from the competitive traflic at the competitive point. 

The Cuairman. Do you not know that there is widespread dis- 
satisfaction on the part of communities that are inland frora a water 
line being charged a higher rate than points on the water line, al- 
though there may not be a vessel operating on the water line? 

Mr. Crarx. Well, I do not know of any important situations in 
which that would be literally true at the present time, Mr. Chair- 
man. Of course, the most dissatisfaction with regard to the long- 
and-short-haul rule and its administration has been expressed by 
the communities in what is called the intermountain country, of 
which Spokane, Wash., Reno, Nev., and Phoenix, Ariz., would be 
illustrative. 

_ Ihe Cuatrman. Mr. Clark. 

Mr. Crark (interposing). If you will just permit me. 

The Cuarrman. Yes, sir. 

Mr. Cuarx. Several years ago we held that westbound trans- 
2ontinental traffic moving under the class rates was not controlled 
ay water competition and that class rates to the points intermediate 
‘0 the Pacific coast might not in any instance exceed the rates to 
the Pacific coast terminals. As to the commodity rates, after the 
slides in the canal had greatly minimized the water competition 
hrough the canal, and after the war broke out, and the boats 
wgaged in that service abandoned it for more lucrative service else- 
where, the water competition disappeared and we reopened all of 
hose proceedings, set the whole hearing de novo, and decided, in the 
ight of existing conditions which disclosed no actual or active 
ompetition, to deny all relief to the companies, and since that time 
here has been in the westbound transcontinental rates no departure 
‘rom that rule and there is none to-day. 

The Crarrman. Recommendation 1(c) relates to revision of limi- 
ations upon united or-cooperative activities among common carriers 
oy rail or by water. Of course, that involves the matter of pooling 
»f equipment, and so on? 

















68 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 








Mr, Crarx. All the suggested restraints brought about by the 
antitrust act and the antipooling provision of the act to regulate 
commerce. 

The CuarrMan. Recommendation 2(¢), emancipation of railway 
operation from financial dictation. How in this bill is that emanci- 
pation brought about? } 

Mr. Criark. I think only by the supervision of the issuance of 
capitalization. 

The Cuamman. That is granting power over bond issues. Would 
vou consider the last paragraphs of the bill with reference to directors 
being interested in more than one carrier as carrying out, in part, thas 
recommendation ? 

Mr. Crark. Yes, Mr. Chairman. I had reference to all the provi- 
sions of that section. I think there have been a good many rather 
unfortunate and unsavory transactions in the past which would have 
been improbable except through interlocking directorates. 4 

The Cnairman. The next recommendation is 3, regulation of 
issues of securities, which has already been commented upon. I have 
not noticed anywhere any serious objection to this provision of the 
bill, and practically in all plans submitted, with possibly one or two 
exe eptions, no exception seems to be taken to granting this power to 
the commission. 

Mr. Cruarx. I have heard no objection to it, Mr. Chairman, on the 
part of anybody. The committee representing the carriers in ser 
years has advocated it strongly, always coupled with the provis 
that it should be made exclusive and complete and that the consent 
or approval of the Federal tribunal would be all that would be nee- 
essary, and that is so pr ovided i in this bill. { 

The Crairman. There is another provision, however, in the oo 
tion relating to stock and bond issues, and that is the supervision of 
the expenditures resulting from such issues. Do you believe that i 
a wise power to delegate to the commission ? | 

Mr. Crark. I do; yes, sir. The application for authority to mak 
the issue will state the purposes for which the proceeds are to be use 
or are intended to be used, and the assent of the tribunal would be 
conditioned upon that use of the proceeds. It therefore seems to me 
entirely appropriate that the tribunal should be authorized to see 
that the proceeds are applied in the manner proposed and in effect 
agreed upon or conditions. { 

The Cuamman, The next recommendation is 4, establishment of 
a relationship between Federal and State authority which will elimi 
nate the twilight zone of jurisdiction, and under which a harmonious 
rate structure and adequate service can be secured, State and inter 
state. This has been a complicated matter for years, has it not? 

Mr, CiarK. Yes, sir; it has. 4 

phe CHAIRMAN. And. there have been a great many Shreveport 
cases ¢ 

Mr. Crark. Yes; a great many. 

The CratrmMan. Are they on the increase? 

Mr. Cuarx. Yes, sir. 

The Cuarrman, "Would the provision in this bill giving the Stat 
commissions the right to sit with the Federal commission and th 
holding of joint hearings and making a single record with final an 






























RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 69 


ultimate authority in the commission to make findings lessen the 
Shreveport cases and possibly bring about an understanding between 
State and Federal commissions? 

_ Mr. Crarx. I think so, Mr. Chairman; and I think it would con- 
tribute largely to a better understanding as between neighboring 
State commissions themselves. 

The Cuairman. Do you think that under it you would have had 
such a controversy as still exists in the State of Illinois on the 2-cent 
rate? | 
— Mr. Crark. I would not state that it would cure that difficulty, 
because the 2-cent fare in Illinois is statutory and not commission 
made. 

The Cuairman. So the State commission’s hands are bound ? 

Mr. CrarK..In that respect; yes, sir. 

The Cuarrman. Could any relief be afforded by the provisions of 
this bill in a controversy between a statutory rate and the Federal 
commission’s findings ? 

Mr. Crark. The Federal commission’s findings of undue prefer- 
ence or prejudice, accompanied by findings as to the reasonable 
interstate rate, would be full authority for the carrier to apply that 
rate fixed by the commission, regardless of any act of the State or of 
its commission. 

The Cuarman. If I remember the terms of the bill correctly, in 
case of undue preference or prejudice, or where the State rate casts 
an undue burden upon interstate commerce, such State rate is for- 
bidden by this bill and is unlawful. That is the intent of the provi- - 
sion, is it not ? | 

Mr. Crarx. Yes, sir; that is one of its intents. 

~The Cuarrmay. I think it is on page 21, at the bottom. 

Mr. Cuark. Mr. Chairman, if you will turn to page 22 of the com- 
mittee print, at the top, you will find that it is provided that “such 
findings or orders shall be observed while in effect by the carriers 
parties to such proceedings affected thereby, any act, decision, or 
wder of any State or State authority to the contrary notwithstand- 
ng.” 

The Cuarrman. Supposing Federal control ceases and that imme- 
liately thereupon the State rates become effective that were effective 
drior to the control, that would result in such a discrepancy between 
ntrastate rates and interstate rates on like commodities as would 
esult in undue preference or prejudice or cast undue burden upon 
nterstate commerce; would not that be the result ? 

_ Mr. Crarx. For State use that is true. There are some States in 
vhich the State commissions have approved for State use rates 
orescribed by order of the director general. I assume there that 
lifficulty would not arise. 

' The Carman. There is quite a number of States where that has 
riot been done? 

_ Mr. Cuark. In most of the States it has not been done. 

~ The Cuarrman. In many States the 25 per cent increase on freight 
‘mounts to much more than that on intrastate rates? 

» Mr. Crarx. Yes, sir. 

' The Cramman. That would still widen the spread between. the 
ntrastate and interstate rates prior to Federal control and the 
nterstate rates made under Federal control ? 


: . 
: 
. 


70 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Cuarx. I think if the State rates as they were prior to Fed- 
eral control should become automatically effective upon the release 
of the carriers from Federal control that the discrepancies between 
a State and interstate rates would be greater than they have ever 

een. 

The Cuarrman. If that be true, when this bill becomes law, would 
not practically most of those intrastate rates which have not been 
accepted by the State authorities become unlawful? 

Mr. Cuarx. I think they would; yes, sir. | 

Mr. Tuom. Mr. Chairman, may I get you to develop the view of 
the witness on one aspect of the matter you have now under con- 
sideration ? 

The CuarrMan. Yes, sir. 

Mr. Tuom. The language of the bill as written is, in one of its 
features, where rates of the State cast an undue burden upon inter- 
state commerce, and I should like to have the witness’s opinion as to 
whether that embraces cases where under State rates the State traffic 
does not bear its just proportion of sustaining the instrument of in- 
terstate commerce ? 

The CuarrmMan. We will be glad to have Mr. Clark’s opinion on 
that. , 

Mr. CuarK. If it should appear that the conditions of operation 
and of transportation within the State were substantially similar to 
those surrounding the traffic into and out of the State and the inter- 
state rates were reasonable, a substantially lower level of State rates 
would be casting an undue burden upon interstate commerce. If it 
did appear that for some existing good reasons the cost of the State 
service to the carrier was substantially less than that of the inter- 
state service and that relatively the net return on the State rates 
was as great as on the interstate rates, I do not think it could be said 
that there was any undue burden because each would be bearing 
relatively its proper share. 

The CyatrMan. If this result follows, namely, that the intrastate 
rates would be an undue burden on interstate commerce, should we 
in this bill legislate against such a contingency ? 

Mr. Cuarx. My individual opinion, Mr. Chairman, not being in a 
position to speak for others on that point by authority, is that it 1s 
most advisable for the Congress to enact some legislation intended to 
be temporary in its nature which will stabilize the situation during 
a period of months following the return of the carriers to private 
control, and that the stabilizing legislation might, with propriety and 
advisability, place some restraint upon the action of the carriers 
themselves by providing some agency in a particular rate district, if 
you choose, through which the questions of the rates for that district 
shall pass, instead of throwing each carrier back into private control 
on its own responsibility and leaving its traffic officer to follow his 
own wishes, his own will, and his own ideas, because I- think there 
is grave danger that under that condition some of the traffic officers, 
pursuing policies that they have pursued all their lives, will in 
effect dissipate revenue instead of conserving it, and not only will 
they dissipate revenue for their own road, but they will dissipate 
revenue for all of the competing roads, because it is as certain as 
anything in human life that the great mass of freight tonnage will 
move along the line of least resistance in the way of freight charges. 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. rg) 


The Cuarrmay. Is it your idea that pmedental upon the end of 
7ederal control that the carriers will earnestly seek business? 

_ Mr. Crarx. I think that is inevitable. 

The Cuarrman. And in Ses eae there might be rate cut- 
ing ? 

Mr. CrarK. Yes, sir. 

The CuairmAn. And a revival of some of the evils that existed 
rears past? 

Mr. Crark. I think that is possible, and I think it is worth protect- 
ng against, having in mind the results that we are seeing from month 
o month from the operation of these properties as a whole under 
omplete restraint upon the traffic officer of the individual line. 

The CuatrmMan. Would it be your idea that this restraint should 
ve exercised for a limited period after control ceases? 

Mr. Cuark. Yes, sir. 

The Cuarrman. What would be your idea as to the length of time? 

Mr. Crarx. My offhand idea would be one year, but I have no 
pecial argument to advance why it should be exactly that period; it 
night be a little less or a little more. 

The Cuairman. How should this restraint be exercised; through 
he commission ? . 

Mr. Cuark. Disclaiming any disposition or desire to grasp any 
nore authority or any more work, I have not been able, in my own 
aind, to conceive of a better plan ‘than to first lay down the rule of 
aw and then authorize the commission thereunder to appoint com- 
aittees or a committee for each traffic district of experienced men 
elected with a view to their skill and knowledge and, perhaps, what 
aight be termed “expert traffic °men” in matters of this sort. 
Vhether or not the shipping public should have representation on 
hat committee is a matter of judgment. I can not see that it could 
lo any harm. It might prove a valuable point of contact with the 
Mee It would appear to reduce, in some measure at least, possible 
riction. 

The CuHairman. The traffic committees to be appointed by the 
ommission ? 

Mr. Cuark. That would be my idea, and to be actual employees 
f the carriers in so far as they were- railroad employees, but to put 
hat restraint upon the traffic officer of the individual railroad that 
efore a proposal on his part to change rates should be presented 
o the commission or be filed in a tariff it must have the indorsement 
nd O. K. of this committee to which I have referred. 

The CuHarrman. Recommendation 5, restrictions governing the 
reatment of competitive as compared with noncompetitive traflic. 
| suppose the provision as to maximum and miniumm rates would 
arry out that suggestion ? 

_ Mr. Crarx. That would have a bearing upon it, Mr. Chairman. 
vuthority to prescribe a division of rates would also have a bearing 
pon it. 

|The Cuarrman. As to the division of rates in connection with 
Hepline roads, would it be possible under the provisions of this bill 
. give power over the division of rates to adjust such division of 
ates as would permit the average short line to live? 

Mr. Crarx. I would not be venturesome enough to say that it 
7zould be possible to permit them to live. Their conditions are 


a 


72 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 






2 re Teel 


varied. It would be possible to require what is not now always fol+ 
lowed, that the so-called short-line roads shall have a reasonable and 
fair division of the rates. You see, Mr. Chairman, where a carrier 
has what we call a strategic advantage which controls the situation 
it possesses the right to demand such division as it chooses from its 
connections and is able frequently to get the lion’s share, entirely re! 
gardless of the proportion of the service performed. 

In a great many instances a carrier having that strategic ad! 
vantage of location and protected by the existing provisions of thé 
fifteenth section of the act with regard to the establisHment of 
through routes will join in a through route with a connection under 
which it surrenders.its long haul, but in consideration of a division 
which is exacted by it and which the connection prefers to pay rather 
than to be without the connection and the through route. Again) 
where a short line has connection with but one railroad and hence but 
one outlet, it can not establish a through route and joint rate except 
with the consent of the connecting trunk line, and the connecting 
trunk line is in a position to practically dictate the division of thé 
rate. The short lines often feel that their portion is too small] 
Under this act that. question could be adjudicated. That leads me 
to another remark with regard to the establishment of througli 
routes. J know that some so-called short lines, perhaps longer than 
the average of the short lines, are so located that it is impossible for 
them to secure through routes and joint rates on what is called over! 
head traffic; that is, traffic coming from beyond or going beyond 
the terminal, except by the consent of the connection. ‘ 

I have in mind one particular road that is so located that every 
carload of overhead traffic which it can handle could be handled by 
one of four or five of its larger trunk-line connections. They could 
not be required, under the present act, to establish through routes 
with it, because the through route would not include substantially all 
of their own line between the termini, so that railroad could not hayé 
any through routes and joint rates and division of joint rates on over 
head traffic, except in so far as these trunk-line connections are will! 
ing to accord them and let it live. It could not live on purely local 
traffic or the traffic originating and terminating on its line. : 

The Cuarrman. Would it be feasible or wise to give to the short 








lines a minimum percentage of the rate? . if 

Mr. Crarx. No; I do not think so, Mr. Chairman, because it 
would follow that for identically the same service on a shipment 
which took a high rate it would get a very much larger division than 


it would get on a similar shipment which took a very low rate. 
The Cuarrman. You think—I will not say generous treatment, bu 
fair treatment should be given to the short line because it originates 
the freight ? | 
Mr. Crark. I think that fact should be a factor in determinin 
how much it is entitled to. : | 
The Cuarrman. The bill gives you authority to require the car+ 
riers to supply themselves with sufficient and safe equipment? | 
Mr. CuarxK. Yes, sir. ¢' 
The Cuairman. Is it a fact that many short lines are under! 
equipped ? at 
Mr. Cuarx. I think so; some of them have practically no equip- 
ment. . 







RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. igs: 


The Cuarrman. That is, they depend upon the trunk-line con- 
nection for their equipment? 
- Mr. Crarx. Almost entirely, some of them—many of them. 
The CuarrmMan. If it came to fair treatment in the division of 
the rates, not having equipment, but depending upon the trunk-line 


connection for the ‘equipment, you would hesitate to give them a 


gga division of the rate? 

CrarK. I should take the fact that they did not bear the 
eden of ownership’ in furnishing equipment into consideration in 
determining what, under all the circumstances, was a reasonable 
division. 

The CHarrMAan. Recommendation 7c, a more liberal use of ter- 
minal facilities in the interest of free movement of commerce. Do 


you think there will be any insuperable difficulty in the joint use 
of terminals arising out of a proper apportionment among the users 


of the joint terminals and cars? 
Mr. CuarxK. I suppose, Mr. Chairman, there will be instances in 


which differences of view will be irreconcilable, but in that, as in 


all other matters of this kind, the public interest is involved, and the 


public interest ought not to be put aside because of disagreement 


between the parties which should be serving it; and this will confer, 


as the law ought to confer, authority on an established tribunal to 
determine that question, if they can not agree on it, and bind them 


to that determination. 


The Cuarrman. The terminal charge is oftentimes a very large 

factor in the rate? 

Mr. Cuark. Sometimes; yes, sir. 

The CuHarrman. Would the joint use of terminals permit the car- 
riers to reduce the rate? 
Mr. Crarx. It would operate to reduce the terminal cost on the 
whole. 

The CHarrman. It would permit a reduction of the rate? 

Mr. Crarxk. It would have that tendency, Mr. Chairman; it would 
tend in that direction. 

The CHatrmMan. That covers the recommendations so far as listed. 
I wish to ask just a few general questions and then I will be through. 
Under Federal control the Government has encouraged water trans- 
portation on the Black Warrior and the lower Mississippi, has it not? 

Mr. Crarx. I understand so; yes, sir. 

The Cuarrman. And they have already appropriated many mil- 


lions of dollars in securing the necessary tugs and barges, and are 


constructing tugs and barges for the upper Mississippi. Now, all 
that has been done practically under Federal control ? 

Mr. Crark. Yes. 

The Cuatrman.-When Federal control ceases, what will be the 


status of the water transportation developed on those streams? 


: 


Mr. Cuark. I think that would depend, first, upon how it was 


| Beeeated, and, second, upon the ownership of the a Ge a 


The Cuarrman. At present it is Government owned ? 

Mr. Cuark. At present it is Government owned, but the policy of 
the Congress with regard to a Government- owned transportation 
agency, I think, is clearly shown in the provision which governs the 
_ Government- owned railroad in Alaska. It is subject to our act just 
the same as if it were privately owned. ; 


74 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


The Cuarrman. Your opinion, then, would be that even after Fed- 
eral control ceases your power over rates, fares, charges, and so on 
would continue as to these water-transportation lines developed by 
the Government at Government expense ? 

Mr. Cuarx. If operated as common carriers within the provisions 
of this act, I do think so. 

The CHarrmMan. Even though operated through some eovern- 
mental agency ? 

Mr. CiarK. Yes, sir. 

The Cuarrman. One of the main questions which will be devel- 
oped before this committee is the financial side of railroad legisla- 
tion—the matter of credits. You developed, in statistics which you 
presented yesterday, the financial record up to and including 1916? 

Mr. Crarn. Yes, sir. 

The Crarrman. Is it possible now to include statistics for 1917? 

Mr. Cuark. Yes, sir. 

The CHarrman. And 1918? 

Mr. Ciark. Yes, sir. 

The Crrarrman. Could those be added to the schedules you have 
already filed ? 

Mr. Crark. I think that statement could be brought down. to 
include those years as reflected in the annual reports of the carriers 
to the commission. I understand, and, I think, correctly, that the 
expense of what is called the overhead administration is not re- 
ported to us;.that is, the Director General, his regional directors, 
and what might be called his general office force 

The CuHarrMan. Federal managers. 

Mr. Crark. Federal managers, who are engaged in the general 
organization of the director general’s forces are, of course, paid, but 
the expenses are not charged to any particular railroad. So that 
whatever-sum he expends in that way would be added to that re- 
ported by the carriers in the aggregate, but we could not attempt 
to allocate it; in fact, we have no figures on that except as he makes 
them up. | 

The CuarrmMan. Those figures as to the cost of railroad adminis- 
tration were included in hearings before the Committee on Ap- 
propriations of the House. 7 

Mr. Cuark. I understand Director General McAdoo—— 

The CHatrMan. And they are available. 

Mr. Ciark (continuing). Presented them before the Senate com- 
mittee and that Director General Hines has presented them to the 
Committee on Appropriations of the House. 

The Crairman. Is it true that every nation at war has been com- 
pelled to vastly increase its wages for employees, and has the cost of 
the operation of their railroad. systems been largely increased since 
war began? 

Mr. Crarx,. I understand that is so, although I have seen no au 
thentic figures, except with regard to Great Britain. 

The Cuarrman. Since August, 1914? 

Mr. Crark. Yes, sir. 

The Cuarrman. And brought down to date? 

Mr. Criark. I answer your question from a photographic repro: 
duction of a statement entitled “ Railway working during the war, 
showing the cost of running the railways in Great Britain Fhe 





RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 75 


she period of Government control of the railways for a fraction of 
the year 1914 and for the calendar years up to and including 1918, 
which was, as stated on its title page, presented to Parliament by 
sxommand of His Majesty. : 
‘ The CuairmMAn. That is a very recent report ? : 

~ Mr. Crarxk. Yes; and undoubtedly authentic, because it comes to 
is through our Department of State. 

~The Cuairman. I think we ought to include that statement in our 
aearings. And will you first give us a summary of it? 

Mr. Crark. This is a very concise statement, Mr. Chairman. The 
irst figures are an estimate. of the value of the Government traffic 
f charged for at authorized prewar rates. That is separated into 
lifferent periods, the first being from August 5 to December 31, 
1914, and then the calendar years 1915 to and including 1918, and the 
iggregate is £112,048,808, and the report says that these figures are 
n respect of railway transit only and that the railway companies 
qave performed additional services by means of steamboats, docks, 
sanals, etc., for which no charges have been set up or, as they put it, 
‘for which no charges have been raised.” The value of these have 
ot been ascertained but are estimated roughly at from £10,000,000 
-0 £15,000,000. 

The statement then shows the compensation paid in respect of 
sontrolled periods. ‘That is stated for the same periods, and the 
‘otal is £95,313,607. These figures include provisional allowances for 
leferred maintenance of permanent way, rolling stock, and plant, 
out do not include any provision for “ extra wear and tear,” which 
tem, it says, can not be ascertained at present, but the auditors advise 
it will be considerable. 

‘There is then an estimate for the current financial year and the 
ost of working the railways during the financial year ending March 
31, 1920, as compared with 1913, and these figures are in direct 
inswer to your question with regard to wages. The war wages and 
other concessions, which I understand to mean concessions to labor, 
umount to £57,000,000; the eight-hour day and new concessions re- 
cently granted or still under discussion, from twenty to twenty-five 
nillion pounds; the extra cost of materials and coal, £27,000,000, the 
otal estimate being from £104,000,000 to £109,000,000. 

Then there are the details of the receipts and expenditures for 
shese several periods, from which it will appear that in each calendar 
year, disregarding for the moment the fraction of 1914, the total 
revenue earned exceeded the revenue for the year 1913, which was 
saken as their standard return period. . 

' The Cuatrman. They only used one year. 

Mr. Crarx. I understand they took the year 1913 as their standard. 

Tt shows also that for each calendar year included in the statement 
he total expenditure considerably exceeded that for 1918, and that 
vhe balance of revenue earned over expenditure exceeded that for 
1913. 

The figures showing the receipts and revenues include the esti- 
nated amounts which would have been paid for Government traffic 
\f it had been charged for at the prewar authorized rates; in other 
words, they have estimated the traffic for the Government at the 
orewar rates and have applied the war rates to the commercial traflic, 










76 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. © 


with the result that the Government has operated each year with a 
balance to its credit. 

The Crairman. In other words, the operation of the British roads 
during the war period resulted in a profit? 

Mr. Cuark. Yes, sir; when you include the transportation for the 
Government at the prewar rates. 

The Crrarrman. In the United States we have reduced rates to 
the Government for the haulage of war munitions and for the trans: 
portation of troops. Do not the troops get a lower rate? 

Mr. Crarx. I do not think there have been any special rates or re 
duced rates for either, except that officers and enlisted men traveling 
on furlough and at their own expense have been accorded especially 
low passenger fares, but where they travel at the expense of the 
Government, I understand they pay the same-as you and I. 

The Cuatrman. Except on land-grant roads. 

Mr. CrarK. Yes; except on land-grant roads where land-grant re- 
ductions, I assume, are insisted upon by the Government as to all 
this transportation. 

(The statement referred to above follows:) 


RAILWAY WoRKING DURING THE WAR. 


[Statement showing the cost of running the railways in Great Britain during the period 
of Government control of the railways (1914-1918). Presented to Parliament by com: 
mand of His Majesty.] f 


The attached statement, prepared by Sir Walter Wyon and Sir William 
Plender, is submitted. It shows the value of the work performed on British 
railway during the period of Government control, and the provision for expendi- 
ture which has had to be made. The balance of railway revenue earned over 
expenditure is not the amount which has been credited to the railway com- 
panies. The amount to which they are entitled is based on the net receipts of 
the companies in the year 1913 with certain additions in respect of capital ex- 
penditure brought into use since that time. The following statement sum- 
marizes the position so far as the railway companies of Great Britain are 
concerned : ; 


Estimated value of Government traffic if charged for at author- 
ized prewar rates: 


CSGMRE MMC LAMAR RSA £3, 500, 000 





Aug. 5 to Dee. 81, 1914 

Wear TOL se ss ee 10, 279, 104 

Year 1016. iw es ek ee 20, 649, 126 

Y@aw POUT oe Ue 35, 698, 554 

DG: hut ¢2 15. Mee OLE A a MME ETE NEMN be 41, 917, 024 
Total fagliS i Ac oe See be a 112, 048, 808 | 


N. B.—These figures are in respect of railway transit only. The railway 
companies have performed a number of additional services by means of steam- 
boats, docks, canals, etc., for which no charges have been raised. The value 
of these can not be ascertained, but may be estimated at roughly £10,000,000 to 
£15,000,000. i 


Compensation paid in respect of control periods: 


‘Aug 5, 1914, 0 Dee. $1, 1015 ee £15, 946,839 
Méar’ 1O1Giccee yi ots ee Oe ee --. 14, 039, 6% 
Year 1947 uc se Oe 24, 075, 768 
Veit) 1Ot8 hiss Foe eee Meh ook fe 41, 251, 326 
Se a ae 

OT eee ea te Sth es oe Rs ed I lc 95, 313, 607 


N. B.—The above figures include provisional allowances for deferred mainte 
nanee of permanent way, rolling stock, and plant, but do not include any pro- 
vision for “extra wear and tear.” This item can not-be-aseertained at pred 
ent, but the auditors advise that the cost of making good the “ extra wear ant 
tear’ will be considerable. a : 

' 


2 a Y 
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


~} 
~] 


fates ESTIMATE FOR CURRENT FISCAL YEAR. 


y The figures of £90,000,000 to £100,000,000 were quoted by the minister desig- 
ate in moving the second reading of the ministry of ways and communications 
vill. These figures were the best estimate then available of the increased cost 
of working during the two years of extended Government guarantee, as com- 
dared with the cost in 1918. The following is the present estimate of. increased 
sost in working the railways during the financial year ending March 81, 1920, 
us compared with 1913: 


Statement ef estimated increased cost in working railways during financial 
year ending March 31, 1920, as compared with the year 19193. 






; > EES \ 
(War Wameuend other concessions______. £57, 000, 000 
‘$-hour day and new concessions recently granted or 

Sulltvmemmer discussion-_____.... bates ah ih 20, 000, 000-25, 000, 000 
\xtra cost of materials and coal___________________ 27, 000, 000 





; | a ee 104, 000, 000-109, 000, 600 


A. C. GEDDES. 
1. BoArD OF TRADE, 


; April 30, 1919. 

I 
The Right Hon. Sir Arberr STANrey, P..C.. M.'P., 

° President of the Board of Trade. 

Sir: We have, as requested, prepared a statement showing the revenue earned 

ind expenditure of British-controlled railways in respect of railway working 


“or the year 1913 and for the period of Government control to December 31, 
918, which we subjoin: 


APRIL, 1919. 


SS 


Period of Government control. 












































Aug. 5 to 
j Year 1913. | Dec.31, 
1914. | Year 1915. | Year 1916. | Year 1917. | Year 1918. 
RECEIPTS, 
‘assenger-train traffic......... £54, 096,074, £19, 091, 103) £52, 576, 836) £54, 953, 831) £59, 710, 183 £69, 819, 265 
toods-train traffic............. 68,551,503) 26,861,560! 71,754,353} 74,809,650) 74,310,568] 72,396, 409 
istimated amounts which . 
would have heen received 
for Government traffic if. 
charged for at prewar au- 
_ thorized OES ce ae Eat a re 3,509,000; 10,279,104) 20,649,126) 35,698,554] 41,917,024 
) 0 122,647,577| 49, 452, 663) 134,610, 293] 150, 412°607| 169, 719, 305| 184, 132, 698 
eSS expenses of collection ¢ 
| Mm cenvery. 8. 5,092,670) 1,950,817) 5,341,872) 5,711,354) 6,571,736) 7,845,927 
Total traffic revenue 
Oe Oe aie 117,554,907} 47,501,846) 129, 268, 421] 144, 701,253] 163,147,569] 176,286, 771 





Fe oh iB) Ge” 150, 679 1,719 9, 844 9,115 7 AGL Sol ae ee ae 
iscellaneous._.:............. 995, 349 414,623} 1,079,779; 1,160,717} 1,126,903) 1,297,550 





Total revenue earned ...| 118, 700,935) 47,918, 188) 130,368, 044) 145,871,085] 164,279, 430) 177, 584,321 








EXPENDITURE. . 


laintenance and renewal of 
‘Wey @ad WOrks.....-.......2 ) 11,818,310 4,623,713) 11,598,234) 11,924,459) 13,265,610) 16,145,166 


Mo ee Da 800, 264) 2,934,757) 5,055,609} 6,282,179] 6,485,228 
aintenance and renewal of 

ee BLOCK... ............ 13,257,617} 5,193,599] 13,741/171] 15,211,621] 17,620,905] 21,888,238 
‘aintenance and renewal of 

‘rolling stock, arrears to be 

pee 315,446) 2,476,753) 3,202,694 3,667,993] 3,327,049 
ocomotive running expenses.| 17,130,661) 6,918,659] 19,195,992] 22,604,085} 24,742,848] 29,973, 666 
‘ramic @xXpenses............... 23,260,765, 9,405,579) 24,739,143} 27,397,967] 32,772,823] 41,621,685 
‘eneral charges............... 2,598,209, 1,094,918) 2,635,550) 2,692,066] 2,885,972) 3,140,849 








‘tary expenses............... 226, 346 89, 039 197, 250 186, 802 176, 517 185, 812 


{ 


, | 
! 


78 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 7 


Period of Government control. 



























Aug. 5 to ah 
Year 1913. | *Dec.31, © |————_ —————— —_ 
sarin Year 1915. | Year 1916. | Year 1917. } Year 1918, 

EXPENDITURE—continued. 

1" 
Compensation (accident and 

YOSSES) as), bee oka ae eee £1,158, 451 £293,760) £1,176, 858} £1, 250,914) £1,275,191| £1, 456, 430: 
Rates, taxes, te... ..c0 4c secede 4,705,264, 2,077,111 5. 064; 047 4 839, 699 4, 880, 778 5, 273, 155. 
Government <9 CDi ra pec cirayhe HeO 284, 351 81,101 255, 34] "293° We ane eee See | 
Payments under national in- , 

surance'act; JOM. ate 398, 870) 155, 192 363, 652 354, 126 362, 339 355, 496: 
Running powers.............. 108, 699 SIA! fh <3, 234 3, 806 1, 209 1, 665. 
Mileage, demurrage, and 

marae bere ho etre 239, 916) 28, 126 51, 186 45,961 63,942} 165, 745. 
Miscetamomis.. U2 ue oS 157, 139 74, 722 190, 63 207; 596 252,789} § 340,392" 
Allowances to dependents of y 

men serving with His Maj- 

ROUT TOROS! A ha ie ont a te cae 141, 683 333, 225 477, 425 623, 395 711, 009 
Watching, partolling, etc......|........---. 190,731 21, 240 8, 702 5, 860 7,127 
Payments to staff, armistice : 

day 22) LLU LES Te ON ea en ee a 250, 918. 

Total expenditures... ... 75,127,210, 31,782,832) 85,028, 262} 95,756, 706| 108, 877, 932} 131,326, 295. 
Balance of revenue | 

earned over expendi- . 

GUTCS Spee RA 43,573,725, 16,135,356) 45,329 782] 50,114,379} 55,101,498] 46, 258, 026. 








Note 1.—Compensation payable to railway companies: The sum receivable 
per annum by the railway companies as compensation during the period of 
Government control is limited to the net receipts of the year 1913, with the 
addition of 4 per cent upon capital expenditure brought into use since the 
beginning of that year. 

Nore 2.—Audit. The accounts from which the figures are taken have been 
audited on behalf of the Government up to the close of 1916, and the greater 

part of them for 1917. The remainder of the figures are taken either from 
accounts in process of audit or from preliminary returns. 

Note 3.—Subsidiary undertakings: The value of the services rendered with-| 
out charge to His Majesty’s Government by means of steamboats, docks, canals, 
etc., is not ascertainable, and the results of these subsidiary undertakings are: 
accordingly omitted. It is not likely that, if available, they would materially | 
affect the figures. 

NorE 4.—Government traffic: This is the value of the traffic carried for the 
Government without charge under the compensation arrangements, calculated | 
at prewar authorized rates. The figure for 1914 is estimated. 

Note 5.—Wages: The wages included in the several heads of expenditure are 
taken at the actual_rates paid, rising in 1918 from 21 shillings per week to 33 
Shillings above the rates in force in 1918. If the rates paid at the close of 
1918 had been in force throughout the year it is estimated that an additional - 
cost of about £10,000,000 would have been incurred. i 

Nore 6.—Arrears of maintenance: The cost of making good maintenance in 
arrear is calculated on the basis of the expenditure in 1913, increased by ioe 
per cent, to allow for higher rates of wages and prices of materials. 

Nore 7.—Extra wear and tear: The above net receipts are subject to pro- 
vision for extra wear and tear arising from additional traffic carried. The’ 
cost of eventually making good this wear and tear must be considerable, but 
can not be estimated at present with any degree of accuracy. A calculation 
based on the ratio of maintenance outlay to receipts in 1913, after allowing : 

| 





for increased wages and cost of materials, results in a figure of about £40,000, 
during the period of control. There are factors affecting this estimate which 
tend to reduce it, but whatever their effect there is no doubt that a large 
allowance for this contingency needs to be provided 10h We are, 
Your obedient servants, 8 
ALBERT W. WYON. 
WILLIAM PLENDER.. 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 79 


Mr. Sims. Mr. Commissioner, there is one matter whieh you re- 

ferred to in the beginning of your statement which seems to me to 
‘have somé effect on everything connected with this entire question. 
It was touched on somewhat by yourself and the chairman, and that 
is what is commonly called the long-and-short-haul clause, the fourth 
section. The chief object and purpose of that section, as appears on 
‘the face of it, was to prevent any railroad charging more for the 
‘short than the long haul over the same road on the same class of 
freight or passenger traffic moving in the same direction, but the 
first proviso in the fourth section provides: 
Provided, however, That upon application to the Interstate Commerce Com- 
imission such common carrier may in special cases, after investigation, be 
authorized by the commission to charge less for longer than for shorter dis- 
_ tances for the transportation of passengers or property; and the commission 
may from time to time prescribe the extent to which such designated common 
‘carrier may be relieved from the operation of this section. 

Now, there seems to be no legislative guide line or limitation upon 
the commission in its discretion in determining, first, what are spe- 
cial cases, and, second, the amount or the extent of this permission. 
‘Now, does the commission act or has it acted, on what seems to be 
igre ‘unlimited power, within its own discretion, to determine first 
\what is a special case, ‘and second, the amount of the relief, 1f we can 
‘call. it relief, or the discrimination in favor of the farther distance 
against the shorter distance? Has the commission any established 
rules by which it puts in operation this exception whenever they have 
‘so acted ? 

Mr. Cruark. As you have pointed out, Judge Sims, that section lays 
down no rule of law to govern the commission in the exercise of the 
|discretion vested in it. As you will remember, the original fourth 
section of the act prohibited the charging of less for the longer haul 
)than for the shorter haul under similar circumstances and conditions. 
J made to give that any vitality was 
zontested in the courts and in each case that was taken to the courts 
;the commission was reversed on the ground that the circumstances 
jand conditions were not similar. In 1910, the Congress took it up 
for amendment, and the present law from which you have read is the 
fresult. It transfers to the commission the power to determine 
whether or not the rule may be transgressed or deviated from, but it 
juttaches ho condition and places no limitation upon the discretion of 
“he commission as to the conditions which should control, as to the 
sonsiderations which might be given weight or as to the extent. 

_ The first important case in which we entered an order under this 
yimended section was the transcontinental situation, and we there au- 
shorized deviation from the rule with regard to westbound com- 
nodity traffic; but we*fixed the extent to which the rates to the ter- 
/ninals might be lower than to the intermediate points by percentages, 
Jetermined by zones of origin. That was contested in the courts; 
{he constitutionality of the act Was challenged, and it was contended 
hat if the commission found that there was bbinpalling competition 
jit the more distant point that was not present at the intermediate 
doint the commission was without power to deny relief and without 
) ower to prescribe the measure of the relief except as it might de- 
vermine the reasonableness per se of the rate to the intermediate 
»oint. The Supreme Court sustained the decision of the commission 

















80 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. ; 


and the pow er of the commission as it had been asserted. Now, the 


only rules that we have had are unwritten rules of guidance of our 
action. As I said in answering one.of the chairman’s questions, we 
originally granted relief when there was potential water competition 
at the more distant point; but after a time we made up our minds 
that that was rather too broad a policy and ought to be narrowed, 
and since then we have declined to recognize potential water compe- 
tition as justification for relief. 

We have a general rule, and have generally followed it—an un- 
written rule—as between the circuitous and a more direct line of rail- 
road‘ competing for the same traffic. The length of the circuitous 
route must exceed that of the more direct route by 15 per cent or 
more in order to constitute a special case or entitle it to any relief on 
the ground of circuity. We have refused in many instances to grant 
relief when in our judgment the distance by the circuitous route un- 
reasonably exceeded that by the direct route and created a condition 
under which it would seem to anyone looking at it that either the 


rate by the circuituos route must be unprofitable and unremunerative 


or that by the direct route must be too high; but we have had no 
guiding rule. We have had to do the best we could, and in doing 


the best we could we felt that we must accept the fae that that pro-, 


vision was in the statute as evidence of the intent of Congress that 
it should be used and recognition of the fact that transportation 


conditions throughout the country were or might be such as to war-) 


rant relaxation of that rule and relief from it in such circumstances 
as the commission felt justified such relief. 

Mr. Sirus. Then, so far, the commission has acted upon what ap- 
peared to be the controlling circumstances of each application or of 
each carrier seeking to be exempted from that general rule of law. 
That seems to have been your procedure. 


Mr. Crarxk. Except that necessarily, in determining any question | 


under the fourth section, the provisions of the first and third sections 
must be taken into consideration. We would not approve a departure 
which involved a rate which we believed to be unreasonable per se to 


either point, nor a rate that in our judgment created undue prefer- 


ence or prejudice. 

Mr. Sts. Is not one of the effects of allowing the railroad of 
longer length of mileage moving freight from one ‘point to the other 
that the longer road vets less per ton-mile in the way of profits or 
compensation than the shorter road gets, both charging the same 
rates ¢ 

Mr. Crarx. Necessarily so. 


Mr. Sims. And to that extent, then, it modifies, or rather impairs,) 


the weight that ought to be given to ton-mile charges, taking the 
United States as a whole, and all the ton-miles together added. 

Mr. Criarx. I do not think that would follow. | 

Mr. Sims. In the question of the movement of freight per ton-mile. 

Mr. Cruarn. The statistics showing the revenue per ton-mile are 
made up from the actual movement of the traffic. The same railroad 
earns varying revenues per ton-mile on different kinds of traffic and 
different railroads earn different revenues per ton-mile on the same 
traflic, depending upon the length of their line. 

Mr. Srus. But if all traflic moved on the most direct route, requir- 
ing less capital charge in the way of actual mileage of construction 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 81 


jand less operating expenses in wear and tear and maintenance, is it 
‘not inevitable that if all the traffic moved in that way the cost per 
‘ton-mile of the movement of traflic, the capital charge, operation, 
maintenance, and everything else, would be less per ton-mile ? 

Mr. Crark. That would be true if you threw out of considera- 
tion entirely the existence of the circuitous route. If you tear it up 
and leave only the direct lines, that would be true, but of the cir- 
| cuitous route is to continue in operation and is to live, I do not think 
\it would result in any economy or anything except misleading sta- 
| tistics. 

| Mr. Sms. It might not as the roads that are now built and econ- 
|structed, and no one contends that we should adopt the policy of 
allowing any of them to be torn up, but our transportation lines, as 
we now have them, regardless of why they were built that way, can 
aot and do not move freight and passengers under the most eco- 


















|,xomical conditions that could be conceived, provided the roads had 
service between all points. 

| Mr. Crarx. That is undoubtedly so. 

20st of operation and maintenance, the capital charges, and every- 
Va included, being greater under systems built up like ours have 
ivble rate prescribed by the commission, the more in that way you 
,mpair the credit of all roads thus affected; is not that true? 
joy the accommodation to the shipping public of having the benefit 
of the competing routes and in times of emergency having two routes 
| Mr. Sirus. But we are asked here virtually by some of these bills 
o have the commission or some other body say how much the earn- 
/n these roads and to have returns sufficient to make the securities of 
aid roads competitively attractive; that is, attractive as against 
1s not that true? 

| Mr. Cuarx. I think so. 

ential water competition, I believe the facts are that in the past, 
though not in the most recent past, the commission has taken into 
vhere such competition might come into existence if the rates were 
\ufliciently attractive to bring that about. 

ect 

| Mr. Srms (interposing). I may not state that correctly or clearly. 
ial water competition except under a very definite showing that the 
vater competition had been there and might and probably would 
) Mr. Sis. Provided this rate was not lower. 

- Mr. Crarx. Yes. 


|ll been constructed with a view to the shortest lines and least cost of 
Mr. Sims. Then the fact that such a thing does exist, and the 
| 
yeen built, then the more of the traffic which moves below the reason- 
Mr. Crarx. I think it would have that tendency, offset, of course, 
_vailable instead of one. 
; ngs shall be in order to pay a reasonable return upon the investment 
ther investments in which private capital could be put with profit; 
| Mr. Srus. Now, then, in cases of actual water competition or po- 
onsideration potential water competition in making railroad rates 
Mr. Crark. If you will pardon me, Judge Sims, in order to cor- 
_ Mr. Crarx. We have never, to my recollection, recognized poten- 
eturn. 
152894—19—vor 1——-6 


; ee | 


82 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


| 

ft 

, ) 

Mr. Sims. One ofthe objects and purposes of the lower rate is to 
prevent the return of water competition in such case, is it not? ) 

Mr. Cuark. Not on our part. , | 

Mr. Srus. Then what is the tise of referring to it and treating 1t 
as an agreement for a lower rate by saying that water competition 
will return unless the lower rate is given. 

Mr. Crarx. As I say, those considerations were among the earlier 
ones considered. We were dealing with rate adjustments that had 
been in effect for many years; that were originally made before the 
act to regulate commerce was created, and at a time when the rail 
carriers building into the territory found the competition of the 
water carriers already there; and when. they were compelled to ae: 
cept the same rates that the water carriers would accept, or forego 
the traffic. 

Mr. Stus. Now, then, in the case of the building of the Panama 
Canal, after the Panama Canal was built, and in course of operation} 
did not the commission authorize the transcontinental lines to make 
a lower rate from water-competing points on the Pacific coast to 
like points on the Atlantic coast, below what the railroads had for: 
merly been charging or what had been considered as reasonable rates 
for the transportation thus performed ? 

Mr. Cuarx. There has never been a time since the first transcon; 
tinental railroad was constructed—and, incidentally, constructed by 
very abundant Government aid, although not quite as a Government 
proposition as the canal was built—when the rates to the Pacific 
coast terminals in competition with water carriage around Capé 
Horn originally, through the Straits of Magellan later, later by 
water and transshipment across the Isthmus of Tehuantepec, latet 
by water and transshipment across the Isthmus of Panama, and 
later by boat all the way through the canal, have not been lower 
than to the intermediate points. That was true before the act te 
regulate commerce was enacted. It has been true ever since until, as 
I have stated, our last decision in the intermountain cases when we 
held there was no compelling water competition and the rates must 
not be higher to the intermediate points than to the terminals. 

We had previously found that there was compelling water com: 
petition that was not subject to any regulation and with regard t¢ 
a specific list of commodities, as to each one of which we had full 
hearing, we authorized the rail carriers to establish rates to thé 
terminals somewhat lower than they had previously charged becaus¢ 
piey were being carried at lower rates by the boat lines than eve! 

efore. 

Mr. Sims. Through the Panama Canal? . 

Mr. Cruarx. Through the Panama Canal, but we connected thal 
~ with a limitation upon the extent to which the rate to the inter: 
mediate road might exceed the rate to the terminal, which gayt 
the intermediate points a better relative adjustment of rates that 
they had ever had before and which gave them an assurance that 1] 
the carrier should further reduce the rate to the terminal point, 1 
would, of necessity, at the same time reduce the rate to the inter; 
mediate points. | 

Mr. Sims. My line of questioning is as to the bearing upon tht 
credit of the railroads rather than the discrimination between th¢ 
points. I had reference to. such a permission being given to tht 

: 


| 


| 
al 
























RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. So 


“ranscontinental lines on account of the existence of the Panama 
|Janal and its operation and enabling those who do not ship by the 


ill-water line to get lower rates from San Francisco to New York 
‘md Boston than they could before the canal was built and limiting 
‘he transcontinental railroads to make a rate that would enable the 
‘ranscontinental railroads to get back all the freight which other- 
‘vise would go through the Panama Canal. Was not that the object 
|) the railroads in seeking such treatment ? 

Mr. Crarx. To get a part of the freight. 

Mr. Stmus. That they might get all of the freight ? 

) Mr. Crarx. Not under the rates which we prescribed. 

Mr. Sims. The object of the railroad companies was, as a matter 
of peat to keep the freight from going that way or to increase their 
‘reight ? 
ie Mr. Cxrark. The purpose of the railroads, as pretty clearly appears 
i'n the record, was to preserve a part of the traffic which they had 
heretofore had. 
| Mr. Saws? Freight is increasing at all of these points, is it not, all 
| he time; that is, the volume of business done as the country develops ? 
Mr. Crars. Naturally, as the country develops in normal times, 
he volume of transportation increases. 

Mr. Srtus. As a matter of course, then, that is an unprofitable 
raflic to that extent ? 

' Mr. Cuarx. No; we do not think so. 

’ Mr. Sims. The railroads do not propose to carry any freight for 
less than what they call out-of-pocket cost, as I recall it? 

' Mr. Crark. Yes, sir. 

Mr. Sims. Out-of-pocket cost, as I understand, is determined by 
1ow much it will cost the railroad to move the freight in competition 
vith the canal, and also what it would cost to operate the railroads 
vithout carrying it? 

) Mr. Crarx. No; only what it costs to move that freight whether 
rhere is a canal or not. 

Mr. Srus. The cost of moving the freight over the railroads? . 
Mr. Cuark. Yes, sir. 

) Mr. Sms. But it includes no percentage on the question of a rea- 
/onable rate ? | 

| Mr. Crarx. No; it includes a certain proportion of profit in so far 
‘s that would be included in a safe determination that it was not 
ess than cost. It would not contribute anything to the overhead 
)Xpense except that narrow margin, but whatever profit there was 
rould contribute to the net and be available for payment of over- 
; ead expenses. 

Mr. Srus. Is not this an inevitable fact, that every ton of freight 
farried by a railroad that would otherwise go through the canal by 
‘educing their rates, deprive the Government of the tolls it would 
‘eceive on that freight if it did go through the canal? 

Mr. Crarxk. I suppose that is so; yes. 

} Mr. Sms. And therefore the permission given to the railroads to 
jarry the freight from ocean to ocean for less than they themselves 
ontend is a reasonable rate, just so it covers the out-of-pocket cost, 
ermits them to prevent the Government or the taxpayers of this 
jounry from being reimbursed to the extent of the tolls which would 
e paid if the freight went by the natural waterway ? 





54 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Crarx. Judge Sims, if the railroads were not permitted t¢ 
compete with the water carriers and the water carriers were to re- 
sume operations under the same laws that obtained at that time, the 
water carriers would charge all they could get for the freight and 
get it away from the railroads. . 

Mr. Sims. The water carriers would serve those points? 

Mr. Ciark. Of course, they would. 

Mr. Stus. And they would make their own rates? 

Mr. Crark. Yes, sir; they would make all they could and get the 
freight away from the railroads. | 

Mr. Sims. Naturally; in other words, the most economical servic¢ 
would do the business? 

Mr. Crarx. It depends upon whether it is the most economical 
I think it now costs more to transport by water than by railroad. 

Mr. Sims. Would private capital go into the water route shipping 
business without a prospect of getting a reasonable return upoi 
the investment ? 

Mr. Cuarx. I do not think it would. 

Mr. Sims. If private capital in water routes as compared with: 
freight-carrying railways can economically carry the freight fot 
less and yet live and be satisfied, why should we artificially destroy 
this natural economy and do it at the expense of the public taxpayer: 
of the United States, at least to thexextent that the tolls are nol 
collected ? | 

Mr. Crarx. We do not advocate any attempt or effort to destroy 
them. What we undertake to do 

Mr. Srms (interposing). I am not talking about the purpose oi 
the commission. 

Mr. Cuiark. I understand. If you leave the water carriers an¢ 
the railroads entirely free from restraint they will be like the Kil, 
kenny cats—they will destroy each other and destroy themselves bj 
carrying the competition to a ruinous extent, and who will benefi 
by it? If there is anything certain in human nature it is that if 
the railroads are not permitted to compete with the water carrier: 
the water carriers are going to charge all they can charge and ge: 
the traffic. If the water carriers can not compete with the railroad: 
the railroads are going to get all they can get out of the traffic. J: 
they are permitted to compete with each other for the traffic of 
reasonable terms which do not give either an unfair advantage ove} 
the other the public is going to pay less. It is true that the mort 
tonnage that moves through the Panama Canal the more tolls thi 
Government will collect. It is also true that these economical]; 
operated and privately owned water carriers through the Panam! 
Canal abandoned that service just as soon as more lucrative cargoes 
appeared for the use of their boats elsewhere. 

Mr. Srms. In other words, there was no law compelling them t 
do a less economical business through the canal than they could di 
by not going through the canal? | 

Mr. Crark. It was not an economical business; it was an oppor' 





} 


tunity to get more money by going to South America. 
Mr. Sims. Profitable business, I mean ? | 
Mr. Car. Yes, sir; profitable. | 


a 












RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 85 


| Mr. Sms. You do not believe it is right to provide by law or 
egulation so as not to give the more naturally favored places that 
‘dvantage which they otherwise would receive ? 

Mr. Cuarn. We adhere very strongly to the principle that it is 
‘ot our mission or our right to deprive any place of the advantages 
.f its natural locality. 

Mr. Sims. You have spoken of water-compelled competition ? 
Mr. Cruark. Yes. 

Mr. Sims. That does not mean, as a matter of course, that it is 
bompetition that compels a railroad to carry its freight for any 
|3ss, but it means not carrying it for less than it could be carried 
y the natural and most economical means? 

_ Mr. Criarx. It must carry it for less or not carry it at all. 

| Mr. Sims. What do you say of the policy of amending this law so 
‘s not to permit water competition to be regarded as constituting in 
uch instances any ground for making a lower rate to a water-com- 
| eting point by a railroad than the rate to a nearer point on the same 
ine; in other words, applying the fourth section, without regarding 
5 as an exception ? } 

Mr. Crarx. As a special clause or reason for making a lower rate? 

. Mr. Sms. Not as applying to the railroads, but just to the water 
ines. 
Mr. Crarx. J think that is a question of policy. It would operate, 
_ think, to revive water competition. It would give boat lines an 
dvantage which they do not now have and never have had in their 
ompetition with the railroads. Whether or not it would give the 
hippers lower rates is a debatable question. As I indicated in one of 
ay answers to the chairman, my personal opinion is that the oppor- 
unity to grant relief to the circuitous rail line in competition with 
he more direct line is really of more importance than the competi- 
ion with the water lines. 

Mr. Srus. Do you think so as to the particular localities affectéd 2 

Mr. Crarx. I think so as to the country as a whole. 

Mr. Sts. The railroads have contended frequently that if they 
yid carry this freight between competing points and did not get. at 
j:ast some profit out of it they might have to charge the intermediate 
ints even more than they did by having these resources at their 
jommand, however small, but I am looking at this from the stand- 
soint of credit, the amount of capitalization, the costs of operation, 
lepair, and everything else, and if a railroad is allowed to carry-a 
ery substantial portion of its freight from and to a water-compet- 
(ag point at a rate that a water carrier can not economically com- 
ete with or otherwise the water carrier would get it, will not that 
npair the value of the’failroad property to the extent that such com- 
etitive lower rates are permitted ? 

_ Mr. Crank. I think that depends entirely upon a computation, if 
: were possible to make it accurately and strike any balance, between 
he returns to the railroads from that competitive traffic under the 
ates which they must make to get it and what the railroads would 
,se if they had to forego that traffic altogether. The railroad must 
|ontinue to run. It is there whether it hauls the traffic or not and its 
quipment and tracks will be wearing away just the same as if haul- 





ea 
ree 


86 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


ing the traffic. All of these things must be weighed to determine 
whether or not the effect to which you refer would result. 

Mr. Sims. If the railroad gets less on a part of its business than 
on another part it will lose more in the long run than by getting a 
reasonable rate on all? In other words, charging too low for some 
of its business it must charge too high on its other business? \ 

Mr. Cuark. As a proposition of law announced by the commission 
and, I am sure, announced by the courts, a carrier can not carry any 
traflic at a rate that is so low that it necessarily burdens unfairly 
other traffic in order to make up. We have undertaken to apply that 
in administering the fourth section. 

The CuHatrman. The committee will now take a recess as to this 
matter until 10 o’clock Monday morning. 

(Whereupon, the committee took a recess until 10 o’clock Monday, 
July 21, 1919.) 





) 


CoMMITTEE ON INTERSTATE AND ForErIGN COMMERCE, 
House or REPRESENTATIVES, 
Monday, July 21, 1919. 


The committee this day met, Hon. John J. Esch (chairman) pre- 
siding. 


STATEMENT OF MR. EDGAR E. CLARK, MEMBER INTERSTATE : 
COMMERCE COMMISSION—Resumed. 


The Cuairman. Mr. Clark, are you ready to continue? 

Mr. Cuark. Yes, sir. 

The Cuarrman. I think Judge Sims was asking some questions. 

Mr. Srus. Mr. Chairman, in continuing the same line of examina~ 
tion I want to say, so that the commissioner may know, that the 
reasons why I am going a little more into detail into the features) 
of the long-and-short haul clause or the power of the commission to 
act in special cases is because I do not think any member of the Inter- 
state Commerce Commission has ever been heard on the question oi 
prohibiting the exception in the fourth section, and while it does 
not go to the main purpose of this bill, I think it might be well for 
Commissioner Clark to be heard on that a little further than ) 
general provisions of this bill. 

That is the reason I was taking so much time on the fourth-sec- 
tion matter. Therefore, I want to ask a few additional questions, 
It is not in antagonism of the general purpose of the bill, and I do. 
not make any criticism whatever of the acts of the commission Mm) 
applying this exception to concrete cases. Therefore, I hope that 
you will bear with me a little longer. I asked you_a number ot 
questions as to the effect it might have upon credit. I want to ask) 
you, Mr. Commissioner, if the practical application of the excep~ 
tion in special cases would not have a tendency to bring about con 
gestion at the ports or river points where there is rail and water 
competition; that is, if it does not have a tendency to bring about) 
congestion at those particular points, both as to river and rail traffie; 
“in other words, if industries are not almost compelled to locate where 











RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. —68BT 


| 



















“hey can use these competitive rail and water rates, if that does not 
jave a tendency to cause congestion, and, if so, to what extent? 

' Mr. Crarx. As I indicated the other day, Judge Sims, in the sec- 
sions where this question is most acute and of most interest, the water 
‘yansportation was there before there was any rail competition, and 
‘he water lines and the rail lines went to what traffic there was of- 
fered. Now, I think there is no doubt but this adjustment having 
}yeen followed for many years has tended to increase the location 
|>f industries at the points where competitive service was available, 
lund competitive rates obtained, but that is the natural result of the 
sontinuance of a condition that was there to start with. ‘There is 
30 much traffic going to and from a place of that kind, either in nor-’ 
mal times or at other times, and it must be transported by the avail- 
\able transportation lines, and so I can not see that it tends to con- 
yestion at one time as compared with another because the con- 
| xestion is there created by an increase in traflic. We believe that a 
sloser adherence to the long-and-short-haul principle and minimizing 
or reducing the extent to which the rates to the shorter distant points 
may exceed the rates to the more distant points will gradually effect 
1 redistribution of the traffic and encourage direct shipments to and 
‘from the intermediate points. 

Mr. Sus. I had reference to the congestion of industries located 
at those points; in other words, the building up of cities against in- 
/ -ermediate points. 

i Mr. Cuarx. It has had that effect, undoubtedly; yes, sir. 

|| Mr. Sumas. That was one of the reasons I had in asking the question. 
/As other members of the committee no doubt will ask a number of 
}yuestions on the long-and-short-haul clause and its various phases, 
)L will not go further with that. There is one matter that I want to. 
| wsk your views on. I was one of the first members of the committee, 
jas I recall, who advocated giving the Interstate Commerce Commis- 
sion the power to regulate the issuance of stocks and bonds. I felt 
shat there was but one side to the proposition at the time. The Had- 
\ley commission, as you no doubt recall, advocated in substance, as I 


et Ree 





\cemember, nothing but publicity. There were some pretty strong 
\arguments which were supported by Commissioner Meyer, of your 
\o0dy, to the effect that if a Government agency like the Interstate 
Commerce Commission passed upon and authorized the issuance of 
stocks or bonds of an existing railroad or system that there would be 
/ n the nature of a moral obligation incurred on the part of the Inter- 
\state Commerce Commission or other rate-making body to afterwards 
| oermit rates that would have a tendency to prevent the depreciation 
of the market value of those stocks and bonds after they were in the 
iands of the public. 

| The question that I want to call your attention to specially is this: 
| 0f course, a weak railroad company needs new issues of stocks and 
}oonds possibly more than a strong railroad, and if it has a large 
volume of bonded indebtedness and a certain amount of stock issued 
and that stock is selling below par, and under the Rayburn bill and 
others which have been introduced these bonds and stocks can be 
j,uthorized and, in effect, the commission does not have to regard the 
\affect it will have with reference to the market value of the preexist- 
,ng outstanding issues. Suppose the commission should find that a 


88 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Pa 


weak road—I will not pick any particular road, because there might 


be some mistake about it—applies for permission to issue $10,000,000 
or $50,000,000 or any other amount of stock, and the commission de- 


cides that it is needed and it authorizes the issuance of the stock, but 


prohibits the sale of it below par, what effect will that have, as to the 
outstanding issues then below par; will it not have the effect to fur- 
ther reduce the market value of those outstanding issues, or will it 
not have the effect that when the new issue is put upon the market 
that it will necessarily sell below par—what effect will that have upon 
the outstanding issue and the new issue of stock authorized by the 
commission under the proposed law ? 

Mr. Crarx. In so far as the market value, by which I assume you 
mean the selling price? 

Mr. Srms. Yes, sir. 

Mr. Cuark. I think that I, personally, would not be influenced by 
that very much in any connection. The market value of a stock of 
a railroad is not always controlled by the solvency or the sound or 
unsound financial condition of the road. I have noticed that within 
the last couple of years the people of the United States have loaned 
the United States Government large sums of money and have paid 
in 100 cents on the dollar, and the Government bonds are redeem- 
able at 100 cents on the dollar, and still you can buy those bonds 
now for 94 or 95. 

Mr. Sims. Some issues. 

Mr. Cuark. Most of them. 


Mr. Sirus. I am directing the inquiry along the line of its effect 


on credit. There are published market reports every day as to what 
stocks are selling for, especially those having a par value, and the 
public is. advised by the quotations given out every day. Now, the 
Pennsylvania Railroad Co. has undoubted credit and all that sort 
of thing, it never has passed a dividend, as I understand, but the 
stock is quoted daily in the papers, and if it is going down there is 


an impression created among the people of the country that its 


eredit has been affected adversely and its ability to pay what it has 
been paying in the way of dividends isin a measure jeopardized. That 


is a strong road. If it has that effect on the stock of a strong road, 


it has a much greater effect upon the stock of a weak road, and the 
stock of a weak road fluctuates much more violently, and the stock 
being quoted lower the impression is created that the road is in a 
bad condition; it has that effect on the public mind, and, further, 
will it not be necessary to bring out the new issue as a preferred 
stock in order for it to be maintained at par, unless the prior issue 
should advance to par? 

Mr. CuarK. Well, I do not know. I do not want to misunderstand 
your question or to evade the answer. If the idea is that the com- 


mission is going to be charged with any duty or undertake in any 


_ 


way to see that the stock of a given road 1s kept at par on the market, 


why, that is a job that I do not want to undertake. 
Mr. Sims. That is an element of credit? 


Mr. Cuark. It is an element of credit in a way, Judge, but it is so 


largely speculative that, as I said, I would not be influenced much 


by it. The theory of this provision, as I understand it, is that it will 


not and can not correct.any evils that have occurred in the past, but 
if a railroad, sound or unsound financially, desires to issue new 


-e 
(a0 
age RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 89 
vonds or additional stock it will have to get consent, and that consent 
will be given only when the application states the purposes in which 
“he proceeds are to be used, and the commission will have the duty of 
seeing that the proceeds are used for the purposes so stated. It 
will prevent the issuance of stock for nebulous uses or the diversion 
»f the proceeds to purposes that might not serve the best interest of 
he public. 
_ Mr. Sims. A certificate of the commission of convenience and 
aecessity would indicate, as a matter of course, that they needed that 
noney ¢ 
; Be as. A certificate of convenience and necessity would only 
sbtain in the event of the construction of a new road. As to new 
tock and its issue, the commission would simply find that the money 
vas needed for the purposes stated and that the purposes stated 
vould serve the public interest, and it would give its consent to the 
ssuance of the securities or the stock for those purposes and reserve 
ecessarily the exercise of the right and the duty of seeing that the 
roceeds from that issue were devoted to the purposes stated. To 
hat extent, at least, the carrier, however much it might previously 
ave been overloaded with capitalization, would have a better prop- 
ity, because the proceeds of the issue would have been devoted to 
he development or the improvement of the property, but I do not 
nderstand that the law or the commission shall undertake to keep 
iat stock at par on the market. That is something that no human 
ould do. 

Mr. Smus. I certainly agree with you; but what I am trying to get 
£ is this: When an issue of stock is authorized by the commission 
t par and is sold at par, 100 cents on the dollar, and then after- 
ards that particular stock falls below par and the prior existing 
ocks do not advance, will not the credit of the road be impaired 
ther than benefited ? : 

ets I can not see how the credit of the railroad will be im- 
aired. 

Mr. Sims. I mean the stocks. 
| Mr. Cuark. I can not see how the credit of the railroad could pos- 
bly be impaired as compared with the issuance of the same amount 
‘ stock without any supervision and without any public knowledge 
|: to the purposes to which the proceeds were to be put and without 
1y supervision as to the expenditures of the proceeds. I want to 
|'pplement that a little, not with any disposition to be hypercritical 
it, In my judgment, there are outstanding to-day issues of stocks 
- railroads that are solvent, which stocks have never paid any divi- 
jnds, never will pay any dividends, never have sold at par, and never 
jit] popes. at par on the open market, because they do not represent 
Ly value. 
| Mr. Sims. But they do have an impression, at least, on the unedu- 
ted public mind as to the market? 
Mr. Crark. Unfortunately the public mind is often influenced by 
isstatements of fact and misconception of the true situation. For 
ample, ne man can come before this committee in an examination 
) this kind without the public being given an entirely erroneous 
\pression of what he has said. That has occurred within the last. 
ree or four days. 





f 










| 
90 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. { 


Mr. Sims. That is one of the unfortunate circumstances attending 
the publicity given some of the hearings, which I very much regret. 
IT am not antagonizing the bill. 

Mr. Cuark. I understand. 

Mr. Sims. I want to get at the real facts with reference to a new 
stock issue by a new road. If the stock of a new road is not made a 
preferred stock, so that it will guarantee that that particular stock 
will remain at par, what general investor would want to buy a stock 
at par that he felt would ultimately go below par the very minute 
that it was sold and put on the open market ? 

Mr. Crarx. If a railroad company, or any other corporation for 
that matter, can not sell its stock when it is issued under authority 
of a body to which that power has been delegated by law, and when 
the proceeds are to be devoted to improvements or betterments of the’ 
property, I should say that the institution, whether it is a railroad 
or other corporation, was in a condition that called for reorganiza- 
tion. 

Mr. Sims. By the recalling and canceling of the outstanding 
stocks being sold very much below par, if the stock did not sell at the 
full market value. there would, perhaps, not be as many weak roads 
as now. That was something that I felt very proper to bring out. 
That is the way I felt about 1t myself, as one who has always advo- 
cated the very législation that the commission has advocated, and 
that is provided for in this bill. 

Mr. CrarKk. I might suggest that if this had been the law 25 years 
ago, and if it had been intelligently enforced and administered for 
the last 25 years, a good many of the so-called weak sisters would not 
be so weak. 

Mr. Sims. There is no doubt of that; the weak sisters would not, 
and the new issue of stock might have remained at par. That is 
what I had reference to as affecting the credit of a particular road. 

One matter that you discussed rather at length—I did not break 
in on you at the time, except slightly—was the proposition that the 
railroads should be permitted to continue to initiate rates just as 
heretofore, and the period in which the commission would have the 
right to suspend—was that narrowed or continued! | 

Mr. Cuark. That is limited to 120 days. 

Mr. Sims. Three months? 

Mr. Cuark. Four months. 

Mr. Sims. I mean four months. The commission would have the 
power within four months to suspend that rate. I understood that 
it was 30 days under the law. That is, if a railroad published certain. 
rates and no suspension order was issued, that rate would go into 
Siu in 80 days, subject to a further suspension—that is, after 30 

ays! } 

Mr. Crarxk. No, sir; the law requires the carriers to give 30 days’ 
notice of the effective date of the rate, unless they are permitted to 
make it effective on a prior day. 

Mr. Sims. The effective date mentioned by the railroads? . 

Mr. Cuark. The effective date which has been filed with the com- 
mission; and after it has been filed the commission may exercise its 
power of suspension and prevent it from going into effect. 

Mr. Sims. For instance, if the railroad should say effective 30, 60, 
or 90 days, the commission has what period of time in which to sus~ 


} 


i y 
4 
5 

e f 


‘ 
f 
' 


5 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. OT 


‘pend? That law was changed, was it not, by the law of 1916 so that 
the commission had to approve of the rates before they were filed ? 
Mr. Cuarx. There was a provision put into the fifteenth section of 
the act prohibiting until January 1, 1920, the filing of any increased 
‘vate until the commission had given its permission. 

Se Sims. But this bill does not provide for the continuance of 
‘that? 
‘ Mr. Crarx. ‘That is omitted in this bill. 

__ Mr. Sirus. If this bill should go into effect before January, 1920, 
that would be repealed ? 
| Mr. Crarx. It would be a repeal of that; yes, sir. 

Mr. Sims. During the war period how has the commission found 
ithe practice through the application of the fifteenth-section amend- 
‘Ment as compared with since it was passed and before we entered the 
“war ourselves? 

' Mr. Cuarx. My judgment is, speaking for myself only, that if the 
‘conditions had been what they have been, entirely aside from Fed- 
eral control, and there had been no Federal control, the applications 
funder that provision of the act would have been so numerous that it 
‘would have been physically impossible for the commission to do any- 
‘thing with them except to pass them along in the most stereotyped 
iway. 7 

| aie Sims. In other words, it is impracticable under present condi- 
tions ? | 

| Mr. Cuarx. I think it is inadvisable under ordinary conditions, 
‘because developments arise that can not be foreseen, and the country 
‘Is so large and the number of carriers so many and the conditions 
of traffic change so rapidly that it is almost physically impossible to 
handle them and do it in the intelligent and careful way in which 
‘we desire to do it. 

Mr. Srms. But you do advocate, as I understand, reducing the 
‘period of the power of the commission so as not to allow the addi- 
tional six months? 

Mr. Crarxk. That is correct. 

Mr. Srus. In other words, if the commission fails to act upon a 
rate filed by a carrier within the period mentioned in your testimony 
then the rate will go into effect? 

Mr. CrarK. Yes, sir. 

Mr. Sims. Will the commission have sufficient time during the 

period authorized for suspension, as you have indicated—that is, will 
the commission have the time required to give proper consideration 
to the rates prior to that time? 
Mr. Crark. Well, we hope so. We can not predict with certainty, 
‘because we can not know what the conditions will be. We have 
undertaken to protect the shipper in the event of our inability to 
conclude the proceeding within 120 days by conferring upon the 
commission authority to require the carriers to keep an accounting 
of all of the traffic that moves under those’rates, so that at the end 
of the investigation the commission can order the carriers to pay 
‘ack to the ones from whom or in whose behalf they received pay- 
nent what they have received in excess of what the commission finds 
would have been reasonable. 

Mr, Smors. Then, Mr. Commissioner, you spoke of one of the alter- 
‘aatives to take care of the weak roads by Government loans. You 















} 
} 


ati 


’ 
< 


~™ 


92 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. ; 


mean by that that the Government should lend money to the - | 
roads when they can not get money in the market in competition with | 
strong roads or through private investors offered to the general 

ublic ? P| 
: Mr. CuarKx. What I undertook to say, Judge, was that during this 
transition period from the release of the roads from Federal con- | 
trol to a settled condition of normal affairs in the country it might 
be wise for the Government to loan the railroads its. credit in the 
form of loans properly secured and which in time would be returned 
and at rates of interest substantially lower than the railroads could | 
get in the open market. 

Mr. Sms. Mr. Commissioner, would not such an amendment as. 
that made in favor of the weak roads prevent them absolutely from. 
making any attempt to borrow in the open market? : 

Mr. Cxark. It will depend, of course,-upon whether the Govern- 
ment is willing to make the loan. 

Mr. Sims. If the Government refuses to make a loan to a weak 
road under the conditions you have mentioned, will not that furthe 
depress the securities of that railroad ? 

Mr. CrarK. I think that is quite likely. I think it would be a use- 
less task for the Congress to undertake to legislate assurance that 
none of the properties subject to the legislation will need to go 
_ through reorganization. I think that reorganization of some of these 
properties is inevitable under any state of facts. | 

Mr. Sms. Is it not absolutely just to the public interest that they | 
should be reorganized ? : 

Mr. Crarx. I think so. My suggestion with regard to the Gov- | 
ernment loans was that the Government might lend its credit to tide 
some of these properties over when the Government could be se- 
cured and get the return of its money later with interest under which 
the Government would lose nothing, but it would lend that credit to 
the carrier that might not be able to get it on the same terms in the: 
open market, at least would not be able to get it except at a sub=) 
stantially higher rate of interest. 

Mr. Sms. But if the Government should make such loans at sub- 
stantially lower rates of interest than otherwise could be secured it | 
would naturally force the Government to make loans to all the weak 
roads, as the weak roads would not seek any other method of ac- 
quiring money except fromthe Government? : 

Mr. Criark. Naturally they will seek their loans where they can | 
get them on the best terms. The Government would not be forced to 
make any loan except where the terms and conditions were satisfac- | 
tory to the officers of the Government who had charge of the trans- 
actions. | 

Mr. Srmus. Would it not practically lead to results of this kind, | 
that those weak roads would apply to the Government for loans, 
and the Government would, perhaps, authorize some of those loans | 
and might not authorize others? The Governmnt, of course, is to. 
some extent a political. organization and exercises political power, 
and would it not be charged that the Government was fostering one 
railroad and not another? Now, that being true, would it really — 
benefit the credit of the weak road, inasmuch as these loans from the- 
. Government are to be amply secured, and if the Government loan 
can be amply secured, then private loans could be amply and safely 


| 
| 





, RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 93 
‘secured by such roads? I suppose you assume that the Govern- 
“ment ought not to make loans unless the Government can be fully 
protected in making them? 
; Mr. Cxuarx. I have undertaken to say that I have only suggested 
~making such loans as were properly secured. 
~ Mr. Stus. What do you mean by “ properly secured ” ? 
. Mr. Crarx. I mean where the railroads can furnish security that 
is satisfactory to the officials of the Government, and which will, in 
: all human probability, secure the repayment of the loans. Now, as 
_to the question of criticism, it has been my observation during a short 
‘and uneventful life that whatever is done by Congress is criticized 
_and that whatever is done by any individual, if it 1s worth doing, is 
criticized. 
' Mr. Srus. Whatever is done by the Interstate Commerce Commis- 
ion is criticized, sometimes favorably and sometimes unfavorably. 
) Mr. Crarg. Yes, sir. 
_ Mr. Sms. But, as to the proposition of extending credit to weak 
‘roads, it does not seem to me that the providing of such loans at 
a substantially low rate of interest can have any other effect than 
‘to dump all the weak roads on the Government. The Government 
officials will have to determine what roads should receive credit and 
what roads should not receive credit, and, it seems to me, that after- 
wards it will be claimed that all sorts of favoritism has been shown, 
leading to investigations by congressional committees, etc. Upon the 
whole, the credit of the roads, it seems to me, would not be sustained, 
out, perhaps, it would be curtailed. In other words, is a weak road 
entitled to consideration over a strong road, per se, either in the 
matter of rates or loans, or should it receive favored treatment in 
anything else? 

Mr. Ciarx. What a weak road is entitled to depends very largely 
‘apon circumstances, and the question of whether, or not, a road is 
weak depends upon a variety of causes that have brought about the 
condition. It may be that the road never ought to have been con- 
structed; that its location is ill conceived, and that it never could be 
4 prosperous property because of that fact. It may be that it has 
een poorly managed and that it is still poorly managed, and that 
on equal terms with a competitor it falls behind. due to that fact; 
‘t may be that because of the management and policies of the boards 

of directors it is outrivaled by its competitors, or it may be the result 
: of financial manipulations for which neither you nor I would offer 
“uy excuse. I would not and I did not confine my suggestion as to 
wee to the weak .roads. It may be necessary to make loans to 
strong roads, but I bear in mind all the time that the general dispo- 
sition has been to deal with this question in a comprehensive and gen- 
»ral way. I do not see how any of us can look upon these so-called 
veal roads except as parts of a continental or national transportation 
system. 
_ Mr. Smrs. That is necessarily so. | 
Mr. Cuark. Since Federal control began, out of a fund of half a 
million dollars voted by Congress for that and other purposes and 
out of the proceeds of the operations of those railroads, the Gov- 
‘rnment has been making advances and loans to those properties, 
ind, as I understand it, it has been doing it under contracts which 
issure the Government repayment in the future. Now, my suggés- 














94 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. | 


tion is that that same policy might be continued Adve this transi- 
tion period. 

Mr. Sims. What do you mean by the transition period, or how 
would it be limited ? 

Mr. Ciarx. I mean by the transition period a limited period from 
the time of the restoration of those properties to their owners until 
conditions in the country have become much more normal than they 
are to-day. 

Mr. Sims. Well, suppose normal conditions simply mean a con- 
tinuation of the present. conditions as to labor cost and material 
cost. Will they not remain as weak as they are now? 

Mr. Criarxk. When normal conditions return, if the costs are the 
same as they are to-day, presumably the operations and revenues 
must be on the same relative level. 

Mr. Sims. Now, under the obligation of the Government to return 
the roads in as good condition as it received them, is there any moral 
obligation to return them in a stronger condition ? 

Mr. Chark. The obligation is to return them to their owners in 
substantially as good repair and with substantially as complete 
equipment as when they were taken over. ‘Those that make the 
standard contract with the Government agree that that obligation 
is. fulfilled, or that that covenant of the contract is fulfilled, if dur- 
ing the period of Federal control the director general expends upon 
the property, properly distributed; amounts equal to those that were 
expended by the railroads during the test period, making due allow- 
ance for the difference in the cost of material and wages. 

Mr. Sims. What I mean by war conditions continuing are not the 
war conditions as to control, but the war conditions as to operation 
and maintenance—that is, if the cost of labor and material remains 
up. If that condition continues, are thosé roads ever to be anythin 
but weak roads? They start in weak, with overbond issues and 
overstock issues. 

Mr. Cuarx. I have tried to suggest that, in my judgment, some of 
them will remain weak roads until they go through a thorough 
reorganization. 

Mr. Sms. Do you think the Government ought to make loans to 

any such roads? 
Mr. Crark. I have not suggested that the Gov ernment should me | 
any loan on any road that makes application to the Government 
unless it eets satisfactory security for the loan. 

Mr. Srars, Now, then, the strong roads do not need Government 
a anyway. ‘ 

Mr. CuarK. In normal times? 

Mr. Stus. Not in normal times. Are there not some strong roads 
that have not received any Government loans so far? 

Mr. Cruarx. I presume there are. 

Mr. Sirus. Could not those roads get along after conditions are 
normal without Government aid or assistance? 
Mr. Cuark. I presume many of them can. 

Mr. Sirus. And get along well? 

Mr. Crarx. Yes. | 

Mr. Sims. Then, why not make all the roads strong by reorganiz 
ing them and squeezing out. the overissues, whether it is water, o 





| RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 95 


‘sot? Why could not the roads be made strong by reorganizations 
shat would take out all of the water, eliminate the overissues of 
sonds and the over-issues of stocks, having out only such bonds and 
stocks issued as were justified by the earning power of the roads 
‘mn normal times? Ake 

Mr. Cruarn. That might be a desirable condition if it were brought 
;bout, but I do not understand that that can be done by the legisla- 
ive branch of the Government. That is essentially a judicial process. 
_ Mr. Srus. But if the Government has to furnish the money nec- 
ussary to keep them from going through reorganization, it seems to 
ne that subject ought to be considered and studied a good deal before 
we authorize loans to railroads that can not operate without them in 
sompetition with other railroads. 

’ Mr. Crark. I repeat, that I do not suggest that the Government 
hitiico loans that are not properly secured to any of them, or that 
‘he Government shall lend money to them so as to prevent those that 
nust inevitably be reorganized from being reorganized. 

Mr. Sims. I believe you are the oldest serving member of the com- 

‘mission, and you certainly ought to be one of the best experts in the 
ountry on this line of thought and action. When, in your judg- 
ment, should the roads be returned to their owners, assuming that 
vhey will be returned? — 
| Mr. Crarg. My personal judgment is that they should be returned 
‘ust as soon as Congress can enact legislation, which I think is most 
lesirable, making conditions available to the carriers which were not 
‘wailable to them in the past, and which will, in my judgment, 
yperate to make the railroads better and will make the position of 
‘he carriers easier during the abnormal times that now obtain. 
' Mr. Srus. Now, Mr. Commissioner, you have gone over and an- 
‘lyzed the bill introduced by the chairman of the committee very 
‘ully, and I want to ask you if, in your judgment, the provisions of 
hat bill, substantially as they are, with such amendments, if any, as 
you have suggested, were enacted into law, should not the railroads 
De returned at the end of the month in which that bill is approved, 
or why should they not be so returned ? 

Mr. Crarx. As IJ have undertaken to suggest, I think that this bill 
‘ontains important and desirable amendments to the regulatory act 
‘yoverning the operation of carriers under private control, but care- 
“ul consideration should be given to the financial situation, which I 
lo not undertake to describe in detail, because I am not a financier, 
ho that there might not be unnecessary receiverships and unnecessary 
vonditions of hardship during the period within which there must be 
ome readjustment of affairs, and which, for want of a better word, 
}s spoken of quite generally as the reconstruction period. The situa- 
tion has been substantially changed by the fact of Federal control, 

ind, necessarily, any abrupt transition from Federal control to pri- 
“ate control, with the operating and traffic organizations of the car- 
‘jers largely disarranged and dissipated, would, I think, be rather 
indesirable. 

Mr. Stus. How long a time do you think this reorganization and 
‘eadjustment that you have referred to in the operation of the rail- 
toads by their own agencies should cover, or how long a period do 
vou think will be required in order to complete that process? 















96 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


' Mr. Crarx. In so far as taking up the actual handling of the 
properties and the operation and handling of the traffic is concerned, 
I think they could do that easily within 30 days. 

Mr. Sims. You have analyzed and studied the bill, and I want to 
ask you if there is anything in the bill providing for the operation 
of the roads by their owners within a reasonable time after the enact- 
ment of the bill, say, within 60 days, 90 days, or 6 months? Is there 
anything in the bill applying to the railroads which you have reason 
to believe will injure their credit when Government control ceases, 
or is there anything in the bill that would bring about receiverships? 

Mr. Crarx. No, sir; I do not think there is anything in this bill 
that would tend in that direction. 

Mr. Sims. In other words, the bill will not intensify the weakness 
of those roads that are already weak ? 

Mr. Crarx. No, sir; but I think it will substantially alleviate then: 
troubles. , 

Mr. Srms. Upon the return of the so-called strong roads within a 
reasonable time after the bill is passed, can we assume that they can. 
do their business under normal conditions, as they did heretofore, 
without having their credit either temporarily or permanently 
impaired ? 

Mr. Crarx. Judge Sims, that goes directly to a question that is one 
of policy. You know and we all know that at the present time each 
month’s operations of those railroads by the Federal Government 
results in a substantial deficit. 

Mr. Sims. That is, a deficit measured by the standard return? 

Mr. Crarn. Yes, sir. Now, what the conditions might be after 
their return to private ownership, how much of economies they might 
be able to work out, or how much they will realize from the increased 
business which is constantly hoped for, I do not know. Nobody 
knows, and those are the uncertainties of the future to which I 
referred the other day when J said that I thought it was under- 
taking almost the impossible to place upon the commission the duty of 
fixing rates for the future so that they will produce a given per- 
centage on a given sum of money. 

Mr. Sirus. Do you think that it is in the public interest that the 
war guaranty or the war return during the war period should be 
continued indefinitely after the Government operation and control 
of the railroads is surrendered ? 

Mr. Cuark. No, sir; I do not think that should be continued in- 
definitely. 

Mr. Sims. Why should they continue such returns one hour after 
the railroads are returned during this period of readjustment ? : 

Mr. Crark. That is a question of policy to be determined by the 
legislative branch after it has heard discussed some measures that 
I have not undertaken to advocate or even to analyze. | 

Mr. Sims. Now, there is one more question I want to ask, and 
that will be all so far as I now see: Do you, or do you not, think 
that the legitimate powers of State commissions and of the State 
legislatures—and when I say “legitimate” I mean the powers that 
the States have under the Federal Constitution—should be restricted. 
reduced, or eliminated ? } 

Mr. CuiarK. Our position with regard to that, I think, is very 
definitely shown in the terms of this bill, which we approve, and in 





RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 97 


the explanation that I have made of our understanding of the proper 

interpretation and application of it. We have never advocated the 
dissolution or deposition of the State commissions from all their 
regulatory authority. We do not advocate that, because we do not 
believe it would produce the best results. But, in so far as there 
ts a conflict between State regulation and Federal regulation which 
results in undue prejudice against interstate shippers or communi- 
ties or lays an undue burden on interstate commerce, we think that 
the Federal tribunal should be charged with the duty and possessed 
of the power to require its removal. 

‘Mr. Sims. Mr. Chairman, as this field is endless, I feel that T 
have used all the time I ought to take. 

Mr. Montacur. Mr. Commissioner, has there been any difficulty in 
the past, or prior to the outbreak of the war, for railroads to secure 
vapital or a requisite amount of capital ? 

a aoe I think that depends altogether upon the time you 
speak of. 

PM. Monracue. Well, within the past five years. 

| Mr. Cuarx. I should say that the roads that had security and 
sredit had no difficulty in securing capital. Some of the roads that 
lid not have satisfactory collateral or credit did have difficulty, and 
[ should imagine, if I may go a little further, that when a railroad 
aas behind it a history for years of recurring receiverships, and of 
emerging from each receivership with a capitalization a great deal 
aeavier than that outstanding when it went in, its credit is apt to be- 
some impaired, and it’ will reach the time when it can not borrow 
nore money. 

Mr. Monracur. Has there been any falling off in securing capital 
for the construction of new railroads in the past five years prior to 
che outbreak of the war? 

Mr. Cuarx. Not that I know of. I can not say positively, because 
here have probably been many projects that I never heard of. 

Mr. Montacur. Has the building of railroads in this country in 
she past five years prior to the outbreak of the war been proportion- 
itely what it was before that time? 

Mr. Crarx. No, sir; I think not. I can get some figures on that 
Which I will put in the record. 

' Mr. Monvacoue. I suggest that you do that. 

_ Mr. Crarx. I will supply them for the record. 

Mr. Monracur. I understood from your suggestion the other day 
that there was a diminishing demand for the extension of railroads 
n America. I imagine that you would agree with me that there are 
till fields needing the construction of new railroads? 

| Mr. Crarxk. Undoubtedly. 

Mr. Monracur. Do you think you could get capital to build new 

‘ailroads in America now? 

_ Mr. Crarx. I think it would be difficult. 

_ Mr. Montacur. What do you attribute that to? 

Mr. Cuarx. I attribute it to the fact that due to the conditions that 
ave grown up and due to the propaganda that has been sedulously 
listributed, investment in railroad securities is not attractive to the 
Average investor. | | 


] 152894—19—-vot 1 





‘< 





98 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Monracus. What particular feature of this bill do you think 
would improve that situation ? 

Mr. Crarx. I think the provision as to capital issues would im- 
prove it, and I think that the opportunity for consolidation, mergers, 
and unification for operating economies and better service would im- 
prove it, as well as the protection against unnecessary competition, o1 
the assurance that if a railroad is built it will be protected against 
what I might term piratical building by a competitor of a road that 
is not needed. Of course, the public mind will be influenced more on 
less by the general attitude of Congress, as reflected in the legislation 
it may exact prior to the return of the railroads. 

Mr. Parker. I want to go more thoroughly into the question of the 
issues of bonds and stocks. I want to see, first, what your idea is as 
to differentiating between management and control. In answer to 
Judge Sims’s questions, you stated that weak roads or systems would 
want to borrow money. Now, that application for loans would have 
to come from the board of directors? 

Mr. Cuark. Yes, sir. 

Mr. Parker. And, of course, if the Government loans them money. 
as suggested, that would come ahead of the stock that the board of 
directors represent ? 

Mr. Cuark. Yes, sir. 

Mr. Parxer. We have had that same sort of case in New York 
State with reference to having two managements in control. For 
instance, regarding the question of policy, suppose the Pennsyl. 
vania Railroad wanted to double-track a certain piece of road, anc 
they came to you for permission to issue bonds with which to raise 
the money to double-track the road, would you hold that you had 
the right to refuse to grant that request? 

Mr. Crark. Undoubtedly. 

Mr. Parker. If it were a matter of policy involved ? 

Mr. Cuark. Yes, sir. | 

Mr. Parker. It seems to me that you have the right to see that 
the money shall be honestly expended, but I wanted to know whether 
you had the authority or the right to govern the policy of the road. 

Mr. Crark. I take it that you mean whether we have the right to 
determine whether, or not, that money should be raised from issues 
of bonds or stocks? ‘ 

Mr. Parker. No, sir. The money might be raised either way, but, 
it seems to me, the question involved there will be one of policy. 
Now, have you the right to determine what the policy of the road 
shall be; that is, whether they shall double-track that road or not’ 
Tt seems to me that, without question, you have the right to say that 
the money shall be honestly spent, but have you the right to deter- 
mine what their policy shall be or what they shall do? That is an 
interesting question to you, it seems to me. | 

Mr. Cuarx. Under this bill, the carrier asking for the approval! 
of an issue of either bonds or stocks would state the purpose for 
which it desired the money, and the commission would have the 
power to approve or disapprove the issue. If it approved the issue 
it would be specifically for the purpose stated in the approval, and 
then it would be the duty of the commission to see that the proceeds 
were expended for that purpose. To that extent, and to that extent 
ouly, I think, the commission would control the question of policy. 







RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 99 


| Mr. Parker. I am entirely in accord with your controlling the 
| ssues of stocks and other obligations, but the theory, of course, upon 
/which you are granted that power over the issues of stock and other 
ybligations is because of the public interest. I think that the prime 
|yuestion is whether or not the purpose stated is a legitimate one 
}within the powers of the carrier. 

Mr. Cxrark. And one which is needed in the proper performance 
of its public service, and one that will contribute to the better serv- 


)ece and convenience of commerce. 
} Mr. Parker. Right there is where I want to direct my question as 
'o whether the decision as to the policy of the company is going to 


oe left with the Interstate Commerce Commission or with the di- 





-ectors of the railroad ? 

, Mr. Crarx. Well, the policy of the company would be subject to 
(he restraint that before it can be carried out by issues of additional 
»onds and stock the consent or approval of the commission to that 
iction must be secured. 

| Mr. Parker. Perhaps I can better illustrate it by mentioning the 
ase of the Delaware & Hudson Railroad Co., in which the Court of 
Appeals of New. York State held that the directors of the railroad 








ompany represented the owners of the road, and that the question 

f whether or not they should go into a new enterprise was a ques- 
‘ion for the owners of the road to determine, but that the honesty 
vith which the money was spent was a matter for the Public Service 
_Sommission of New York State to oversee. I know that we had to 
/ather revamp our public-service law to fit that decision. 

Mr. Criarx. Still your public-service commission has the authority 
,0 say whether or not that new loan is in the public interest. 

Mr. Parker. Of course, we have the same provision that you have 
n this bill. This was a question of buying coal lands, if I remember 
ightly. It was a question of issuing obligations with which to buy 
oal lands in Pennsylvania. The public-service commission refused 
hem permission, and they carried it to the court of appeals. The 
ourt of appeals approved it. I think I am correct in my statement 
egarding it. I wanted to get your notion in regard to that very 
nteresting question. 

Mr. Crark. That would be a very interesting question, because I 
)resume the money was wanted for the purchase of coal Iands, for 
he purpose of having the coal extracted and transported by the 
ailroad, and not a question of additional railroad facilities for 
erving the public, and not a question of double-tracking. 

The Cuarrman. Were those coal lands required by the carrier for 
os own use ? 

_ Mr. Parker. No, sir. It is really not the Delaware & Hudson 
Xailroad Co., because it was not the railroad, but the Delaware & 
Tudson Canal Co. The canal company owns the canal, the railroad, 
nd the coal lands. 

_ Mr. Crarx. They have some particularly vexing problems up there 
1 connection with intercorporate relationships among the anthra- 
ite-carrying roads and the coal lands. : 

_ My, Parker. The canal company was the original company, and 
aey owned the coal Jands. The railroad company does not own 
je coal lands. 








100 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Cuarx. I take it, without attempting to prophesy as to what 
the commission would do under this power, it is very doubtful, to 
say the least, that the commission would ever approve issues of a 
given sum of bonds of A B C railroad, the proceeds to be used 
in buying stock of X Y Z railroad, with which it had no physi- 
cal connection. ° 

Mr. Parker. I can see your point perfectly, but, of course, the 
action of the board of directors represents the action of the owners 
of the road. because, of course, the stockholders do own the road. 

Mr. Cruark. Yes, sir. 

Mr. Parner. Now, your interest in the matter is to look after thy 
interest of the public? 

Mr. Cuark. Yes. 

Mr. Parxer. In other words, the railroad derives something from 
the public in the way of the right of eminent domain. ‘That, of 
course, makes it a public service corporation, because it gets some- 
thing from the public, and because the public gives that something 
vou are there to look after the interest of the public. Now, going 
a little further into this argument, the fundamental idea of the 
board of directors is to make the property pay. If they represent 
‘the owners—and I am presuming that they are not trying to do any 
stockjobbing—they will try to run the road in the best way they 
can. Their argument would be that if they could buy those lands 
they would be able to make more money, and be able to lower the 
rates because they would be doing a larger volume of business, which 
would naturally benefit the people. I was just wondering what your 
notion would be as to how far your power would go to override the 
request of the board of directors that wanted to make an improve- 
ment that they thought was advantageous. 

Mr. CruarKk. I can not state it any better than it is stated in the 
words of this bill—first, that issues of the securities or of the stocks 
must be for some lawful purpose within the corporate powers of 
the carrier; second, that the purposes and uses of the proceeds are 
found to be reasonably necessary or proper for the purposes stated. 
There will be cases very strongly supported about which there will 
be practically no difference of opinion or question—there will be 
‘others that will be very doubtful, and there will be others equally 
certain in the opposite direction, I think. 

Mr. Sweet. Mr. Commissioner, I should like to call your attention 
to the language of the committee print of the bill on page 25, com- 
mencing in the first line, as follows: 





And in establishing such through route the commission shall not, except as 
provided in section 3, require any carrier by railroad, without its consent, t0 
embrace in such route substantially less than the entire length of its railroad 
and of any intermediate railroad operated in conjunction and under a commoa 
management or control therewith which lies between the termini of such pro 
posed through route, unless such inclusion of lines would make the through 
route unreasonably long as compared with another practicable through route 
which could otherwise be established. 


Should this section not be amended in some way giving the com- 
mission wider discretionary power to establish a through route if, m1 
the judgment of the commission, conditions and circumstances wal* 
rant such a ruling? 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 101 


Mr. Crark. From our standpoint I can see no objection to giving 
she commission a wider latitude in the exercise of administrative 
Jiscretion in that matter. The bill as you have read it or that part 
which you have read is substantially the present law, except the 
oroviso referring to section 3, and a slight change in the language at 
che end of the section which corrects a somewhat ambiguous expres- 
sion about which there has been controversy. The idea is that the 
sarrier shall be protected in retaining to itself the long haul which 
t is in a position to perform, and we have, of course, respected that 
srovision, although we have found some few instances in which it 
would result in an unreasonably long route. A certain route might 
ye unreasonably long for the transportation of live stock and yet be 
seasonable for the transportation of lumber because as to the one 
shere is every reason for expedition and as to the other the demand 
for expedition is ordinarily absent. 

Mr. Sweer. My thought is that this part of the bill might prohibit 
1 short-line railroad from obtaining a through route provided the 
unk line or line with which it connects failed or refused to give 
sheir consent, and my thought is that the commission possibly should 
iave wider discretionary power to pass upon the question in case 
she connecting trunk line arbitrarily refused; in other words, not to 
eave the question wholly to the trunk line? 

Mr. Criarx. That would be simply an extension of the discretion 
vested in the commission, and which, of course, it would attempt to 
administer, if charged with it, in a judicial frame of mind. There is 
10 doubt but that the connecting roads, the originating roads, or the 
ntermediate roads would have a broader opportunity under a change 
such as you suggest than they have under the restrictions of this 
section. 

Mr. Swerr. There is a proviso following what I read: 

Provided, That in time of shortage of equipment, congestion of traffic, or other 
smergency declared by the commission it may establish temporarily such 
hrough routes as in its opinion are necessary or desirable in the public interest. 

The emergency, as I understand, referred to there is some emer- 
rency declared by the commission. It is not the immediate case; it 
sa general emergency, is it not? 

Mr. Crarsk. That is the understanding I have; it is some general 
‘mergency created by conditions which nobody can completely control, 
in unusual volume of traffic or the interruption of some road or roads 
vy the forces of nature, for example, like the Dayton flood of a few 
ears ago. Those conditions will recur, nobody know when. Nobody 
‘an define them all, and the idea is that the commission shall have 
»ower to declare an emergency has come and to have power to meet 
hat emergency without any delay by requiring the carriers to form 
hhrough routes out of available lines that are not interrupted or are 
i0t obstructed, regardless of whether it includes the entire line of 
me railroad or not, the idea being to go on performing the largest 
sossible amount of transportation in the most expeditious way with 
he available facilities. 

_ Mr. Sweer. If the proviso was changed to read. as follows, would 
t meet with any objection from the commission ? 


Provided, That in time of shortage of equipment, congestion of traffic, or 
ther emergency declared by the commission, or in order to prevent any unjust 


102 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


discrimination as between carriers, or to so distribute the traffic as may seem 
necessary or desirable in the public interest, it may establish such through routes 
as in its opinion are necessary and desirable. 

Mr. CrarK. No; it would not meet with any objection upon my 
part. I think I can so speak for the commission. 

Mr. Sweer. That would simply extend the discretionary power ii 
such cases to the commission so that it might act upon all the facts 
in the case and render such decision as the case might warrant / 

Mr. Crarx. I do not think that it would be inconsistent with the 
power to require the terminals of a carrier to be open to the traffic 
of another carrier. 

Mr. Sweet. If I understood the full import of your statement, you 
believe that the carriers should be the only parties that should initiate 
rates ? 

Mr. Cuark. I have never thought of dividing that up as between the 
carriers and somebody else. I did express the opinion that it would 
be more practicable and more in the public interest and better all 
around if the carriers continued to initiate the rates. 

Mr. Swerr. Has not the commission in some instances found it 
desirable to initiate rates, considered and passed upon them, and put 
them in force regardless of whether they were initiated by the rail: 
road companies or not? 

Mr. Cruark. We have found numerous instances in which we felt 
the conditions were such that we should investigate what has been 
in effect and have required changes and modifications of what had 
been established by the carriers, but I know of no instance in which 
the commission has felt called upon to initiate rates de novo. 

Mr. Sweer. If I understand the present law, you have the right 
to review and pass upon any rates that are now in force; those whieli 
appear reasonable or unreasonable, on your own motion { 

Mr. Crarx. Yes. The commission has that power to-day upon 
complaint or upon its own motion and has done it in both ways. 
It has instituted many investigations on its own motion in situations 
which seemed to require investigation. 

Mr. Sweer. That is all the questions I have at the present time. 
qT ney have later on a few more questions which I should like to 
ask. 

Mr. Coorrer. There is one question that I want to ask you, Mr. 
Clark. I was very much interested in your statement regarding the 
disputes in wage questions which develop from time to time between 
the railway employees and the operators. I think you stated that 
you thought it would be very unwise for the commission to attempt 
to adjust those disputes and I am inclined to agree with you after 
hearing your statement. What I want to ask, Mr. Clark, is this: 
Do you think that it would be practicable and wise for some gov: 
ernmental authority to try to adjust the disputes that arise froni 
time to time between the employees and the operators of our rail: 
roads? 

Mr. Cuarx. I do think so; yes, sir. 

Mr. Cooper. You believe that this present board—I forgot what 
you call it, the Wage Adjusting Board, is it? 

The Cuatrman. Under Federal control ? 

Mr. Coorrr. Under Federal control. Do you believe that they 
have rendered good service along that line in adjusting these wage 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 103 


‘questions, that is, this board which has been established since the 
railroads were put under federal control ? 
Mr. Cuark. I have not the slightest doubt but that that board has 
‘Jone very helpful and useful work. 
~ Mr. Cooprr. I am inclined to believe that that is one of the biggest 
‘mestions that the American people are facing to-day, the labor 
‘yuestion and the question of settling wage disputes. I for one would 
de very much pleased if we could have something in this bill that 
‘would tend to remedy that situation as it exists today, especially 
30 far as railroad emplovees and employers are concerned. Have 
you any suggestions to offer along that line, Mr. Clark? If you 
aave, we should be very glad to hear them. 
| Mr. Crarx. I have no suggestion to offer as a part of this bill, 
yecause, as I tried to say earlier, we do not agree with the principle 
inderlying the proposals that have been put forward by others that 
he Interstate Commerce Commission shall have jurisdiction of these 
jJuestions of wages and be charged with the duty of determining 
whether or not an increase in wages shall be granted, and pre- 
sumably whether or not a reduction in wages should be enforced, 
Decause under the act as it is and as it will be if this bill is adopted 
she commission is charged in a large measure with determination 
is to the rates which the carriers shall charge. The level of rates 
vhich they may charge-affects the revenue which they have available 
‘or the payment of wages and for other purposes, and it would seem ~ 
o us most undesirable that the body possessing and exercising that 
power should on the other hand and at the same time be charged 
‘vith the duty of determining what shall be the level of the wages, 
yecause then the same body would have in its hands the power to 
yrant a large increase of wages to these many employees and com- 
densate the carriers by increasing the rates, and, as I tried to point 
yut, that body in the course of a few years would be in a position 
vhere its usefulness would naturally be destroyed. 
_ Mr. Cooprr. I did not just intend to put that question that way. 
_ will ask you this question, if you care to answer it, Mr. Commis- 
oar vik What legislation, if any, would you recommend along that 
‘ine? 
Mr. Crark. I have not studied the question recently with regard 
0 Specific legislation along that line. How far that legislation shall 
£0 is, of course, a matter of public policy. 
| Mr. Coorrr. But you do believe that some Government authority, 
uch as the Wage Adjusting Board, would be a good thing? 
_ Mr. Crark. I have always believed firmly in the efficacy of efforts 
\t concihation, mediation, and arbitration on the part of those whose 
-haracter and actions led to confidence in their fair-mindedness, and 
‘illustrative of that I might say that I was one of those who wrote 
he original Erdman Arbitration Act, which was on the statute books 
‘or many years before it was invoked. After it was invoked it was 
ound a very valuable law. It was later revised and the so-called 
Newlands arbitration act was brought into existence. We have been 
soing through abnormal times, but I have an abiding faith that in 
he course of a comparatively short time we will get back to some of 
he stable conditions that controlled the great mass of our citizens 
‘efore we went into this war, and I still have an abiding faith in 
he usefulness of a Government effort along those lines. 














104 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Cooper. That is all I have to ask, Mr. Chairman. 

The Cuairman. Along in that connection might we not add to this 
bill a title in which we might consider the matter of wage disputes? 

Mr. Cuarx. I assume that there would not be any parliamentary 
difficulty about attaching it to this bill, because this bill proposes to 
amend the act to regulate commerce as provided in its various sec- 
tions. It might carry another section which would amend some other 
act. | 

The CyairmMAn. This would be a new title, but under the same act. 

Mr. Cuark. Yes, sir. 

The Cuatrman. A different subject matter and amending other 
existing laws? 3 

Mr. Cuark. Yes, sir. 

Mr. Warson. Mr. Commissioner, may I call your attention to page 
12, line 16, which reads: 

The commission may require the terminals of any carrier to be open to 
the traffic of other carriers . 

Do you interpret the meaning of the word “ require” as a demand? 

Mr. CrarK. The commission would have the authority to require 
this by order. 

Mr. Watson. Which would mean demand? Would the commis- 
sion have the authority to demand a carrier open its terminal to 
another ? 7 

Mr. CuarK. Presumably the demand would come from the other 
railroad and the commission would have the authority to require it. 

Mr. Watson. If two competing lines, paralleling each other, en- 
tered the same city, and one of them had a terminal advantage over 
the other, and the road with an inferior terminal appealed to 
the commission to use the terminal of the one of superior location, 
and after hearings the commission decided that it was to the ad- 
vantage of the public to grant the request, would you have authority 
to force the road with the better entrance to admit the other road ? 

Mr. Crarx. Pardon me, but the language here does not, to my 
mind, convey the same thought that the expression use of terminal 
does. This provides that the commission may require the terminal 
to be opened to the traffic, and that would mean that the carrier 
might be required to handle such traffic and deliver it on its terminals, 
or to permit the trafic to originate on its terminals and move it to 
the connection with another line under just compensation to it for 
the service which it performed and for the use of its facilities. 

Mr. Warson. Just compensation of the stronger road. If the 
receipts of the stronger road were less if the commission permitted 
the weaker road to enter the terminal, would you consider the public 
interest greater than the financial condition of the road ? | 

Mr. Cuarx. If it clearly appeared that it was to the public inter- 
est; yes, sir. | 

Mr. Watson. Then, the commission regards the public interest 
before the capital invested, provided it does not impair it ? | 

Mr. Crark. Yes, sir. | 

Mr. Watson. You spoke regarding the Government loaning 
money to the railroads. Ten years ago a farm bank was only a 
dream and now it has ‘become a reality. Would you be in favor 
of Congress enacting a law creating a commission and that commis- 





| 


} RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. ‘105 


sion to have power to loan money to the railroads the same as the 
farm loan banks do to-day ? 

' Mr. Crarxk. I see no reason why it would not be just as sound as 
she other, assuming, as I do, that it would be operated in the interest 
5f the government and the protection of the public funds. 

» Mr. Warson. You also suggested that it would help you in regu- 
‘ating the rates of the railroads if a tribunal was established to fix 
sche wages of the employees. I think you said that you would be 
in favor of a tribunal having full power to regulate wages of rail- 
road employees—a separate tribunal from that of the Interstate 
Commerce Commission ? 3 

Mr. Cuarx. I would have a separate tribunal charged with the 
administration of whatever policy the Congress lays down on that 
subject. 

_ Mr. Watson. And it would have full power to regulate the wages 
of the employees ? 

Mr. Cuarx. I think it is within the power of the Congress to 
regulate them just as far as it chooses to go. 

- Mr. Watson. Do you think that system would avoid strikes? 

Mr. Cuark. I think it would have that tendency; yes, sir. 

Mr. Warson. If this system of regulating wages would be true 
of railroads, why not applicable for’ the Government to regulate 
che wages of the employees of the telephone and telegraph com- 
panies and all industries? 

Mr. Cuark. I think if the Government establishes a tribunal to 
administer labor policies laid down by .Congress with regard to 
any of the carriers subject to this act, that all of them ought to be 
included. . 

Mr. Coorrr. May I say, Mr. Watson, that the question I asked Mr. 
Clark was in regard to some kind of a tribunal not to fix the standard 
of wages, but to try to settle disputes that arise from time to time. 

Mr. Watson. You suggested a tribunal to fix the wages, but the 
commission desires a tribunal to regulate the rates, and, there- 
fore, you differed. 

Mr, Cuark. Oh, no. I do not want to fix their wages. 

_ Mr. RON. I think the commission advocates the policy of fixing 
Wages? | 

Mr. Criarx. No; I do not advocate that, because I say that is a 
question of legislative policy. JI do advocate the maintenance of a 
Federal tribunal, separate from our commission, charged with what- 
aver policy the Congress adopts in regard to labor disputes and wages 
of employees of carriers subject to this act, and, therefore, subject to 
regulation under the mandate of the Congress. 

Mr. Watson. If the commission looks after the public interests 

rather than the finances of the roads, and if it favors the loan of public 
moneys to carriers, and inclined to a tribunal to fix wages, is not the 
ee sailing pretty close toward Government control or own- 
ership ? 
' Mr. Crarx. No. I think it is at least postponing that if it is not 
getting away from it. I personally go on the theory that we have 
only two things to choose between, the one is Government ownership 
and operation and the other is private ownership under regulation. 








106 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Warson. You stated that since 1910 the railroads were grow- 
ing weaker financially. Was that the reason you thought it wise fo 
the Government to lend money to raiilroads in order to uphold th 
credit ? ; 

Mr. Cuark. In the first place, I do not think I said that since 191 
their condition was growing weaker. 

Mr. Watson. What was the date? 

Mr. Crarx. I put in a table of figures showing the results of their 
operations for a series of years, but I did not suggest any opinion 
that their financial condition had been growing weaker. 

Mr. Warson. I beg your pardon. You did not make that sugges- 
tion. 

Mr. Crarkx. No. My suggestion in regard to making loans to 
them, I want to make clear, is a temporary measure during this tran- 
sition period from Federal control to what may be termed some- 
what stabilized normal conditions. . 

Mr. Watson. I understood you to made that statement. The year 
previous to the war, shows that there were about 960 miles of rail 
road constructed in the United States. I have inquired several 
times of the commission how many miles were constructed by new 
money apart from the extension of old lines, but I have not received 
an answer to my inquiry. Have you any idea how many miles were: 
completed which were not the extension of old lines? 

Mr. Crark. Within what period? 

Mr. Watson. In the year previous to the war I think 960 miles 
were completed, including extensions. 

Mr. Crarx. No; I have not looked up the figures on that. I do 
not know of any. 

Mr. Warson. It seems that it was a very small mileage? 

Mr. Cuarx. It was, undoubtedly. ; 

Mr. Watson. You alluded to a railroad having control of a boat 
line, what authority had you to separate the railroad from the boat 
line? I presume you referred to the Patuxent River boat. : 

Mr. Cuiarx. That was included in the line that I referred to op 
Chesapeake Bay ? ‘ 

Mr. Watson. The Pennsylvania Railroad and Chesapeake Bay 
and the Patuxent River boats? : 

Mr. Crarx. Yes, sir. 

Mr. Watson. And you said that they should be separated at the 
time ¢ 

Mr. CuarK. Yes, sir. ‘ 

Mr. Watson. What authority had you to permit the railroad 
continue to operate the boat line? ! , 

Mr. Ciark. Section 5 of the act to regulate commerce as amende 
in 1912 by the Panama Canal act lays down the rule of law pro: 
hibiting such ownership or control by a railroad. It confers u 
the commission authority to determine questions of fact as to 
competition or the possibility of competition, and provides that 
the Interstate Commerce Commission shall be of the opinion t 
any such existing specified service by water other than through @ 
Panama Canal is being operated in the interest of the public, an 
is of advantage to the convenience and commerce of the people, at 
that such extension will neither exclude, prevent, nor reduce con 


\ 










| RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 107 
Setition on the route by water under consideration the commission 
aa by order extend the time it may continue to be operated. 

t then provides that if the extension of time is granted, the car- 
ier by water shall be subject to all the provisions of the act the same 
*s they apply to a railroad. 

Mr. Warson. That provision was wise. The people in southern 
Aaryland had no outlet except by boats? 

- Mr. Cuarx. Yes, sir. 

* Mr. Watson. Under the old law a short line connecting with a 
aain line was obliged to make rates which were in accordance with 
“he whims of the stronger road, but under this act, I understand, the 
-ommission can regulate joint rates? 

. Mr. Crark. Yes, sir; under this bill the commission would have 
ower to determine the divisions of the rates. 

_ Mr. Watson. Then a weak road realizing that the rates were not 
ufficient can now apply to the commission, who can regulate those 
ates 

Mr. Crarx. Under the provisions of this bill. 

: Watson. Which would be of value, of course, to the short 
ines ? 

~ Mr. Crark. It would insure their receiving a fair proportion as 
-etermined by the commission, whereas now they must accept what 
hey can get. 

| Mr. Watson. If capital was subscribed for a short-line road, 
vould you encourage the building of it? 

Mr. Crark. That would depend altogether upon how far it would 
-erve a public need. 

Mr. Watson. I am alluding to the receipts. If they appeared suf- 
cient to meet the operating expenses would the commission favor 
he construction of the road? 

Mr. Crarx. We would take it into consideration, but it probably 
-rould not be controlling. 

The Cuarrman. In connection with one question that Mr. Watson 
-sked with reference to new construction—I suppose he meant inde- 

endent operators ? 
, Mr. Crarx. Yes, sir. 

The Cuairman. Can you furnish the committee with any informa- 

ion as to 1914 and the prior years? 

Mr. Cxarx. I will undertake to find all that we can on that. If 
_ou will pardon the suggestion, I do not think the records of subse- 
uent years tell you anything now, because the conditions have cer- 
ainly not been conducive to the construction of railroads, when we 
‘id not have enough equipment, men, material, etc., to operate and 
epair all that we already had. 

The Cuatmrman. Could you furnish the data for, say, 10 years prior 
» 1914? 
_ Mr. Crarx. I can get all there is on that in our statistical records. 

Mr. Sanvers of Indiana. Recurring for just a moment to the ques- 
on of labor legislation, there is quite a good deal of difference . 
etween creating a body having the power to regulate and fix wages 
‘nd creating a body having the power to arbitrate the questions. 
't was the creation of a tribunal having the power to arbitrate which 

ou suggested ? 







108 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Crark. Except as Congress has limited the expenditure of 
public funds appropriated by it in the payment of wages or salaries 
to Government employees, I am not able to recall any instance in 
which the Government legislatively has attempted to fix the compen- 
sation of anybody for personal services, and whether or not that 
shall ever be done is, of course, a matter of public policy to be deter- 
mined by the Congress. I think that, pursuing the policy so far 
pursued, we still ought to continue a tribunal, separate from our 
commission, to encourage by mediation, conciliation, and arbitration 
the settlement of labor disputes, especially those which might result 
in interruption to commerce. If the Government should decide to go 
further in its policy, I would place the administration of the act, i 
so far as it was open to administrative application, in the hands of 
the same tribunal. 

Mr. Sanpers of Indiana. Taking the resolution as a whole, the 
effect of it is the complete Federal control of railroads, is it not? 

Mr. Cuarx. It is intended to more nearly perfect the conditions 
and terms of Federal regulation of railroads under private owner- 
ship. ) 

Mr. Sanpers of Indiana. At the present time the railroads under 
private ownership may determine many of the elements of competi- 
tion finally ? | 

Mr. Ciark. Yes, sir. 

Mr. Sanvers of Indiana. If this legislation is enacted, as proposed 
in this bill, the power of the railroads to determine the steps which 
they should take as measures of competition would practically be 
eliminated, so far as the final determination of this question is con- 
cerned, is not that true? | 

Mr. Cuark. I do not think that they would be eliminated in any 
greater degree than they are now, because the final determination as 
to the discriminatory character of the competition rests with the 
commission, subject, of course, to review by the courts. That would 
be true under this bill, but under this bill also the roadway to the 
determination of many of those questions might be said to be more 
clear and more direct. Under the plan which we advocate the car- 
riers would continue to determine their course in regard to the policy 
of competition in their rates. 

Mr. Sanvers of Indiana. This bill provides for compulsory inter-| 
change and use of equipment and terminals. There is some provision 
of that sort in the act at present, but this enlarges that and makes it 
complete, does it not? 

Mr. Cuark. Yes, sir; we think so. 

Mr. Sanpers of Indiana. Of course, the construction of equipment 
and the construction of terminals by railroads is frequently done for 
the purpose of giving it advantages over its competitor ? 

Mr. Cuark. Yes, sir. | 

Mr. Sanpers of Indiana. And since this legislation gives the power! 
of determination of this question to the commission finally, to that. 
- extent it would deprive the carriers of that phase of competition ? 

Mr. Crark. It would at least deprive the carrier of carrying into 
effect its own views and wishes in that regard without proper regard 
for the public interest. The public interest would be paramount in 
those instances in the view of the commission. 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 109 







Mr. Sanpers of Indiana. I am not meaning to say that the effect 
of this legislation is unwise. 

» Mr. Crark. I understand. 

_ Mr. Sanvers of Indiana. I am trying to get at the form of the 
legislation. One of the means adopted by a carrier frequently in 
order to give it advantages of competition over competitors is to con- 
struct a new line under certain circumstances ? 

Mr. Cuark. Yes, sit. 

Mr. Sanvers of Indiana. Under the provisions of this bill the de- 
-ermination of whether that new line shall be constructed is finally 
in the commission ? 

Mr. Cuark. Yes, sir. 

_ Mr. Sanpers of Indiana. To that extent the right of competition 
of the railroad is impaired, is it not? 

Mr. Criark. It is limited. 

Mr. Sanpers of Indiana. It is limited; that is a better term. The 
same thing is true with reference to abandoning a certain line of 
railroad. A railroad might better compete with one of its competi- 
tors by abandoning a certain line, but under the terms of this act the 
right to abandon it finally is determined by the commission 4 

Mr, Cuiarx, Yes, sir. 

Mr. SAnpers of Indiana. A carrier might think it could better 
zompete by not building or purchasing certain railroad cars, and yet 
under the terms of this proposed act the commission could, on its 
9Wn initiative, after hearing, compel the carrier, notwithstanding 
its own views about the subject, to construct that equipment, could 
it not? 

“Mr. Crark. In so far'as it was found that it was necessary in the 
public interest and that requiring the carrier to do so would not 
impair its ability to perform its duty to the public. 

Mr. Sanpers of Indiana. This proposed act proposes to relieve the 
sarrier from many of the present restrictions with reference to com- 
oinations and mergers? : 

Mr. Cuark. Yes. | 

Mr. SAnpers of Indiana. The act’‘also will leave for final deter- 
mination by the commission the question of whether the railroads 
can raise capital or whether or not they may issue stocks and bonds? 

Mr. Crark. Yes, sir. That is the asual way the carrier has to 
raise capital. It may do so by short-term notes, of course. 

Mr. Sanpers of Indiana. Does this propose conirol of short-term 
notes ? 

Mr. Cruark. They are specifically exempted from control. 

The Crarrman. Notes which do not go beyond « certain period ? 

Mr. Criark. Short-term notes within the limitation of the act. 
The act fixes the maximum period within which they could be called 
short term and also fixes the maximum amount of that indebtedness 
that may be in existence at one time, measured by its proportion of 
‘he entire capital or obligations of the carrier. | 

Mr. Sanpvers of Indiana. Under the present law does the commis- 
sion have control of minimum rates? 

Mr. Crarx. It has not. 

Mr. Sanners of Indiana. One of the elements of competition be- 
‘ween carriers is the question of one railroad making a lower rate 
than its competitor. If this legislation is passed, while the carrier 








110 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


may initiate a lower rate or proposed lower rate, after all the ques- 
tion of whether it shall compete by lower rates with other railroads 
will be for the final determination of the commission ? 

Mr. Crark. It would be; yes, sir. I think I ought to state here, 
as a practical matter, that there is no competition between railroads 
to-day in the whole country under which one railroad carries the 
traffic cheaper than the other between the same points, because no 

matter how low the one carrier may make the rate all the other roads 
that participate in that traffic will meet it Just as hastily as they can 
and sometimes go below it. 

Mr. Sanvers of Indiana. Mr. Chairman, I want to go now into 
the Shreveport case, section 13, unless you want to adjourn. 

The Cuamman. I had hoped that we might cotichidle with Mr. 
Clark this morning. 

Mr. Sims. The House is meeting now. 

The Cuatrman. I hope we may continue for a time. I promised 
the representatives of the United States Chamber of Commerce that 
they might start to-morrow if we could finish with Mr. Clark this 
morning. 

Mr. Sanpers of Indiana. Mr. Commissioner, I wish you would be 
kind enough to state for the record the power that was recognized 
in the commission by the Shreveport case. 

Mr. Crark. The power to require the removal of undue prejudice 
against interstate shippers resulting from the application to intra- 
state traffic of a scale of rates prescribed by the State commission 
and the maintenance of higher rates on interstate traffic over the 
same line for corresponding distances and under substantially : 
similar circumstances and conditions. 

Mr. Sanvers of Indiana. Section 13 of this act, which proposes to 
amend section 13 of the original act, deals with that question of ad 
ditional power which section 13 gives the Interstate Commerce Com 
mission. 

Mr. Crarx. I do not think that it gives us any more power under 
the law. I do not think it expands or contracts the application of the : 
terms of the law or the commission’s power thereunder, but it does 
define a relationship and outline a procedure that we hope will oper _ 
ate to minimize the number of instances in which undue prejudice 
will persist, and to simplify the removal of it where it may be found — 
to exist. . 

Mr. Sanpers of Indiana. Would it have to be initiated in much 
the same way as it is? 

* Mr. Crarx. At once under this system we would have cooper ationh 
between the Federal and State commissions, and a situation that was 
known to be unsatisfactory and which was a subject of informal com- 
plaint might be taken up for consideration in advance of a specific 
formal complaint. if 

Mr. Sanvers of Indiana. This bill, if I recollect the provisions of 
section 13, continues the order of the commission in effect beyond the 
period of two years. 

Mr. Cuark. This bill would take off that limit of two years upon 
the continuance of an order of the commission. 

Mr. Sanpvers of Indiana. Would we have the power under this bill 
to provide that orders already made by the commission similar to the : 





RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 111 
areveport case should also continue in the same way as rates have 
en after the bill is passed # 

Mr, CiarKx. Subject to such legal objections as might be raised, and 
ich do not occur to me, it seems to me that you would have power 
authorize the commission by new order to extend the period within 
iich the orders already issued by the commission shall continue in 
“ect. 
Mr. Sanpers of Indiana. And make it subject to the same rate? 
Mr. CuarK. Yes, sir. 
Mr. Sanpers of Indiana. Do you think that would be a wise thing 
do, Mr. Commissioner ? 
Mr. Crarx. I think so, because I think it is extremely undesirable 
» a case such as you have referred to to have the life of the commis- 
m’s order only two years and to then reopen the whole question 
- that time whereas if the order could continue longer, as experi- 
ce has shown, conditions might adjust themselves to the new order 
- things, and after a period nobody wants to go back to the old. 
Mr. Sanvers of Indiana. This bill does not provide for the return 
the railroads. Do you think a section of that sort could properly 
put in the bill? 
Mr. Crark. Well, I imagine that could be added as a parliamentary 
ve if it was determined upon. As I have said, the bill is con- 
ed to amendments to the act to regulate commerce, and deals only 
th the question of regulatory and administrative power, and inde- 
dent of the fact and the conditions of Federal control. 
Mr. Sanvers of Indiana. That is all, Mr. Chairman. 
Mr. Denison. Assuming that sooner or later conditions in this 
intry will return to normal, what we call peace times, do you think 
it the railroads will be self-sustaining ? 
Mr. Crarx. I think they ought to be. 
Mr. Dentson. Well, that was the next question that I intended to 
< you. Do you think it a matter of economic policy that the rail- 
ids should be self-sustaining ? 
Vr. Crark. My personal judgment is that they ought to be, 
ether under private control or under Government ownership. 
Mr. Denison. That question was prompted by the statement that I 
ird made quite recently to the effect that if 1t became necessary to 
ke a general raise in rates that it would be passed on to the con- 
ner, and would almost immediately result in a demand for in- 
»ased wages. There are a number of people in this country who 
ieve that the Government should contribute to the maintenance of 
» railroads as a matter of public policy. You do not subscribe to 
ything like that? 
Mr. Crark. No, I do not. 
Vir. Denison. People who believe that try to draw a parallel be- 
sen the railroads and the postal mail service. I am asking you 
't question to clear up that situation. I have heard the view ex- 
ssed that the Government should contribute to the construction of 
minals in the large centers, as it does to the deepening and im- 
ae of harbors. Do you think that would be a wise policy 
ll? 
Mr. Crarx. I think it would be simply an entering wedge for Gov- 
“ment ownership and operation of railroads. JI think the ideal 


















112 RETURN OF TH™% RAILROADS TO PRIVATE OWNERSHIP. 


terminal situation is one in which all of the terminals of the indus- 
trial community are in the hands of either the municipality or of a 
separate corporation. For example, in St. Louis and East St. Louis 
there is a terminal railroad association and the stock is owned by the 
various railroads that reach that district. But the terminal associa- 
tion performs all of the terminal services for all of them, and they 
contribute to or pay the terminal association, each railroad for the 
service which it receives on a per car basis or something of that kind, 
I think that that isa very desirable condition for terminal situations, 
and if all of the large terminal districts could be organized in some 
such way there would be no question of whether this is the terminal 
of the A B road or the terminal of the C D road. They would both 
be parties to the terminal association; each would pay for the service 
which it demanded, and their competition would not in any sense he 
affected by the terminal situation. In competing with each other 
they would compete just as if each owned the entire terminals. 

Mr. Denison. I agree with you on that. Do you not think that 
the provisions of this bill, if they were enacted into law, will some- 
what tend to encourage that? 

Mr. Crarx. I do. I think that is one of the results to be expected 
and certainly to be hoped for from a relaxation of the conditions 
that have been operating against the railroads doing those things In 
the past and because of the power which it confers upon the com- 
mission to encourage and approve such things in the future. You 
will remember that it has not been long since that terminal situation 
in St. Louis was assailed as in violation of the antitrust laws. 

Mr. Dentson. There has been some discussion, and I believe somé 
proposal, for the Government to guarantee a return on railroad in- 
vestments. That does not meet your approval or you do not think 
that is a wise proposition ? 

Mr. Crark. I do not. I do not see how it can be divorced from 
the subsidy idea, and I do not believe that the time is ripe for that 
I do not believe in it asa principle. If the railroads can not be self: 
supporting without a Government subsidy, I think the Government 
should own and operate them and be responsible for all of it. To my 
mind it is not a sound policy for the Government to meet deficits out 
of the Federal Treasury which may result from errors in judgment 
on the part of those over whom the Government exercises no contro! 
either as to appointment or continuance in office. 

Mr. Dentson. You spoke, I think, in your testimony about the 
Government assisting railroads during the period of so-called recon: 
struction by loans properly secured. Of course, that would requir 
additional legislation ? 

Mr. Cuark. Yes, sir; undoubtedly. : 

Mr. Denison. Do you think that Congress should at the same timé 
it enacts this legislation enact some sort of provision that would 
permit that to be done? 

Mr. Crarx. I do; yes, sir. I think that Congress ought to stu 
very carefully the extent to which it will declare its policy wit 
regard to the railroads’ revenues for a reasonable transition period 

Mr. Denison. Do you think that could be incorporated in thi 


same act? 
Mr. CrarK. No, sir; I have not had that in mind. 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 113 


_ Mr. Dentson. I think you also spoke about the maintenance of 
sates that have been established by the Government for at least a 
imited period. That would require similar legislation ? 

_ Mr. Cuarx. That was what I referred to with regard to stabilizing 
“eyenues during a period. If the roads were turned back without 
my legislation, without any declaration by the Congress of the con- 
rolling policy, there would be innumerable questions as to the status 
of the rates that were in effect in the various States on the day the 
‘eturn was made. In one State the passenger fares, perhaps,’ would 
ye made by statute, and the freight rates by orders of the commis- 
jon, and in an adjoining State we would have another condition, and 
so there would be a very complicated situation, full of confusion 
and controversies, a very difficult one for the carriers to deal with, 
and a very difficult one in which to maintain any recognized level of 
sates from which any particular revenue could possibly be hoped for. 
_ Mr. Dentson. Then, it would be your suggestion, as I understand, 

hat concurrently with this legislation or at least some time soon, 
Jongress should by separate legislation provide for the control tem- 
vorarily at least of the rates and for making temporary loans to the 
-ailroads during the period of reconstruction ? 

Mr. Cuark. That was my idea; yes, sir. 
; (vir. ENISON: Mr. Chairman, shall I continue, notwithstanding the 

‘oll call? 

- The Cuarrman. I think we will have to recess at this point. 

| Mr. Clark, can you attend the hearing to-morrow morning at 10 
Yclock? 

_ Mr. Cuarx. Yes, sir; I can. , 

The Cuarrman. I do not think it will take long. I hoped that we 
vould finish your examination to-day. 

The committee will take a recess until 10 o’clock tomorrow morn- 
Bet 
(Thereupon, the committee took a recess until to-morrow, Tuesday, 
July 22, 1919, at 10 o’clock, a. m.) 





COMMITTEE ON INTERSTATE AND ForreiGN COMMERCE, 
House oF REPRESENTATIVES, 
Tuesday, July 22, 1919. 
_ The committee met at 10 o’clock a. m., Hon. John J. Esch (chair- 
nan) presiding. 


STATEMENT OF MR. EDGAR E. CLARK, MEMBER INTERSTATE 
COMMERCE COMMISSION—Resumed. 







i The Cuarrman. Mr. Clark, I think Mr. Denison had not con- 
luded his cross-examination. 

. Mr. Dentson. Mr. Chairman, I have just one or two questions 
‘hat I would like to ask Mr. Clark while he is on the stand. 

_ Mr. Clark, do you think it is in harmony with the best public in- 
erest or the best public policy to permit privately owned cars, freight 
_ars, to be used by the railroad companies. 


152894—19—-vor 1 8 





114 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. - 


Mr. Cuarx. Within certain limits, I do; at least under existing 
conditions. The science of transportation, if I may use that term, 
is continually advancing, and certain commodities that are given 
very wide distribution and are largely used in the homes, and fur- 
nished at least in better condition than they could otherwise be, are 
transported in cars especially equipped for that use. Again, a 
manufacturer provides himself with tank cars for the transportation, 
either of his raw products or of his finished products, and he can 
not satisfactorily or even successfully use those cars if they are used 
by other shippers and loaded with other commodities, except by going 
through a very troublesome and expensive process of cleaning. 

For example, a shipper of molasses does not want his tank car 
loaded with crude oil. If it is, it must be subjected to the most com- 
plete cleansing. Other commodities shipped in tank cars can be 
loaded only when they are heated and can be unloaded only by re- 
heating, and therefore cars are provided for those commodities 
equipped with steam coils within the tank, and the user of the cars 
has an equipment through which he connects a steam jet with those 
coils and warms the contents of the car so it will run out. Those are 
merely illustrative of the many circumstances and conditions under 
which it is impracticable to use such cars for general purposes or 
send them for the use of each and all who might desire to use them. 
In the case of refrigerator cars, those used for the transportation of 
fresh beef have to be constructed differently from those that are used 
for the transportation of fruits and vegetables, because the beet 
must be hung from the roof of the car. Consequently, the super- 
structure of the car must be built with the idea of carrying the load 
hanging from the roof instead of lying on the floor, and, of course. 
if a car is going to be used for the transportation of fresh meats 
which are easily tainted, it is desirable that the same car shall not be 
used for the transportation of commodities which leave refuse or bat 
odors in the car. So, I have not been able to figure out how it would 
be practicable for the carriers to furnish all of these varied kinds 01 
equipment and meet what seems plainly to be the demands and neces- 
sities of commerce. If the privately owned cars are used without 
paying undue compensation for their use or resorting to any othe. 
device by which the owner of the car gets any undue preference, 1 
think they serve a good purpose and conduce to the public interest. 

Mr. Dentson. Do you think the very fact that he is permitted t 
own these cars gives. him undue preference because all of his com: 
petitors are not able to do so? 

Mr. Cuark. I do not think that it constitutes an undue preference 
in so far as the owner is not permitted to make a profit out of his 
ownership of the cars through their use by the carrier. If he own: 
the cars and it costs him more to keep them in running repair tha 
he gets in rental from the railroads for the use of the cars, I do no’ 
see where he gets any undue preference. | 

Mr. Denison. I have never questioned the wisdom or the necessit) 
of having these special lines of cars for particular commodities, but 
the question that arose in my mind was whether or not it is the bes 
public policy to permit those shippers who are able to furnish tha’ 
class of car to have the privilege of doing so, possibly to the detriment! 
of other shippers of similar commodities who are not able to do s0 
and whether or not it would be the best public policy to compel th 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 115 


railroads to furnish those cars for all shippers who needed them. 
That is the question in my mind, and I wanted to get your view 
on that. 

_ Mr. Criarx. Well, my view is that the best possible situation, or 
what I would term ‘the ideal situation, would be to have all cars of 
those types owned by a separate corporation from which the car- 
riers would rent them, and that owning corporation to have no in- 
terest whatever in any ‘commodity that 1s shipped. 

Mr. Denison. Similar to the terminal facilities. 

-_ Mr. Crark. Yes; on the same principle I spoke of with regard 
to terminal facilities. 

Mr. Dentson. Has the commission that power now—to compel 
railroads to furnish those particular kinds of cars? 

Mr. Crarx. It has not. 

Mr. Denison. Is there any provision in this bill which would 
enlarge the power of the commission and give them power to compel 
that, if the commission should decide it was good policy to do so? 

Mr. Crark. That is definitely so provided in this bill. 

Mr. Denison. In railroad transportation now, there is really no 
real competition of rates any longer, is there? 
~ Mr. Crarx. Not in the sense in which that term is generally used, 
because it has developed that the freight will move where the 
charges are the cheapest, and where the ‘char ges are equal between 
two roads, the superior service of one will attract to it certain kinds 
of freight, while other freight will move indiscriminately, and is 
frequently routed because of “personal considerations as between rep- 
resentatives of the railroads and of the shippers. 

Mr. Denison. The concensus of opinion at this time is that what- 
aver competition there should be among railroads should not ex- 
tend to the fixing of rates; is not that about the opinion ? 

Mr. Cuark. I think that the concensus of view is that it is dem- 
mstrated that railroads can not actively compete by maintaining 
lower rates because whatever rates one makes the other will meet, 
and that competition of that sort has been ruinous in some instances 
to the revenues of the roads and has not been productive in the 
long run of any great benefits to the shipping public, and that there 
sight to be a recognition in law of the principle that the rates may 
de Maintained on an equality, but the competition shall be the com- 
setition of service and the competition of considerate treatment of 
che public. 
_ Mr. Denison. The only real competition that would be left, free 
ae would be competition in efficiency of service’ to the 
oublic. 
_ Mr. Crarx. That would be true. 
_ Mr. Dentson. Under the provisions of this bill, the right of free 
‘ompetition so far as furnishing facilities is concerned will be really 
‘ontrolled or regulated. 
- Mr. Crark. It will be subject to control. 
_ Mr. Denison. Subject to control; yes. Has the commission any 
ower, either under the present law, or under the proposed bill here, 
re) regulate the ocean shipping rates? 
| Mr. Crarx. Ocean rates? 

Mr. Denison. Yes. 
(Mir. Ciarx. None whatever. 


116 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Denison. Has the commission any power to grant a differ- 
ential or a less rate to a seaport in order to enable a shipper to com- 
pete with an imported product from a foreign country ? 

Mr. Cuark. You mean to the port for transshipment by water? 

Mr. Denison. No; to meet competition. Has the Interstate Com- 
merce Commission any power to grant a cheaper freight rate from 
an interior town to a coast town where that product will have to 
meet competition of seagoing transportation ? 

Mr. Crark, Yes; we have that power under the fourth section. 

The Cuarrman. But not to violate the constitutional inhibition 
against giving a preference to one port over another port. 

Mr. Crarx. Well, we do not need, I think, to go to the Constitution 
for that, Mr. Chairman, because the act to regulate commerce pro- 
hibits a carrier from unduly preferring one port over another, which 
it would not do if it served only one port. 

Mr. Denison. I did not have in mind a difference between ports, 
but I had this in mind: A producer of a bulky commodity in the 
interior has only a seaport town for a market, and on account of the 
excessive freight rate prevailing he can not meet competition with 
the importers of a similar product. Would the commission have 
power, under the present law, to grant a cheaper rate to that product 
to the seaport town in order to meet that competition from foreign 
shippers 4 

Mr. Crarx. It has that power; yes, sir. It could permit it. Of 
course, we could not compel the carrier to establish anything les: 
than a reasonable rate for the service performed. We could not re- 
quire the carrier to meet that competition. 

Mr. Dentson. Oh, no; but you have the power to permit the car. 
rier, or to order the carrier, so far as that is concerned, to furnish 4 
cheaper rate than would be furnished under other circumstances ? 

Mr. CiarK. Yes. 

Mr. Denison. Do you think that is a proper policy? 

Mr. Crark. We have the power to require the carrier to maintain 
a rate that is no more than reasonable. We have no power to re- 
quire the carrier to maintain a lower rate to a more distant point thay 
to an intermediate point, while we have authority at the present tim¢ 
to permit it. tee 

I have always felt, in ahswer to your last question, that it is goo 
policy to encourage and make possible competition of our own prod 
ucts with the foreign products. We have always pursued the pole) 
in this country of fostering ourexport trade. Rates to our variou 
ports for export are less than the domestic rates, and the idea is 
find a market abroad for the surplus production of our country. | 
think it is a perfectly sound policy, and it has been so recognized by 
the Congress. In the Panama Canal Act, we were specifically author 
ized to establish or require the establishment of rates to the port! 
for transshipment by vessel and for export, lower than the local rate: 
to the port. Incidentally, and as throwing some light on the ques 
tions regarding the fourth section of the act, asked by Judge Sims 
day or two ago, the commercial interests and the men charged witl 
the conduct of public affairs in the Southeast are now especiall; 
anxious that every encouragement shall be given to importations an‘ 
exportations of traffic as between foreign countries and what we tern 
the Central Freight Association territory, the Middle West lyin: 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 117 
yetween the Mississippi River on the west, and the Buffalo-Pitts- 
ourgh line on the east through the South Atlantic ports, and they 
say that in order to attract that traffic they must have the same rates 
from the points of origin to the South Atlantic ports that obtain from 
‘+he same points of origin to New York, and the director general is 
ibout to provide a line of rates of that sort; but he can not, consist- 
stly, from his standpoint, and I think he is correct, provide that 
ine of rates without deviating from the long-and-short-haul rule. 

Illustratively, Cleveland is nearer to New York than is Cincinnati. 
Phe rate from Cleveland to New York is lower than that from Cin- 
annati. Now, if you make the same rate to Savannah from Cleve- 
and that you have to New York and make the same rate from Cin- 
‘mnati to Savannah that obtains from Cincinnati to New York, it 
will necessarily often happen that the traffic moving from Cleveland 
o Savannah will pass through Cincinnati, and therefore it will pass 
hrough a place that takes a higher rate; but how are you going to 
nake that relative adjustment of those port rates unless you permit 
hat deviation from the long-and-short-haul rule ? 
| Mr. Wessrer. Mr. Clark, I have been very greatly interested in 
your views relative to the long-and-short-haul clause. If the bill 
1ow under consideration should be enacted, substantially in its pres- 
mt form, it would confer upon the Interstate Commerce Commission 
dower to iX minimum as well as maximum rates both as to carriers 
ny rail and such carriers by water as are included within the opera- 
ton of this act, would it not? 

Mr. Cuarx. It would. 

Mr. Weester. Could not the commission, in the exercise of that 
sower, prevent ruinous or cut-throat competition between rail and 
vater carriers at water-competitive points? 

Mr. CuarK. That is one of the principal reasons for favoring it. 

Mr. Wesster. Would there be any objection, therefore, to so 
umending the proviso contained in the fourth section of the commerce 
ict as to withdraw from the commission power to make special orders 
is to water-competitive points but leaving the law as it is in its rela- 
ion to rail-competitive points?: 

Mr. Crarx. I think that if that were done and the commission 
vere given the authority here proposed as to maximum and minimum 
‘ates and the jurisdiction here proposed over water carriers, that the 
‘ompetition between the rail and water carriers could be adjusted on 
. relatively fair and proper basis, without regard to the long-and- 
hort-haul rule. 

Mr. Wesstrr. And would not that tend to stabilize the rates? I 
lave in mind this thought: During your statement ‘you said that 
here was no inconvenience or burden being suffered by the inter- 
aountain country because of any special orders now in existence. So 
ar as my information goes, that is entirely accurate; but I gathered 
rom your statement that that came about on account of two rea- 
ons—first, the disappearance of actual competition by water and 
he modern policy of the commission not to take into consideration 
votential competition—and it occurred to me that if the passing of 
ompetition by water was the cause of relief, that when normal con- 
itions are restored and water competition returns that will bring 
bout a withdrawal of the relief. 


118 RETURN OF THE RAILROADS TO PRIVATE ‘OWNERSHIP. 


Mr. Crark. I think that is the point of view that is held now by 
the representatives of the intermountain territory. They say that 
they anticipate that the commission, following the policy that it has 
followed in the past, would grant relief to the railroads under the 
long-and-short-haul rule if the competition via water from coast to 
coast should again become active. \ 

Mr. Weester. It is my thought, Mr. Clark—and I do not know how 
far out of line I am with the best thought on the question—that it is 
infinitely more important, so far as the development of the country 
is concerned, that rates be relatively just and equitable than it is that 
they be inherently reasonable; that, of course, within limits. . 

Mr. Crarx. I agree with you fully on that. 

Mr. Wesster. And also bearing upon the development of the 
country, that it is indispensable that there be an element of perma- 
nency in the rates, to the end that capital may go to that section and 
seek investment in permanent enterprises. 

Mr. Crarx. I think that is true also. 

Mr. Wessrer. Then,.would it not be not only proper but wise legis- 
lation, having clothed the commission with power to prevent this 
ruinous competition between rail and water carriers at water-com- 
petitive points, to withdraw the power to make special orders in cases 
relating to points where there is both rail and water competition 

Mr. CuarK. Well, of course, there would be wide differences of 
opinion on that, depending on the locality and the interests of the 
ones expressing themselves. There is an irreconcilable conflict of 
view on that subject as between the intermountain cities and the 
Pacific coast cities. I indicated the other day my personal convic- 
tion that on the whole it is much more important that there should be 
opportunity to permit competition of longer rail lines with the more 
direct lines under the long-and-short-haul rule than it should apply 
to competition between rail and water carriers. I stilh feel that way, 
and I feel, under the circumstances suggested by you, and under 
the provisions of this bill, that if the amendments you suggest were 
made to the fourth section, we could still regulate within proper 
limits the competition between the rail and the water carriers. : 

Mr. Weszsrer. And still establish relatively equitable rates? 

Mr. Crark. Yes; it would undoubtedly be finally done by the 
establishment of what are called, in technical terms, differentials, 
just as they have well-recognized, long-continued differentials in the 
rail rates to and from the north Atlantic ports. : 

The rates from the West to Philadelphia are certain cents per 
hundred pounds less than to. New York, and to Baltimore: certain | 
cents per hundred pounds less than to Philadelphia. These rela- 
tionships are maintained whatever fluctuations may occur in the 
rates up or down. They have been long established and found to be 
the only means of prevention of ruinous rate wars. Just so in the 
export business. There are certain established port differentials, 
some determined in the light of experience, sometimes determined by 
the commission, and sometimes determined by a very comprehensive 
proceeding of arbitration. Once established they are recognized; 
conditions adapt themselves to them and persons interested in the 
rates at each port are interested in the relationship more than they 
are in the level. | | 

Mr. Wesster. That isall. ~ | 

| 





RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 119 


_ Mr. Sims. I want to state what perhaps I did not in my examina- 
jon with reference to section 4 state, that I was not intending to 
nelude export rates, only those rates where there was competition 
yetween rail and water carriers, continentally speaking, more espe- 
ally through the canal. I did not intend to create the impression 
hat the fourth section applied as to export or import, though, per- 
iaps, I did not so state. I do understand from your statement that 
he original fourth section—that is, the part of the section to treat 
yater competition as a special reason for making lower rates—would 
pply to export unless they were specifically exempted from it. Is 
hat your idea? 

Mr. Crark. Yes; that would be my-idea of it. The rates to the 
port applicable on export traffic would not be the rates as to which 
here would be competition between the ocean carrier, if exported 
»y ocean, and the rail carrier. There might be instances in which 
ompetition of the rail carrier and the water carrier on our inland 
vaters to the port would exist, but I do not think they would be 
jumerous, and at the moment I do not think of any involving an 
mportant volume of trafic. There might be some, for example, 
m cotton from some of the imterior points in the Southeast to 
Javannah or Mobile. I think there is some now, but it is not very 
ctive, and not very controlling. 

Mr. Sims. As to a carload rate from Denver to New York for 
xport purposes, and a carload rate from Denver to New York for 
ocal consumption—domestic consumption—does not the original 
‘ourth section compel the commission to require the same rate from 
Jenver to New York; that is, it would require the same for domes- 
ic as for export use if this provision was repealed ? 

Mr. Crark. No; I do not think so. 

Mr. Stmus. It would not apply to export? 

Mr. Crark. It would prohibit the maintenance of any higher 
ate from an intermediate point than from Denver, but it would 
iot prohibit the maintenance of a lower rate for export than for 
lomestic use. 

Mr. Sims. That is the reason I did not bring that out in my ex- 
mination before—that the original fourth section would apply to 
he export rate as well as the domestic rate over the same line and 
n the same direction. 

_ Mr. Rayzsurn. Mr. Clark, I understood from some of the members 
hat you had expressed some views with reference to future increases 
n rates, that is, in the immediate future. I happened not to be 
vere. I have a well-settled opinion, and I want to get your views 
nd suggestions if you feel like expressing yourself, that instead 
f another increase in rates by the Railroad Administration during 
Tederal control, before the railroads go back to their owners and 
efore the Interstate Commerce Commission has power restored to 
5, that there should be no increase of rates by the Railroad Admin- 
stration during the remainder of Federal control, but if the rail- 
oads run behind in their operation, or behind in paying expenses, 
hat that loss should be charged up to war cost, and that there should 
@ an appropriation out of the Treasury to cover that, instead -# 
uring the remainder of Federal control saddling another increase 
f rates on the people which, even under the regulation of the Inter- 
tate Commerce Commission, it. would take auite a long time to 


120 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 

; 
throw off, even though it was found to be unjustifiable. I should 
like to have your opinion about it, if you care to express it. \ 

Mr. Crarx. There has been some difference of understanding as to 
what I did say on that subject 

Mr. Raypurn (interposing). I am asking the question because I 
was not here. 

Mr. CriarK. I understand. I want to read from the record wha 
I did say. After a running discussion, Mr. Montague, of the com. 
mittee, asked: 








Therefore, inevitably, they contemplate perhaps a raising of rates? 
And I replied: 


The probability of that, or as some put it the inevitability of that, has been 
said by many, even of the representatives of the shippers, to confront us. ‘They | 
say it is bound to come. I remember a few days ago a representative of ship- 
pers from the far West testifying before the Senate committee said, “ We are- 
up against another increase of rates and we know it.” 

Now, on that day and again on yesterday I undertook to express 
the view that the question of whether or not the railroads should be 
self-supporting under Federal control was a question of policy; that 
the Government had taken on certain obligations which, of course, 
it must meet, and that whatever deficit might occur under these ob- 
ligations during Federal control and operation would of necessity 
be paid out of the Public Treasury and I thought should be charged 
off as one of our war costs. 

I also undertook to indicate the view that Congress might with 
propriety, and perhaps ought to provide by some additional legisla- 
tion, what I might term tiding over the period between the date 
when the carriers are returned to private control and operation and 
the time when conditions may be said to have assumed a normal and 
stable condition. That period would be temporary, and, in response 
to a question by the chairman, I said that in my Judgment one yeai’ 
would be sufficient. I do not expect to ever see what we term nor- 
mal conditions as they were before the war. I believe that the en- 
tire Nation is on a higher level of prices and costs which will be per+ 
manent. I do not believe that labor will ever work again for the 
wages that it worked for prior to the war or that living costs will 
ever go down to where they were. The difficulty is not so much with 
the fact that wages are high and other costs are increased, but the 
normal conditions, the stable conditions are those under which 7 
proper relationship of cost and production and living may be said 
to have assumed a somewhat stable position. Once the relations are 
established, the level is not of so very much importance. I am re: 
minded of a suggestion I heard a man make once at a dinner of 
bankers at home. Two or three of the preceding speakers seemed 
to view with alarm the fact that interest rates were falling. He an’ 
swered that by saying that he had not been able to figure out in his 
mind what difference it made to the banker whether he borrowecl 
the money at 4 per cent and loaned it at 5 per cent or borrowed it at 
8 per cent and loaned it at 4 per cent. a 

T do not undertake to predict what the financial result of opera? 
tion may be under a return to private ownership. We have before 
us the fact that under Federal control the Government is failing, 
month by month, to earn the obligation which it has assumed for 





RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 12] 


he use of these properties. What I deem of importance during 
his period that I have spoken of, a few months, not to exceed one 
vear, following the return of the properties is a declaration by the 
Jongress of the policy that shall control with regard to the rates 
ad _ avoid the turning back of the roads subject to the varying 
sonditions as between States, and as between States and interstate 
vates, and the precipitation of what seems to me inevitable confusion 
und chaos as a result. 

Mr. Raysurn. In other words, under present conditions, the pres- 
wnt prices of labor and the present prices of material, no one can 
lope Meat the railroad rates will go back to what they were before 
he war ? 

_ Mr. Crark. That is my idea, and that it is impossible to hope 
uther through operating economies or through increased volume of 
srafiic that the deficit that is now occurring can be overcome. 

Mr. Raygsurn. Your opinion is that it can not? 

Mr. Crarx. It can not, in my judgment, be overcome through those 
neans. Of course, the deficit, as I speak of it, under Federal control 
‘Ss a comparison of the net results of operation with the obligation 
vhich the Government has assumed to pay for the use of these 
yroperties, the average railway operating income for the three-year 
reriod taken as the standard or test. It does not necessarily follow 
hat the carriers must on the return of their properties earn exactly 
hat amount, but it seems to me that an immediate return of them 
without any provision for financing and without any provision by 
the Congress for the protection of the general rate level, whatever 
t may be, when the roads are turned back, is apt to produce a chaotic 
ondition. I went a little further then; I think you were absent, 
vund I expressed the opinion that Congress might expressly author- 
ze the commission during that period to require the carriers in the 
several rate districts to provide committees selected by the commis- 
aon, 1f you please, through which their own traffic officers must 
nake all proposed changes of rates, in order to protect them against 
hemselves and against the possibility of resorting to the old method 
hat the easy way to get traffic is to cut the rate. 

Mr. Raypourn. As a general proposition, you think it is better for 
ny country to buy high and sell high than to buy low and to 
‘ell low ? 

Mr. Cuark. Yes; that is my present view, 

_ Mr. Raypurn. My folks would rather pay $1 to ship cotton to 
zalveston when they are getting 30 cents than to pay 50 cents when 
hey are getting 15 cents a pound. | 
| Mr. Crarx. Oh, yes; certainly. Incidental to the subject of the 
‘elationship of prices to rates it is interesting to note that at the 
resent time 100 pounds or a ton of any commodity that moves in 
mportant quantities will purchase more transportation of that same 
sommodity than at any time in the history of our railroads. 

_ Mr. Raysurn. Mr. Clark, I gather from your statement and from 
your answers to inquiries that you believe the transportation ques- 
jon in this country can be met and solved by amendments to the 
nterstate commerce act as it now stands rather than by uprooting 
ul lines along which we have tried to travel for at least since 1887 
town to now and the substitution for it of some wholly new scheme 
‘or the contro] and reuglation of the railroads. 


122 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr, Crarx. I think that so far as we pursue the governmental] 
policy of privately owned railroads subject to governmental regu- 
lation it is better to round out a system that we have tried and that 
has been tested by experience and in the courts rather than to sup- 
plant it with some entirely new and untried scheme. I do not want 
to be understood as saying that with the amendments to the act to 
regulate commerce contained in the pending bill we are going to 
solve all the difficulties, because we will not. There must be, in my 
judgment, supplementary legislation such as I have indicated or 
along the general lines I have indicated. 

Mr. Raypurn. There has been advocated in some quarters the 
proposition that the railroads of the country shall all be taken over 
by a dozen or 20 corporations, to own and hold them exclusively 
under what they call a zone system. .I am sure you have seen that, 
and I should like to know what you think of it? 

Mr. Crarx. My own view of it is that it is rather extreme. I 
believe firmly in carrying out the principle of consolidation and 
merger of railroads into larger systems, in so far as that can 
appropriately be done with proper consideration for the public 
interest, and that it ought to be done under governmental super- 
vision and control. I do not think that it would be desirable to 
zone the country and put into the possession of one corporation or’ 
one railroad company all of the railroads in that zone, regardless 
of the trend of the traffic which they move. As I said in answer to 
the chairman the other day, I would not think of consolidating 
into one system in a particular zone those lines that handle trafiic 
that naturally and must always trend in a north and south diree- 
tion with those that handle traffic that moves east and west. It if a 
different traffic but it meets with some competition. I think that to 
block the country out and to put all the railroad traffic in that block 
in the hands of one corporation would lead to stagnation and would 
effectually eliminate any semblance of competition. 

If I had my way I would begin this idea of merger and cooperation 
with the terminals. I would provide, if I had my way, and the direc- 
tion of it, in every large commercial center for a terminal association 
or corporation which would be a separate entity. I would make it 
the terminal agency of all of the roads that reach the place, operatec| 
as nearly as could be figured out at cost. Then the railroad serving! 
that place would turn over the traffic destined to the place to this 
terminal agency, and it would be delivered where the consignee 
wanted it delivered on any of the tracks; there would not be any 
gqueson about closed or open terminals; there would be one terminal 
or all. 

Mr. Raysurn. You think that would be an efficient arrangement’ 

Mr. Crark. I do; yes, sir. 

Mr. Raysurn. It would mean in all probability a saving? 

Mr. Crark. A great saving in expenditure, a great increase in effi- 
ciency, and the elimination of endless friction. 

Mr. Raysurn. Do you believe that Federal incorporation woul 
tend toward the solution of the railroad situation ? 

Mr. Cuarx. I have not been able to see the necessity for it. As I 
said the other day, I think, to the Chairman, the power of Congress 
is plenary and it does not make any difference who owns the prop- 
erty that is regulated, or under what franchise it is operated. 


| RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 123 
‘ Mr. Raypurn. The commission has not any authority now with 
efrence to the routing of freight over the lines? 

' Mr. Cuarx. No, sir; except as the commission may require the 
‘stablishment of additional through routes. 

“ Mr. Raysurn. What do you think of giving the commission the 
‘js0wer to route the freight over the shortest and most direct route / 
“Mr. Crarx. Under this bill the commission would have authority 
‘nm times of congestion. of traffic or emergency declared by the com- 
‘nission to require traflic to be moved under embargoes or preferences 
ov priorities or permits. In a normal time I do not see the occasion 
‘for the commission to interfere, except as the public interest may 
‘require it, and responsive to requests that may be filed with the com- 
mission for additional routes, or for the removal of alleged undue 
‘prejudice or preference, or for further limiting the right of the 
sarriers to establish and operate through routes. 

| The provision in the act as it is at present, giving the shipper the 
right to direct over which of available routes his shipments shall , 
move and via which of the intermediate lines within those routes it 
shall move, is, I think, a protection to the intermediate or what we 
might call the weaker lines, because they are able, in so far as they 
ean influence, by their soliciting agents, to get the freight routed 
over their roads, and the carriers having that route open must under 
this law carry the freight as routed by the shipper, whereas the 
selfishness of the originating carrier might send it over some other 
line if it had full latitude in the premises. 

| Mr. Raysurn. You believe, therefore, that there should be as much 
freedom as possible to the serving facilities? 

Mr> Ciarxk. Yes, sir. 

Mr. Raysurn. In section 20a as proposed in this bill you pro- 
vide that the commission shall be given power to grant or deny 
applications made for extensions of lines and the building of new 
lines ? | 

Mr. Cuark. Yes, sir. 

Mr. Rayeurn. And you also provide, do you not, for causing the 
extensions to be made? 

Mr. Cuark. Yes, sir. 

Mr. Raysurn. Do you not think that is of almost as great im- 
portance as the proposition of denying the right for extensions where 
they are applied for? 
~ Mr. Crarx. Oh, yes. I think it is simply rounding out the enforce- 
ment of the principle which underlies this, that a railroad having 
entered a given field shall be protected against unreasonable compe- 
tition by the construction of another line that is not needed. The 
public would be protected against the obligation to maintain two 
lines where one was sufficient, and would be further protected in 
that the carrier having entered that field would be required to occupy 
it further, in so far as the public interest required. 

_ Mr. Raysern. I notice in the last paragraph, on page 31, this 
language: 

_ The jurisdiction conferred upon the commission by this section shall be ex- 
elusive and plenary, and carriers subject to this act may issue securities in 


‘accordance with the provision of this section without securing approval other 
‘than as herein specified. 





124 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Just what do you mean by that, Mr. Commissioner? It is pretty 
well settled that when the Federal Government has the right to 
enter a field, and does enter it, that it enters it to the exclusion of 
all other authority. Just what, therefore, is the reason for this 
specific language? 

Mr. Cxuarx. To make entirely clear the fact that the Congress is 
by this statute exercising its full jurisdiction and powers in this 
regard and to avoid any possible contention that the proviso of 
section 1 has any application whatever to the terms of section 20a. 

Mr. Raysurn. You want to make it clear, if this is enacted, that 
it is the intention of Congress that this shall be exclusive? 

Mr. CuarK. That is the idea; yes, sir. I think that it would prob- 
ably avoid litigation that would otherwise occur. 

Mr. Raygurn. In the next paragraph I find the language reads as 
follows: 

Nothing herein shall be construed to imply any guaranty or obligation as to 
such securities on the part of the United States. 

That was not in the original draft of the bill introduced in 1914, 
but was put in in the committee on suggestion from some source. 
Do you believe, without that paragraph, there is anything contained 
in this proposed section 20a that would imply any guaranty upon the 
part of the Government ? 

Mr. CruarK. I do not. 

Mr. Raypurn. My position is that it seems to me like that is un- 
necessary language thrown into the bill. 

Mr. Criark. If you will pardon me just a moment; as Chairman 
Aitchison suggests, that provision to which you have just referred 
is quite commonly found in State statutes, where the State commis- 
sioners have that jurisdiction. I suppose it is thrown in as a saving 
clause, but my personal thought is that it does not change the 
liability or the obligation or the value of the security. 

Mr. Raysurn. J note that it says “All issues of securities contrary 
to the provisions of this section shall be void,” and I believe you 
stated the other day that there has been some objection or contro- 
versy about that, as to whether that was the wise way to handle it. 
Can you think of any other scheme by which it could be handled with 
protection to the public? 

Mr. Cuark. No. JI am one of those who favored including that in 
the bill, but there was some difference of opinion among the members 
of the commission. One member of the commission thought it was 
inadvisable, and I think he had some idea that it might not be 
sound law. : ik a 

Mr. Raysurn. I think that is probable. The last paragraph Jo 
the section provides “ from and after two years of the passage hereof 
it shall be unlawful for any person to hold the position of officer or 
director of more than one carrier subject to this act unless sueh 
holding shall have been authorized by order of the commission,” etc. 

I remember when we had this bill up last there was some contro- 
versy with reference to that provision, some advocating, I think. 
that it should be made absolute and that there should be no flexibility 
with reference to that rule. I would like to have your opinion as 
to why, in some instances, a man might be allowed to become a dt 
rector in more than one carrier. 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 125 


_ Mr. Crark. It seems to me that, taken in connection with the pro- 
posed amendments which are calculated to encourage and permit unifi- 
cation for operating purposes, consolidation of ownership and other 
arrangements of that kind which at the present time are prohibited 
py some laws, it is very desirable that there should be some elasticity 
to that rule. If two properties are merged for operating purposes, 
each retaining its corporate entity, it might and probably would be 
desirable that they should be operated under boards of directors 
that in part, at least, were common, and that inflexibility would be 
undesirable in connection with these other amendments. 
_ Mr. Rayzsurn. I quite agree with you, but I wanted your opinion 
on the record. That would also be very desirable, would it not, Mr. 
Commissioner, with reference to those railroads that run into States 
that demand a separate charter of every railroad that enters that 
State, it matters not where else it is chartered ? 
Mr. Cruark. I think so. 
| Mr. Rayzsurn. My State of Texas, for instance, requires that every 
railroad that enters the State shall take out a State charter to operate 
in that State. 
_ Mr. Crark. And maintain a general office in the State. 
' Mr. Raysurn. Yes; and maintain a general office in the State. 
You would have to have this clause or this exception in order to cover 
a case of that sort, would you not? 

Mr. CuarKk. I think so; yes. | 

Mr. Raypurn. And as you have stated, where lines have been 
merged for operating purposes. J think that is all, Mr. Chairman. 
| Mr. Mererrr. Mr. Clark, you will remember that after the Civil 
‘War—I do not mean personally, necessarily, but as a matter of his- 
tory—the prices of all commodities were very high, labor and every- 
thing, due at that time largely to the inflation of the paper currency. 
Of course, that could be stated either way, that the currency had 
fallen in value or that the commodities had risen. I suppose the 
accurate thing is to say that the currency had fallen in value. Do you 
not think that some such phenomena is happening now? 

Mr. Crarx. Yes; I think there is a good deal 2n that thought. In 
my younger days I spent a number of years in the western country, 
and I observed there and elsewhere that. wherever money is plentiful 
prices are high. : 

Mr. Mereirr. The law of supply and demand. 

Mr. Criark. The law of supply and demand. 
| Mr. Merrirr. Now, as these war loans and other demands on the 
‘Federal reserve banks are liquidated, and under the present law as 
the currency diminishes in volume, will not that tend to bring down 
the prices of everything? 
~ Mr. Crarx. I think so. I should expect to see in the course of a 
few years a reduction,in the general level of cos*s and prices, but I 
te not believe that they will ever go back to where they were before 
ithe war. 
' Mr. Merrirr. Well, perhaps not, but I understood you to say that 
your view was that for the general good, it was not very material 
‘what the level was so long as it was adjusted so that the general dis- 
‘tribution of wealth was equitable. 
' Mr. Cuarx. Well, I was perhaps unfortunate in expressing my- 
| self. The thought which I had in mind was that during this period 


126 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


which we commonly speak of as the reconstruction period the ques 
tion of the relationship of these things is of more importance tha 
the level 

Mr. Merrirr. Yes; I agree with that. 

Mr. Cuark (continuing). And if the relationships are proper! 
adjusted, the level will adjust itself without artificial assistance. 

Mr. Merrirr. Yes; but what I am coming to is this: We all agre 
that the great expense of transportation now is wages, and we a) 
agree that they were properly raised and should not now be reduce¢ 
but is it not your view that when things get down to normal or ay 
proximatly normal, so that this country can not possibly consun) 
its production, it will be an absolute economic necessity that. al 
prices including railway rates, railway wages, cost of food for expon' 
etc., should get down not only to a United States level but to a worl 
level ? 

Mr. Crarx. Well, I would not like to predict with regard to thos 
matters. I think that the law of supply and demand is inexorable 1. 
its effect upon all those things. It always has been and I believ 
always will be. 

Mr. Merrrrr. It seems to me that the only importance of that } 
as to general public sentiment, and when it comes to questions 0 
arbitration as to wages and all that sort of thing, eventually, th 
relation of wages and cost to the whole business of this country ha 
got to be taken into account. | 

Mr. Cuark. I spent several years trying to get higher wages ani 
shorter hours of labor for certain classes of railroad employees. | 
never advanced the theory of the cost of living because both mysel 
and those with whom I was associated and those whom I representes 
realized that if we argued the high cost of living for an increase 1) 
wages we could not find any ready answer to a proposition to reduc 
nee on account of the reduced cost of living. We kept away fron 
that. : 

Mr. Merretrrr. Is it your view that one should have no relation ty 
the other ? : 

Mr. Ciark. No, sir. 

Mr. Merrirr. But merely that that was not the sole ground ? 

Mr. Criarxk. It was not a ground I cared to advance, because I coul« 
see that some day it would come back and I would have to meet i 
on the other side, and I did not care to do so. 

Mr. Merrirr. That was a matter of diplomacy rather than one 0 
economics ? 

Mr. Crarx.: Yes, sir; surely. 

Mr. Mrrrirr. Is it not true that in comparatively recent years—lt 
or 20 years, I do not know exactly how many—taking the railroads o: 
the country as a whole, the ratio of stocks and bonds has been re 
versed? There was a time when the stock capitalization was ver? 
ines greater than the bond issues, but now is not the reverse of thi 
true ¢ : 
Mr. Crarx. The proportion of the capitalization represented b* 
bonds has increased as compared with that represented by stocks 
In other words, the railroads have found it necessary or more atl 
vantageous to finance by the sale of bonds than by the sale of stock 

Mr. Merrirr. Is it not true that of recent years, perhaps due 
special causes, that great systems like the Pennsylvania and the Nev 











RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 19°7 


York Central have not been able to put out stock issues which ordi- 
aarily they could do? 

_ Mr. Ciarx. They have, as I understand, found it impossible to put 
hem out on terms which they felt justified in accepting. 

~ Mr. Merrirr. And that would indicate, of course, that the credit 
of the roads had, to a certain extent, been diminished @ 

_ Mr. Crark. I think so. - | 

Mr. Merrirr. I do not mean their credit as to solvency, but their 
lesirability as an investment. Would you say that was due alto- 
yether to the poor mouth that the railroads have made? 

Mr. Crarxk. Oh, no; not altogether. I think that has had its 
nfluence. 

Mr. Megrirr. If the railroads are to be set on their feet inde- 
sendently, it is essential, is it not, that legislation by Congress, so 
far as that can accomplish it, should be such as to, in a general way, 
sheer up the investing public? 

Mr. Crark. I think that is a most desirable object to aim at. 

Mr. Merrirr. It seems to me that is so. 

Mr. Crark. I think that many of our railroads have had their 
wedit impaired because of the bad company they were in and not 
yecause of anything inherent within that railroad itself. I think 
here is necessity for the effort which you suggest, and that it is most 
lesirable; but when you speak of setting the railroads on their feet, 
[ can not refrain from saying that I think that some of them have 
rot to throw away their crutches and go into the hospital. | 

Mr. Merrirr. Yes; I am glad you brought that in, because that is 
ust the final point I want to ask you about. You spoke in connec- 
ion with all the lines of the possible necessity during the period of 
eorganization of the Government lending them money, and also 
vou said—I think properly—that the Government should not do that 
mless fully secured. Now, naturally there has got to be discretion 
odged somewhere; but is it not true that in the case of some of the 
veaker lines and some of those lines that have been in bad company 
hat it would be better at the start to avoid Government loans and 
ake a reorganization ? 

Mr. Crark. Well, my personal opinion, for what it is worth, ap- 
lied to certain individual systems, which, of course, I would prefer 
10t to indicate—— i , 

Mr. Merrirr (interposing). Oh, of course. 

Mr. Crarx (continuing). Would be that the quicker the reorgani- 
ation comes the better; and that the reorganization ought to be 
ong sound lines for the future and not like previous reorganiza- 
ions of some of the same properties emerging from the receiverships 
vith a largely increased volume of capital obligations. 

Mr. Merritr. That is a sort of balloon reorganization. 

Mr. Cuark. There have been a good many of them, and in some of. 
hese properties two or three of.them. 

Mr. Merrirr. My thought was in regard to the Government loans, 
nd I should like your opinion about that. If the Government lent 
ertain lines large sums of money, as they probably would have to 
lo if they lent them money at all, and took proper security therefor, 
he effect might not be to prevent reorganizations, but rather to put 
he underlying security holders to great disadvantage, because the 


128 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Government, in a partnership of that sort, usually comes out on to} 
Do you not think it might be so? 

Mr. Crarx. I should assume that if the Government advance; 
money under those circumstances. it would be in the nature of 
prior lien. 

Mr. Merrirr. Yes. 

Mr. Criarxk (continuing). Ora prior obligation. It might somewha 
impair the value of the holdings already outstanding. I do not know 
It would depend on the term of the transaction. 

Mr. Merrirr. The Government is a very dangerous partner. Tha 
is all, Mr. Commissioner. 

Mr. Winstow. Mr. Commissioner, would you be willing to explay 
what you had in mind when you used the term “bad cgmpany ” i 
connection with the fortunes of railroad operation. 

Mr. Cuarxk. I had in mind more particularly the financial trans 
actions and the history of some railroads as it has been disclosed i 
public reports after public investigations made by our commissiot1 
frequently responsive to a resolution by the Senate or the House, or 
joint resolution of the two bodies. . : 

Mr. Winstow. I would lke to ask you to what extent you fe¢ 
the actual operators of railroads have been responsible for thei 
financial misfortunes during that time. 

Mr. Crark. To a very limited extent; very limited. 

Mr. Winstow. Would it.be a fair inference therefrom that in man 
instances those who have dominated the financial policy have not bee 
experienced operators. 

Mr. Crark. I think that is a very conservative statement. 

The CHarrmMan. Mr. Clark, there are one or two questions I woul 
like to ask you at this point. I have received several letters of prc 
test against the provisions of the bill putting traffic wholly wate1 
borne under the commission. Is that objection due, perhaps, to th 
fact that these water carried would not care to submit their schedule 
and tariffs and submit to the other regulations of the act. 

Mr. Crark. I think that would be true in so far as the objectic 
came from the carrier. I can imagine that objections of the sair 
nature might come from some shippers who want to retain the ac 
vantages they are able to secure from the present condition. TI 
question came up several years ago in the commission as to its juri 
diction over the port-to-port rates of carriers which as to their othe 
rates and activities were clearly subject to our act. The commissio: 
by a majority vote, decided it did not have jurisdiction over the por 
to-port rate. Some of us thought that the act provided in its tem 
that it applied to the carrier—not to a part of its business, but to tI 
carrier in all of its activities. I might take a moment to illustrw 
my own thought by a concrete illustration. The boat lines plyir 
between the Head of the Lakes, Duluth, and Buffalo, are subject 1 
our act, except as to their port-to-port rates. They carry the large 
portion of the great product of flour of the Northwest. Now, thei 
is an available proportional rail rate from Minneapolis to Dulut 
There are proportional and ex-Lake rates applicable from Bufla 
to the seaboard and other eastern points. When those two are adde 
together and subtracted from the joint through rate, you might $2 
you have found the portion that would be allocated te the Lake tran 
portation; not actually so, but illustratively speaking. 





















RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 129 


__ Now, exempting their port-to-port rates from the jurisdiction of 
the commission, makes possible this thing: A man may have 100,000 
barrels of flour at Minneapolis which he wants to lay down at New 
York. The through rate is a given sum. It will cost him so much 
to take it by rail to Duluth and it will cost him so much by rail from 
Buffalo to New York. He goes to the Lake line and says, “I have 
100,000 barrels of flour to send to New York. If I give you 20,000 
barrels of it under the joint through rate, what rate will you make 
me from Duluth to Buffalo on the other 80,000 barrels?” I do not 
think that is a wholesome situation. I do not say it has been done, 
but I say it is possible, and that the activities of that carrier, includ- 
ing its port-to-port rates, should be subject to the regulating statutes. 

The Cuarrman,. Will the effect of this bill, if enacted, largely in- 
crease the duties and labors of the commission ? 
_ Mr. Crarx. Mainly, I think, Mr. Chairman, with regard to the 
superivision of capital issues and the possibilities of the future as to 
administration of physical operation conditions if emergencies should 
arise. The commission has a somewhat varied line of activities, and 
it has a good deal to do and a good many things to supervise. In my 
judgment, it can succeed in carrying along those duties and taking on 
additional ones only by organizing into subdivisions and bureaus to 
take care of those various lines of work. . 

The supervision of capitalization is a very important subject, far- 
reaching in its effect, and one as to which promptness is most de- 
sirable. I think that if that duty is placed upon the commission, 
there should be an addition to the membership of the commission, so 
that one of our subdivisions might be charged with the duty of ad- 
ministering that part of the law, and that the other members of the 
commission should be expected to give attention to those matters 
only to the extent of participating in laying down a general line of 
policy and an understanding as to the interpretation of the law, and, 
subsequently, with regard to the policy that is to control on new 
questions that arise; that the carrying out of that policy should be 
committed to this subdivision which would make that their business 
and probably would not have any other line of activity immediately 
demanding their attention. | 

The Cuarrman. It is your conclusion then that there ought to be 
an increase in the number of commissioners ? 

Mr. Cuark. If these additional duties are placed upon us; yes, sir. 

The Cuatrman. If the commission is increased, and these duties 
as to security issues are added to the commission, ought we not to 
provide that the parts of the bill relating to stock and bond issues 
should not become effective until a certain date in the future in order 
that the commission may be enlarged, and in order that you may per- 
fect an organization to take care of that work? 
_ Mr. Crarx. I think that is very desirable. And if you will pardon 
me right on that same subject, I want to refer to another matter 
that we find a little bit confusing, or not confusing either, but a lit- 
tle bit troublesome in our efforts to subdivide. The act now provides 
that not less than five members of the commission shall participate 
in the determination of cases under the valuation work, and therefore 
We can not commit that subject to a subdivision of the commission in 
the manner which good organization would dictate, and it has been 


182894—19—voL 1——9 


130 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


our thought that having decided some of these principles, which 
might be called fundamental principles, and having adopted a gen-_ 
eral line of policy, that perhaps the Congress would be willing to- 
relax that provision and make it possible for the commission to com- 
mit that subject of valuation to a subdivision of the commission, con- 
sisting of three members, and let them do that job, while some of the 
rest of us are doing some of the other jobs. 

The Cuamman. That would expedite the business of the com- 
mission. 

Mr. Cuark. And in that, as in all other questions submitted to a_ 
subdivision of the commission, the commission would reserve the 
right to review any decision, and anybody would have the right to 
appeal from the action of the subdivision for a decision by the 
commission. 

The Cxrarrman. When we adopted the act giving you the right to 
do business by subdivisions, that very matter of the size of the sub- 
division over valuation was up on the floor of the House, and it was 
the opinion of Members of the House that as to such a very important 
matter, and one that was important because you were determining 
the principles of valuation, a subdivision of more than three Mem- 
bers would be advisable. It was on that account that it was made 
five, but if the courts determine the principle of valuation, as they 
doubtless will in the near future, on pending litigation, it would be 
possible to do this work by subdivision of three, would it not? 

Mr. CrarK. We think so; yes, sir. 

The CHarrman. And the work in connection with the super- 
vision of the issuance of securities could be done by a subdivision of 
three. 

Mr. Cuark. We think so. 

The Cuairman. And you think there ought to be a certain period 
of time elapse after the enactment of this law, if it is enacted, to 
enable you to organize your forces so that you can take care of this 
very. important work. | 

Mr. Crark. We think so. 7 

The CuarrmMan. It would be work which you believe requires 
prompt and expeditious action. 

Mr. Cuark. Yes, sir. | 

The CuatrmMan. Is that one of the complaints made now where 
they have to get certificates from various State commissions ? 

Mr. Crarx. Yes, sir. The complaint is that unless prompt action 
ean be had, the opportunity of floating the issue passes by and the 
market will not take it, and therefore the effort has been futile. 

The CuarrMan. If there are no other questions ) | 

Mr. Sims (interposing). Mr. Chairman, you brought out a matter 
which I would like to ask the commissioner one or two questions 
about. Mr. Commissioner, you referred to capital issues which this 
bill authorizes the commission to regulate, and therefore the defini- 
tion of what is meant by capital issues within the terms of this bill is 
very important. Now, a bond,.as I understand, is a debt or an obliga: 
tion of a corporation, and a share of stock is simply a certificate o 
ownership, a certificate of a percentage ownership in the property 
of the corporation. Now, which is capital and which is liability? — 





RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 131 







Mr. Crarx. I used the term “capital issues” only in the most. 
‘generic sense. The act, or this bill, I should say, specifically provides 
‘for stocks and for bonds. 

) Mr. Sms. But does not define what is and what is not a capital 
issue, 

Mr. Cruark. No; we speak of supervision of capitalization only in 
1 general way. | 

“Mr. Sms. Now, then, if the commission should authorize a certain 
jond issue and the public bought those bonds which were a debt of 
‘he corporation, I can see very readily how that would carry with 
t an implied moral obligation that the commission should never re- 
‘luce rates on the traflic of that particular road so that that would 
force a repudiation of its bonded indebtedness; but on the other 
aand, if it should authorize an issue of stock which is merely the sale 
xf an interest in the property, I then can not see any moral obliga- 
ion that the rates should be such as to enable that corporation to pay 
i certain percentage of divdends any more than I could see why the 
‘ommission should prevent the corporation from paying all the 
lividends that its earnings justify. Is there any moral obligatiom 
»xisting upon the part of the rate-making body, Congress, the com- 
nission, or the States to provide rates that will make stock issues, 
ither outstanding or to be issued, a desirable investment in competi- 
on with all other stocks and bonds which may be offered to the 
yublic? = 
_ Mr. Crark. No, sir. 
| Mr. Srus. Then a moment ago you said something about a period 
‘4 one year from the time the railroads were turned over and that 

Jongress might provide remedial legislation or supporting legisla- 

ion—I do not know exactly the term you used—but you do not mean 
/hat the Government should continue to pay the standard return to 
he railroads during that period of time regardless of the earnings 
if the roads, do you? 

Mr. Crarx. No; I had no such thought in mind. 
| Mr. Srms. I did not think you did, and I asked the question simply 
‘omake it perfectly clear that you did not mean that. The standard 
eturn obligation on the part of the Government will cease the mo- 
ent the roads are returned to their present owners. 

Mr. Crarx. I so understand. 

Mr. Sims. But Congress may pass legislation, if I caught your idea 
orrectly, that may continue for a certain time the rates authorized 
y the Government and established by the Government, and in 
_Sistence at the time they are turned over. Was that included in your 

uggestion ? 

Mr. Crarx. Yes; that would be included in my suggestion. My 
‘iggestion was that there ought to be some legislation that would 
‘Tevent a sudden throwing of all of the rates and fares and charges of 
/jese railroads into doubt and confusion and litigation immediately. 

Mr. Sims. Which I most heartily approve. But when we had up 
Je same question with reference to turning the wire systems over 
ome gentlemen contended that when Government control ceased 
“overnment power or Government-made rates would also cease to 
ave legal binding effect upon the commissions of the country, and I 
‘id not know whether you had given that any study or not. 













132 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Crarx. No; I did not follow the intricacies of wire contro! 
with very much care. 

The Cuairman. I think that is all, Mr. Commissioner. 

Mr. Crarx. Mr. Chairman, I filed some figures the other day which 
included 1916. Mr. Winslow requested that they be brought down t¢ 
include 1917 and 1918. I have had that done, showing in additior 
to the figures originally in this statement those for the calendar yea 
1916 as well as for the fiscal year ending June 30, 1916, and those foi 
the fiscal years and calendar years, which are coincident, 1917 an 
1918. I have had them added to the statement which I originally in. 
troduced, so that they will all appear in the record in the one state: 
ment. 

I was requested to put in the record some statement as to the State; 
in which there is a statute requiring the issuance of a certificate 0! 
convenience and necessity prior to the construction of a_railroa¢ 
line. We have attempted to check that up with care, and believe thai 
this list is correct. The States of Illinois, Kansas, Maine, Mas 
sachusetts, Maryland, Missouri, New Hampshire, New York, Penn 
sylvania, Vermont, and Wisconsin have such statutes. Some othe: 
States seem to have a similar statute with regard to public utilities 
but not as to steam railroads. | 

Mr. Winslow requested some figures showing the percentage of ne 
earnings applicable to dividends as contrasted with dividends pait 
from such earnings and exclusive of special distribution of assets 
I have had those figures collated. The net income of class 1 stean 
roads for the year ended December 31, 1917—that is, the incom 
remaining after interest and rentals have been deducted from thi 
combined operating and nonoperating income—was, using roun( 
figures, $593,000,000. Those roads declared in dividends that yea 
something over $320,000,000, or 54 per cent of the net income fron 
operating and nonoperating properties. ‘The corresponding figure 
for the calendar year 1916 are: Net income, $647,000,000; dividends 
$306,000,000, or 47.3 per cent of the net income. : 

He asked that I make a segregation of the nondividend-payin; 
roads. I have made that for the calendar year 1916, showing ther 
by districts and also showing the mileage operated and the capita 
stock outstanding during that year. There were 28 such roads 
what is termed the eastern district. Some of these are listed as ir 
dependent roads. They maintain independent corporate existen¢ 
and report separately to the commission, but they are, in fact, part 
of systems operated under a different system name than that ind: 
cated here for the individual property. 

For example, there is included in this list the Erie Railroad ( 
Later, there is shown the Chicago & Erie Railroad Co. The Chie 
& Erie is the western part of the Erie system. Then, later in the ls 
appears the New York, Susquehanna & Western Railroad Co. Thi 
again, is a part of the Erie system. A simple comment on this lis 
We find the familiar names of the New Haven, the Boston & Main 
the Pere Marquette, the Chicago & Eastern Illinois, which went dow 

in the Frisco receivership; the Western Maryland, which went dow 
in the collapse of the Gould plans for an independent transcontiner 
tal line; the Wheeling & Lake Erie, which went down in. the sair 










RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 133 


j 


pampany ; the Cincinnati, Hamilton & Dayton, the Wabash-Pitts- 
jurgh Terminal, which was another. part of the Gould system. 

| There were 14 such roads in the southern district and 49 nondivi- 
lend-paying roads in the western district, in which we find the Rock 
‘sland, the Frisco—there again you will note the St. Louis & San 
francisco Railway Co. Later in the list you will find the St. Louis, 


ia Francisco & Texas Railway Co. It is simply an independent cor- 
| 





oration, responsive to the State statutes to which Mr. Rayburn re- 
erred a short time ago. You will find the same thing with regard to 
he Missouri, Kansas & Texas and the St. Louis & Southwestern, 
ndependent corporations listed here as nondividend-paying carriers, 
vhich are simply the Texas parts of the parent system. _ 

| Then we find the familiar names of the Missouri Pacific, the Rio 
yrande, the Missouri, Kansas & Texas, the Chicago & Alton, the Gulf, 
Yolorado & Santa Fe Railroad Co. constituting, with approximate 
ecuracy, the Santa Fe lines in Texas; the Galveston, Harrisburg & 
an Antonio Railway, a part of the Southern Pacific lines in Texas; 
he Los Angeles & Salt Lake Railroad, which never would have been 
uilt if it had to get a certificate of public convenience; the Inter- 
ational & Great Northern would not feel at home out of the hands 
‘if receivers; it has been there off and on ever since I can remember; 
he Western Pacific, which would not have been built if a certificate 
i convenience and public necessity had been required, and the Texas 
¢ New Orleans Railroad, another part of the Southern Pacific. 

Mr. Denison. Mr. Commissioner, has the commission any control 
tall over the purchase of the stock of one road by another ? 

Mr. Cuark. None whatever. 





’ Mr. Denison. Do you think that they should have? 

| Mr. Crarx. I expressed the opinion here the other day that the 

“ommission would never approve the issue of bonds or stock of a rail- 

oad if the proceeds were to be used for buying the stock of another 
ailroad with which it had no affiliation or connection. 

| Mr. Denison. Of course, in that case where they would have to 

ssue stocks or bonds for the purpose of making the purchase it 

yould have to secure a certificate of convenience and public necessity 

yo do so and, of course, the commission can control it, but if the rail- 
oad should have a surplus then the commission would have no 

‘aethod of controlling it ? 

| Mr. Crarx. We would have none. 

| Mr. Dentson. Do you think, Mr. Clark, that you ought to have 

nder those circumstances ? 

Mr. Crark. I think it is a question of public policy as to the extent 
0 which a railroad may as an investor or speculator invest its funds 
a the stocks or bonds of other railroads, unless the investment has 
or its purpose the acquirement of the property. Looking at it from 
ne point of view the net income of the railroad belongs to the stock- 
(Olders and they would assert the right to expend it as they chose. 

_ Mr. Denison. But there ought to be some way to prevent, it seems 
i me, an exploitation of that matter by buying the stock ? 

Mr. Cuarn. I think it is an unwholesome practice, at least. 

Mr. Chairman, I will file this statement. 
~The Cuarrman. Very well; it. will be incorporated in the record. 


| 
j 





134 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


(The statement referred to by Mr. Clark follows:) 


The summary, by districts, of the attached statements which include Class ] 
roads which did not pay dividends during the year ended December 31, 1916, is 
as follows: 














Single-track mileage, 
Dec. 31, 1916. Capital stock 
Territory. actually out- 
standing. 
Owned. | Operated. | — 
Basten Cistuicts: CM Se ee oe Oh eae eee cere ee eee 12,333.70 | 18,005.11 | $715, 666, 92! 
Southern Mistrieieacd Ue ee ee eae ie iS ee 9,471.84 9, 916.49 273, 325, 50( 
Wrestermatisinich (oe ON e ee ek le Oe eee 44,164.58 | 52,618.00 1, 059, 212, 92( 
TObGI Sa XK ee) RO Soo!) eee RI oer AN es ye ee 65,970.12 | 80, 539. 60 2, 048, 205, 345 








List of Class T roads that did not pay dividends during the year ended 
Dec. 31, 1916. 


EASTERN DISTRICT. 





Single-track mileage 





Dec. 31, 1916. Capital stock 
Name of road. . ae 
outstanding. 
Owned. | Operated. 

New York, New Haven & Hartford R. R. Co...............-.-. 1, 234. 41 1, 988. 04 $157, 117, 90¢ 
Erie RK, BoCOs eee ee es a ae eee 857.76 | 1, 987. 84 176, 271. 300 
Boston 2) Maine RoR Sek. Nl Hee le ee 731. 34 2,305. 50 42, 655, 191 
rete Marquette "Ro Ro O62. 2 Soh 0 eee eS ee ce 1,791; 75 2, 248. 75 26, 393, 610 
Chidago’é Eastern Hiinois’ RvR. Cons 2g os see ee ee nnee 1, 014. 17 1, 136. 13 18, 288, 200 
hong Island Ru ROo. 4 aoeddo iat eee cle eues eee eee pete 326. 91 397. 04 12, 000, 000 
Western Maryland, Rye Cols: ce ieee ae ee pe 392. 57 773. 00 59, 428, 098 
Cincinnati, Hamilton & Dayton Ry. Co...............--.------ 314. 80 621. 53 8, 248, 175 
Wheeling '&' Lake Erie’R. Ru 'Co sect oo) oo, a ae a 451. 01 512. 13 36, 980, 400 
Gtahd Trine Western Ry, Co: .i Pk a Me ce ees 330. 91 347. 05 6, 000, 000 
Chicazoi& Hriedt. Ks C0c: ws J) |. se Ue Oe oe ok wr cet eae 249. 57 269. 56 100, 000 
LakerErie dé WesterniR.! RR.’ Cot) eee ie ee eae 710. 02 900. 01 23, 680, 000 
‘Toledo: Obio: CentraliRy., Cos... (Same cae eae eee 394. 97 435. 69 9, 547, 700 
Toledo, St. Louis &'Western'R. Rio. teu sk ee 450. 49 455. 04 19, 947, 600 
Grand, Rapids’: Indiana (Ry Coa ae <a eel 419. 03 575. 03 5, 791, 700 
ContraliVermonte ye iCOues sks eed aoa eee 246. 30 411. 20 ; 2, 999, 856 
New York, Susquehanna & Western R. R. Co..............-... 126. 00 135. 97 25, 712, 800 
Detroit, Grand Haven & Milwaukee Ry. Co..........-......--. 189. 00 190. 52 1, 500, 000 
Chicago, Terre Haute & Southeastern Ry. Co..................- 362. 27 375. 04 4, 300, 000 
Ann Arbor Ry BiGolelt ioe, Wu ate ea ne OD 302. 50 301. 01 7, 250, 000 
A blanlic City Rig COsrE see oii se een are ee ee an 170. 18 170. 18 3, 619, 400 
Detroit: Toledordés/ironton. Ries Oona cones ec pee ee nee nee 396. 26 463. 29 12, 489, 998 
‘Cincinnati, Indianapolis & Western R. R. Co................--- 283. 62 321. 68 10, 700, 000 
Canadian Pacific Lines in Maines. Jie ee 173. 90 233. 70 2, 245, 000 
Pittsburg, Shawmut & Northern RB.’ Ro Co.cc. .s. gece eed ees 159. 95 204.67 15, 000, 000 
Wabash) Pittsbursh, Terminal Rey Cosssase) 20 emer eee 63. 31 63. 31 10, 000, 000 
Baltimore, Chesapeake & Atlantic Ry. Co..............20....-- 87. 61 87. 61 2, 500, 000 
Pittsburg’ & Shawmut,.R, Re Copies epee ee 103. 09 94. 59 15, 000, 000 

Total. Mastern District. goidy sre ae ok pee ee eee eae 12,333.70 | 18,005.11 715, 666, 928 





SOUTHERN DISTRICT. 








mcaboard Airing Ry Cow cd cen fer ee ek ae Oe eee 3, 383. 20 3, 461. 34 $60, 950, 800 
“Yazoo & ‘Mississippi Valley BR. Ri. Coat, ee ee 1, 279. 12 1,382. 01 5, 862, 600 
Slorida Mast: Coast RyiiCo, his lyse io: Wee nek | ae 2 en 756. 09 764. 76 10, 000, 000 
‘Virginian Ry. Co. fice Suet i EN SS OA ee 476. 21 510. 08 59, 226, 500 
Norfolk Southern Ry Ri Cosi. ae ee eee eer eae 794. 03 907. 71 16, 000, 000 
Atlanta, Birmingham & Atlantic Ry. Co... 2.22.22... cececeeee 651. 70 640. 42 30, 000, 000 
Carolina, Clinchfield)& Ohio Ry (00 oT ae. 71. 16 283. 04 36, 500, 000 
Wew Orleans, Mobile & Chicago R..R. Cow... asec cnsencadees 401. 68 402. 39 9, 333, 250 
Gulf & Ship Island R, ®.'Co. 2/5 she bi, ics uebeeaen fal 307. 00 307. 56 7, 000, 000 
Louisville, Henderson’& St; Louis Ry. Co... ....06.¢ccdeeceecoke 181. 70 199. 80 4, 000, 000 
New Orleans’Great Northern R. R. Co... 0. ete 247. 10 284. 60 fs a 
‘Tennessee Central RoR.) 00..'. pve o vale sen eee PRR RLaa Ge 288. 55 294. 87 7,941, 
SonuthermRy. Oo.in Mississippiv.:.i.) 7-5... eee eee 237. 55 280. 61 50, 000 
Goalt& Coke Ry? Coe. Asta eee ae sein eet ef ae 196. 75 197. 30 18, 960, 900 
Topal Southern District, A. se toes snc shed ene cae e cee 9,471. 84 9,916. 49 273, 325, 500 








- 


RETURN OF THE RAILRUADS TO PRIVATE OWNERSHIP. 135 


List of Class I roads that did not pay dividends during the year ended 
Dec. 31, 1916—Continued. 











. 











| 
| 
: 

















t WESTERN DISTRICT. 

: Single-track mileage 

Dee. 31, 1916. Capital stock 
Name of road. re actually 

: outstanding, 

' Owned. | Operated. 
vhicago, Rock Island & Pacific Ry. Co...................2..-4- 5, 367-11 7, 655.38 $74, 359, 723 
@eeouas-san Francisco Ry. Co...<.......-2.2.2.ee- eee ceeeceee 3,521.48 4,752.30 98, 633, 026 
3t. Louis, Iron Mountain & Southern Ry. Co................-.- 3, 180.32 3, 553. 89 44,391, 299 
Mee iio Ry Coe) LL 3,774.40 | 3,927.57 82) 702) 585 
Meee Pea rrande RR. R Co....2 62. eek eee cece ee ee 2,534.35 2510-21 87,775, 670 
IE 1, 851.57 1,946.50 38, 755, 110 
eeemtions @ Texas Ry. Co... 22... 0. 2.6.2 cece case anes 1,662.92 1,744.30 76, 283, 257 
| Jregon-Washington R. R. & Navigation Co..../............... 1,997.32 2,052.25 50, 000, 000 
ere Fe i 687.84 1.052. 65 39, 718, 800 
ult, Sraan < Santa We Ry. Co. .<.. 2... 2... cenk ce aeceee | 1,245.67 1, 937.59 4,560,000 
‘zalveston, Harrisburg & San Antonio Ry. Co.................. 1,344.08 1,360.95 27, 084, 400 
“Massounn, Kansas & Texas Ry. Co. of Texas.............. 2.22, 1,119.33 | 1..791.98 10,152,500 
|Meemeeins a palt Lake R.R.Co..........2..--.2.. cee cee ae ee 1,023.7 1,154.20 25, 000, 000 
» Minneapolis Reet misirey Fe. COS. fic te 1,539.19 1,646.75 25, 792, 600 
} mternational & Great Northern Ry. Co.....................--- 1,105.00 1,159.50 4, 822,000 
| Memes DoutNwestern Ry. Co...........-. 2... cence ncn ee eens 622.03 $43.33 36, 249, 750 
IN ECO ooo. oe oo nee he sco ace en ccw alee 957.62 957.95 75, 000, 000 
Pamiere | Oxas Oontral R..R. Co....:....2.--- 5.20 e eee cee nee 856. 40 917.83 10, 000, 000 
Gueeenidie & Santa We Ry. Co.. 2. 22.222 eee 124.92 670.33 604, 500 
: ene: Peiemian CC DOALLIONY, CO... . 2. .0.20..cccscsevn --ss- 495.90 554. 73 40, 000, 000 
7 Suet, rivanieity. i, COS... 2... eke wee wee nee cue 471.36 468.14 5, 000, 000 
3, Louis Southwestern Ry. Co. of Texas.....................-. 695.16 810.50 2,750, 000 
|@meenwestern PacificR. R.Co..................---.0---00s0e. 523.78 523.78 35, 000, 000 
gueemtonio & Aransas Pass Ry. Co...........22..5..---0--0-- 723.80 732.65 1,000, 000 
3t, Louis, Brownsville & Mexico Ry. Co...............---.-26-- 502.24 548.18 500, 000 
fummemiasiorn R.R.Co..:......-...-.....2cc eel 309.04 377.74 9,000, 000 
Duluth, South Shore & Atlantic Ry. Co...............2.---2... 597.60 599.81 22,000, 000 
wameaeo, Hock Island & Gulf Ry. Co....................-..-2--. 468.97 479.08 469, 000 
emmy oo Navipation Co. .......2...:..-....--.-.0hL-e.. 334. 34 342.47 8, 131, 060 
-3t. Joseph & Grand Island UN ere, Ok a Oe ee re 257.93 257.93 13, 599, 400 
ONS GE Rn ee 305. 75 381.58 8, 013, 000 
RES CS 2 7 252.35 255. 46 11, 670, 300 
(Meme Winnipeg & Pacific Ry................................ 83. 94 178.94 6, 000, 000 
[gueeaeo, Peoria & St. Louis R. R. Co...:..........2............ 234. 32 255.47 4, 000, 000 
I ee ee ace 261.10 337.64 8, 376, 100 
Wissouri, Oklahoma & Gulf Ry. Co.......................-..... 218. 72 32. 36 8, 474, 000 
ew Orleans, Texas & Mexico Ry. Co.......................... 172.02 191.22 15, 000, 000 
rmrratiancns ity. CO... 8. eee ce 273. 36 278. 72 5, 000, 000 
| Wichita Falls & Northwestern Ity. Co.........--...-.-......... 328. 68 328.68 2, 000, 000 
ansas City, Mexico & Orient Ky. of Texas.................... 465.71 465.71 1, 000, 000 
Seer vortn Arkansas RR... 2... 2... cs eco eke 336. 64 365. 24 8, 340, 000 
Sees City, Mexico & Orient R. R. Co....-................... 259. 43 272.16 20, 000, 000 
fume eoria @ Western Ry. Co_._........................... 230. 40 247.70 4, 076, 900 
| 3G ouis, San Francisco & Texas Ry. Co....................... 85.32 243.59 894, 000 
EE SIEGE EE Seerene nena 69. 16 120. 14 1, 500, 000 
Sue orezos Valley Ry. Co................--.2.022.0.02 302. 82 S572 304, 000 
IEE ANS ro os em. > Sakon ndsbsavcacedsacn 52. 20 256. 90 1, C20, 600 
Texarkana & Fort Smith Poesy eee aes ad GS aN Aen i gael 192.59 87.30 100, 000 
spokane International PEaOee tlk ls oSSsSy od ee) ok 142.91 163.51 4, 200, 000 
RA CONC GS a rr ar 44,164.58 | 52,618.00 | 1, 059, 212, 920 
| Mr. Winstow. Can you add to your statement in reference to the 


-bercentage of dividend paid, in relation to the whole net income 
applicable to dividends, a statement of the percentage of dividends 
aid by each road, covering its various grades and classifications of 
stock in relation to the capital stock? 

Mr. Crark. I think we could get figures showing the actual divi- 
dends paid by each carrier. 
_ Mr. Wrnstow. On the average based on the total earnings, as you 
lave already indicated ? 

Mr. Crarx. I have put in figures which show the average of the 
aeons paid by the roads that did pay dividends during a series 
of years. 

Mr. Winstrow. I do not so understand. I thought you showed the 
‘mount of dividends they paid out as contrasted with the total amount 
hey might have paid in showing what each one paid on its stock? 


136 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Cuark. It did not occur to me that what each one pays would 
be included in the term “ average.” We have taken the amounts paid 
by the dividend-paying roads and the outstanding stocks of those 
same roads and have shown that the amount of money paid in 
dividends was, on the average, a percentage of that outstanding stock. 

Mr. Wrinstow. You might have 57 per cent paid, and that might 
only be 7 per cent of the stock? 

Mr. Cuarxk. That is true. 

Mr. Winstow. The amount on the stock is what I had in mind. 

Mr. Crarxk. Please look at this statement, a copy of which I have 
incorporated in the record. 

Mr. Stus. Under this bill would the commission have any jurisdic- 
tion to approve or disapprove a proposition on the part of one rail- 
road corporation to lease for a long period of 99 or 999 years the 
property of another railroad company simply by guaranteeing a 
certain return upon its then outstanding issue without issuing any 
now stock or bonds? 

Mr. Cuark. I think we would have. 

Mr. Srus. You think that the corporation making such a contract 
would have to have the commission’s consent and certificate of 
approval ? 

Mr. Crarx. I am inclined to think that that would come within 
the provision regarding the acquirement of new lines. 

Mr. Srmus. Not technically a purchase or legally a purchase; it is 
in effect ownership, but it is not legal ownership. It seems to me 
that the reason should apply, but I did not know but that the lan- 
guage should be amended. 

Mr. Cuark. It does not occur to me that there is’ that necessity, 
because the act first prohibits the acquirement or the construction, 
and second the operetion, but the question of whether or not the 
commission’s authority would be necessary under such a lease as 
you speak of, I think, would be tested by the same rule under which 
it is tested now. A railroad may lease another railroad without 
infraction of any of the antitrust laws if the effect is to simply ex- 
- tend its line and not to bring under common control, management, 
or operation roads that were in any sense competitors to each other, 
Mr. Sims. I have reference to stock and bond issues under this law. 
Mr. Cuark. I understand. | 
Mr. Srmus. Could not a railroad without issuing any stocks or bonds, 
by not resorting to that paragraph of this bill? 

Mr. Cuark. If a railroad can get along without issuing any more 
stocks or bonds, I think they will be happy and all the rest would be. 

Mr. Srus. And in acquiring new property all they would have to do 
would be to guarantee a certain return on the stocks and bonds issued ? 

Mr. Crark. That might be done. There would be no increase m 
the amount of outstanding capital. 

Mr. Sims. That is the outstanding obligation and if this road 
agreed to pay 7 per cent or 10 per cent and if they did not make it 
the stockholders of the leasing road would lose? . 

Mr. Cuark. It would seem in that form of contract that if they 
failed to make payment their contract would be breached. 

Mr. Sanvers of Indiana. On page 9 the new language would re- 
quire the permission of the Interstate Commerce Commission before 
the railroad could operate a newly leased line. 








‘G 
| 
3 ; 
‘The Cuarrman. Mr. Clark, you will put all of those statements 
as a part of the record? 
Mr. Crarx. Yes, sir; I will in just a minute, if I may go on. 
|The CHarrMan. Certainly. 
Mr. Crarx. Mr. Winslow asked the percentage of the average 
irnings of the dividend-paying roads, exclusive of the distribution 
‘assets. The net income of class 1 divident- -paying roads’ in 1916 
as a little over $590,000,000, and those same roads declared divi- 
nds amounting to slightly over $306,000,000 or 51.9 per cent of 
1e net corporate income. 
‘Mr. Winstow. In looking over this sheet hastily it seems that you 
aye grouped together all the railroads of the country, dividend 
wing and nondividend paying, and the percentage of eet ands 
yer the capital stock of all such roads. What I had in mind wa 
4 get the average dividend of the dividend-paying roads. 
_Mr. Cuiarx. If you will look in the next to the last column of the 
‘st table you will see there stated the percentage of stock-yielding 
vidends. 
Mr. Winstow. Yes, sir. 
Mr. Crarx. And in the last column the aver age rate of dividend 
i roads paying dividends. Those per centages - in the last column 
se the average dividends of the roads that did pay dividends, 
though the earlier part of the statement includes both dividend- 
wing and nondividend-paying roads in showi ing the totals of oper- 
amg results. — 
_I was asked to furnish some figures showing the progress of new 
onstruction for recent years. I have had those figures made up 
s nearly as possible to make them responsive to the request. We 
ave no statistics from which we can determine what part of the: 
anual increase each year came from construction by new inde- 
andent companies, but there is a quite complete statement showing 
ie increase in mileage for a term of years, from 1890 to and in- 
‘uding 1917, together with an explanatory statement which I will 
ot take the time to read, but will hand to the reporter. 


(The statement referred to by Mr. Clark follows :) 


Attached is a statement showing the miles of road and miles of all track 
‘om 1890 to 1917 and the increase each year. 

It is impossible from the statistics as they have been compiled to say what 
irt of the annual increase came from construction by new independent com- 
inies. It may be of interest to note, however, that the proportion of the total 
ileage operated by companies operating over 1,000 miles has greatly increased, 
‘though the number of small roads has also increased. This is shown by a 
‘mparison of the condition in 1916 and 1890, the latter being the first year 
‘Y which comparable figures are available. The increase in the relative im- 
irtance of the large roads, however, is due not only to the construction of 
ww mileage by them, but also to the constant absorption of smaller roads, 
hich may at first have been constructed independently. 

- « ; 2 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 137 








Over | From600} From 400} From 250} Under 











1,000 to 1,000 to 600 to 400 260 Total. 
miles. miles. miles. miles. miles. 
0: 
MEMEEEIDET OP TOAGS..o 0.0.0 e2-- cs cee sles 40 33 30 46 864 1,013 
Vumeerepate mileage...........-....----- 77, 873 24, 775 15, 720 14, ga 30, 952 163, 937 
an Ma OMB OUI G Me 22 = oie co ied 47.51 15.10 9.59 8.9 18. 88 100. 00 
Wetter Of TOads...'...-...-2.-5-...--- 55 22 22 41 1,378 1,518 
( Ageregate mileage...................-- 185, 827 17, 138 10,658 12, 735 41, 838 268, 196 
7“ cent CU hatte < ai SS ee a 69. 29 6.39 3.97 4.75 15. 60 100. 00 








138 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mileage of steam roads in the United States, 1890-1917. 


[Mileage of switching and terminal companies excluded after 1907. Mileage of all track operated inelne 
second and other main tracks and yard tracks and sidings. The mileage reported as operated incluc 
also that operated under trackage rights, which results in some duplication.] 















































Miles of | Increase . 
road over mt of 
Year ended— owned in| -preced- Increas 
: : tracks 
United aed operated 
States. | - year. py : 
June 30— 
TSQQ se eee odes Pa CO. bs eee MRE SM EAC are Ey 163,597). 5 eee +208,613 |... Lm ge 
112) Renee eet ae ES MPU Tepe es “MW eh Ss 168, 403 4,806 | 216,149 7,5 
1 ft 7pm ae eet am Re Be Nee hte Nel gh oe UR A oy Veith |» 171, 564 3,161 | 222,351 6,2 
i eit pee eh oun s Brian 4 SE PROMI YAR NN, al od Sit eit aaa Mee F 176,461 4,897 | 230,137 7,7 
LBQd ey Es oe ahle toc beta Zale hs aie nt ul ee Cee ee eee 178, 709 2,248 | 229,796 13 
LOO RRs 0. BE By dipscia Rae cia cis che Mel he ee eon 180, 657 1,948 | 233,276 ' 3,4 
L896 PASE OS NS BS SOS ee er re Ei oe 182,777 2,120 | 239,140 5,8 
TBO Th eels ctee cai Niele ajaty sees GREAT ene ok Bnet a Nee ae ae 184, 428 1,651 | 242,013 2,8 
L898 AO ee ey eS On es ere acer ae ee 186, 396 1,968 | 245,334 3,3 
LOO See acti tele aie Rte She te ati ee et vn DST a An a 189, 295 2,899 | 250,143 4,8 
L900} esos oe Or Nee IOS ho a RE he See eg ne 193,346 4,051 | 258,784 8,6 
In srease, 1900 over 1890... -5 2.5 Xi\ncn new oui o ee ob e a cinae eee ae 29 CAD akan ope 50, 1 
June 30— 
LOOL Ns SOL eee NS ae 2 Regan oe 197, 237 3,891 | 265,352 6,5 
MOOD So cis wtaers's aiGce trate a lGe aoe core a gee Ut ire ca 202, 472 5,235 | 274,195 8,8 
LOOS 2s%2 SSNs See Bee Ber ean te 207,977 5,505 | 283,822 9,6 
O04 Oe: ee way CRU MT SS Se VA eng ee en 213, 904 5,927 | 297,073 13, 2 
1905, 52 vk NBT CU re nia LC era rete sO fen le 2 anh ae 218,101 4,197 | 306,797 9,7 
TOOG SS ioe ery OC Ge Se SOE et eA 224, 363 6,262 | 217,083 10, 2 
DOD PSS Sai Oe es a a IE heh] Det eee 229, 951 5,588 | 327,975 10, 8 
LOR use ck ae eka bee cewebray be onthe Anke bait ae aie net aanne ne 233, 468 3,517 | 333,646 5, 6 
TODD Fo oe aS ae PE es See eh en 236, 834 3,366 | 342,351 8,7) 
LOLQ eae ok oe ies, 2 aie a SE 240, 293 3,459 | 351,767 9,4 
Tncrease, 1910 over 19003)... sa aenk aad eee oo, gee 46,947 Haste ey 92, 9 
_—_— oe 
June 30— 
LOUD ase es Jee SUE. ool ote ee nein: elem Te Sek eee 243,979 3,687 | 362, 824 11,0 
MON erode oa et etn Leuk ok crag ee Sree aaa Paar anne a nes hee 246,777 2,798 | 371, 238 8,4 
LOTS ako OMe Fei es Pe ae ee ee 249, 777 3,000 | 379,508 8,2 
Loe Pte Eb ee Cale Dimea meet Gees Ree ee a ea 252, 105 2,328 | 387,208 7,7 
NOLS Seng Se er ay ae oe bs hag Se NS do Cea 53,789 |- 1,684. 391,142 3, 9: 
OG ae Sue te ee Ses Sar le ee a OVALS rtd We SIU che ae 254, 251 462 | 394,944 3, & 
Dec. 31— 
1 5 alee Se Cee TL SE MeN ea eer hy PR 254, 037 1214 | 397,014 2,0 
|) | Re ee) 9 erm eRe Tos SSSR ME TS en ae 253, 626 | 1411 | 400,359 / 3, 3 
Increase, Dec. 31, 1917, over June 30, 1910 (84 years)......|......-.-- 13, 333 | Sse Se ed 48, 5! 
1 Decrease. 26 months. 


Mr. Crark. I want to mention one other matter which the com 
mittee may hear of from other sources before the hearings are con 
cluded. . 

The commision instituted several years ago a general and search 
ing investigation into the subject of the bills of lading of the ear 
riers and somewhat recently issued its report and order as to th 
contents of the bills of lading. Necessarily the question of the Je 
gality of numerous of the provisions in the old bill of lading or tha 
now in use hinges around a proper interpretation of what is com 
monly termed the Cummins amendment to the act to regulate com 
merce. : 

Some of the corporations owning properties, respondents in thi 
proceeding, now under Federal control, brought a bill for injunctia 
before the district court in New York to enjoin the commission fror 
enforcing this order, and by a majority opinion that court ver 
recently authorized the issuance of a temporary restraining order 
We have not seen the terms of the order as yet, but it was apparentl 
issued on the strength of the view by the two judges forming th 
majority that while Congress has undoubted right to prescribe th: 










RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 139 






xms and conditions of the bill of lading, it has not conferred upon 
ie commission the power to prescribe them. } 
Of course, that will be appealed directly. I say “of course”; I 
ink almost certainly it will be promptly appealed to the Supreme 
‘ourt and efforts made to expedite it, but I have seen some corre- 
gondence which indicated the probability that the matter would be 
rought to the attention of the committee in an effort to have some 
ddition made to this bill to clear up that point. I do not suggest 
at this time because, as I say, we have not seen the text of the 
straining order and it may be decided to try it out in litigation be- 
ore we bring it to the committee. I thought I would say this much 
) that if the question did come up you-would have an understand- 
ae its origin. - 

The Cuarrman. Mr. Clark, we thank you for your patience and 
‘ae information which you have given to the committee. 

~Mr. Crarx. Am I excused, Mr. Chairman? 

‘The Cuarrman. Yes, sir. 

I wish to offer for. printing in the record a communication re- 
ived from Mr. 8. H. Cowan, of Fort Worth, Tex., on behalf of the 
Jational Live Stock Shippers’ League and also the American Live 
‘tock Association, with reference to their views on the pending bill, 
which, if there is no objection, will be inserted in the record. 

(The communication from Mr. Cowan, referred to by the chair- 
ian, follows:) 





ForT WorTH, TEx., July 15, 1919. 

fon. JOHN J. ESCH, 

Washington, D. C. 

| DEAR Sir: I hereby make application on behalf of the National Live Stock 
-hippers’ League and on behalf of the American National Live Stock Asso- 
ation and on behalf of the constituent organizations which comprise these 
rganizations of national character, representing the combined preducing and 
lipping interests of the country as to all matters of transportation involved 

1 the bills coming before your committee respecting the railroads, to have the 
yportunity to fully present our views, arranging, aS we shall, in advance, if 
‘ermitted by your committee, to have parties present who are familiar with the 
ibjects on which they speak and are from various parts of the United States, 
nd whom we think will be able to enlighten the committee respecting the 
U-important subject from the viewpoint of the public interest, which is their 
iterest. 

‘There are certain of us also representing these various organizations whose 
ames can be furnished to the committee later who have had some degree of 
Xperience both in the matters of legislation and the administration of the law 

f railroad regulation, covering a period of several years. 

We trust we shall be able to present with the permission of your committee 
le matters of fundamental importance as well as details of the enactments 
‘ecessary to protect the public interest, in that it protects farmers and stock 
uisers whose business is so intimately asociated with railroad tranportation, 
nd secure to them the remedies to which they may be entitled. 

' We feel that no interest in the country is entitled to any greater considera- 
‘on and we should therefore like to have sufficient time, which will cover a 
Ariod of several days, to present our views. By the expression of our views 
,Mean the views of the organized live-stock shipping and producing interests 
< the country, which might likewise be said to comprise all interests related 
» farming and stock raising, the marketing and disposition of their crops. 

I have’ taken this opportunity to acquaint your committee with our wishes 
the premises in order that they may be given due consideration, and as 
‘<planatory of the reason why we should desire ample time to present these 
iews. I feel safe in saying that they will be in pursuit of the best solution 
‘f the present perplexing and difficult problem. 

3 That you may be acquainted with some of the ideas which I have, I take 
ie liberty of inclosing a document on the ‘“ Outrage of again advancing 
ates.” I trust you will submit this to your committee in connection with 


140 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


this application. Also a document, ‘‘The outline of principal proposition: 
pertaining to legislation which were adopted by the executive committee o 
the National Live Stock Shippers in Chicago, June 3, 1919.” 

The return of the railroads to their owners and the operation by them an¢ 
the cessation of Government operation is universally demanded by all liv 
stock and farming interests of the country as far as we are acquainted wit! 
them. 

Our yiews have been presented upon this subject to the Senate Committe 
on Interstate Commerce. I prepared a good many months ago a pamphlet en 
titled ‘“ What shall we do to be saved.” It was submitted to the Senate com 
mittee and I am inclosing a copy herewith and ask that it be presented it 
connection with this application to your committee. 

I have sent copies of this pamphlet to the clerk of your committee to han¢ 
to each member of the committee and a copy of the printed letter against aul 
vancing railroad rates to be handed to each member of the committee. 

Should it coincide with your views and the views of your committee. I shoul( 
be glad if you would put into the record at our request these documents to be 
printed at this time for information of the committee and so that those wh« 
desire to controvert our position may have a fair opportunity to do so, and we 
will have the opportunity to reply to them when we come forward with ths 
presentation of our case.- 

Of course, there are many new situations and we are confronted with condi 
tions which did not previously exist to any marked degree, but sound prin 
ciples of law do not change; and I am not willing to concede thot those wh¢ 
have gone before and devoted years of study and laid the framework of propel 
Government regulation of common carriers and defined its proper limitations 
have done their work in vain or in ignorance, nor am I willing to concede that 
there has suddenly arisen out of these new conditions that marked superivi 
degree of wisdom, which for reasons of mere expediency, conceived overnight 
almost, should be looked to to uproot and upset the broad and fundamentil 
principles of our Constitution and the rights, powers, duties, and liabilities 
between carriers and shippers that arise out of our system of government 
with respect to these great institutions—the railroads; and after having shifte¢ 
away from sound principles will inevitably lead either to Government owner: 
ship of railroads or ownership of Government regulation by the railroads. 

I trust your committee will believe me when I say that those whom I repre: 
sent and my associates Who will appear, do so in the real interest of the rail 
roads as institutions along with their patrons whose real interests are insep: 
arable. 

I apologize for thus consuming your time and my excuse is the great impor 
tance of the subject. 

Very respectfully, 
S. H. Cowan. 


OUTLINE OF PRINCIPAL PROPOSITIONS PERTAINING TO LEGISLATION WHICH WERE 
ADOPTED BY THE EXECUTIVE COMMITTEE OF THE NATIONAL Lage Stock SHIP 
PERS’ LEAGUE, CHICAGO, JUNE 38, 1919. 


1. To restore the power of the Interstate Commerce Commission and fhe 
courts during a further Federal control of the railroads, the same as before ‘the 
war. 

2. To oppose taking away the power of the States and the giving the power 
over State rates, rules, regulations, and practices to the Interstate Commerce 
Commission. 

5. To oppose railroad consolidation of parallel and competing lines or pooling. 
Providing that permissive consolidation of lines which do not materially coi- 
pete with one another and the extension to new territory and the building ur 
of systems of railroads, by either acquiring existing lines or by making exten- 
sions, provided it ean ‘be done under the supervision of the Interstate Com- 
merce Commission, only after a hearing of all parties interested, and it shall 
have been found not to be inimical to the public interest or materially desta 
tive of competition. 

4. Oppose any fixed standard of return, maximum or minimum, which the 
railroads shall under all circumstances be permitted to make, and oppose ar 
anteed earnings. This on the condition, of course, that to the extent which the 
Government is obligated to pay the railroads for this use and the damage by 
the fact of the Government operation and payment of standard returns, th 
same to be provided for by general taxation, not as a charge against the ship- 
pers to pay in rates if to do so requires unreasonable rates. 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 141 


| 5. Oppose Government ownership or operation, or partnership arrangement 
yr alliance of that nature, by stock ownership or directory composed of Govern- 
nent officials or representatives in part. 

6. Propose and urge that there be one through rate on live stock for the 
(iaole services from point of origin to the destination at public stockyards 
‘ised at market place which shall include unloading into suitable pens and de- 
‘ivery therein at such stockyards, where the animals may be counted and 
*hecked, including such facilities as are necessary or in use for making such 
delivery. 
| 7. In making rates or orders by the Interstate Commerce Commission which 
ave the effect or are intended to fix the State rates, provided for cooperation 
jf the Interstate Commerce Commission with the State commissions in the 
aking of the basic systems of rates. In case of disagreement as to rates under 
sontrol of the Interstate Commerce Commission by reason of discrimination, 
hen the Interstate Commerce Commission to regulate the same, subject to the 
‘onstitutional power of the State being retained and exercised by it. 

, 8. We favor the Government aid to the building of railroads into the un- 
leveloped country where railroads are needed, the Government to furnish the 
“apital and carrying charges for construction, and actual expenditures secured 
jy a lien on the property, with as low rate of interest as possible, and until 
juch roads may become self-supporting. 

9. Provide for Interstate Commerce Commission and state commissions co- 
yperating and establishing uniform and base rates, and when so established 
that they shall be published as such and remain in effect until set aside upon 
pplication and for good cause shown. 


NATIONAL LIVE Stock SHIPPERS’ LEAGUE, 
Lytton Building, Chicago. 


THE OUTRAGE OF AGAIN ADVANCING RAILROAD RATES. 
. We appeal to all shippers to demand justice at the hands of Congress. 
STOP, LOOK, AND LISTEN! 


Camouflage is a disease that has become epidemic and chronic. The symptom 
hat marks its victim is the distorted vision that makes him think he sees that 
reight and passenger traffic should be victimized to pay another billion dollars 
‘© meet the profligate waste and the inefficiency of the Government operation 
f railroads and the bonus guaranteed by the Government as the price of taking 
yver the roads and running them. 

He is told that the railroads are in a deplorable state because of what has 
lappened by the war; his sympathy is aroused, and then he is asked to pay it 
yy higher rates. 

Not only are the railroads to escape the burdens of the war and get this unjust 
‘eturn, called standard return in the Federal control law—the average of the 
hree best years in their entire history; that is, next prior to June 30, 1917—but 
he public, the Government, to escape ‘responsibility for its debt and what has 
jappened by and under its control and shift the debt on the shipper, who hap- 
yens to not be able to pass the buck, by forcing him to pay. exorbitant and 
Inreasonable rates, thus to abolish all standards of reasonableness as between 
shipper and railroads. 


WHO IS TO PAY THIS AND WHO ESCAPES ? 


-Iron and steel. 
_ Manufacturers thereof. 
Manufacturers of wagons, agricultural implements. 
Manufacturers of automobiles. 
Manufacturers of cotton and wool. 
Manufacturers of furniture and office fittings. 
_ Manufacturers and importers of crockery ware and granite ware. 
' Manufacturers of bathtubs and coffins. 
_ Makers of statues and tombstones. 
Manufacturers of drugs and surgical instruments, which speed the day of 
Asing both of these. 
‘ Bookbinders and distributors, including hymn books and prayer books. 
_ Manufacturers of baby buggies and cribs, in fact, everything the farmer and 
tockraiser uses from the cradle to the grave comes to him with freight added— 
“ost and carriage. 
It does not matter to the manufacturer—he passes the buck. 


142 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


While from everything the farmer raises that is shipped, someone deducts tt 
freight. 

Verily, Jones he pays the freight. 

His principal products go to open markets, so he pays what it costs to ship 
and can not add it to the price. If it moves 50 miles and pays 20 cents pe 
hundred, or 500 miles and pays 60 cents per hundred pounds, it sells for tt 
same in both cases. If he sells on the farm it is taken from the price in th 
same relative amounts. It gets him going and coming. It is added to the pric 
of what he buys and deducted from the price of what he sells. He is tt 
victim in both cases. He competes with himself in all cases. 

This is a condition that exists which marks the farmer and stockraiser as tl 
goat. 

Yet with the enormous increase of rates heretofore made they propose to sw: 
him again. 

The manufacturer, the capitalist, even the farmer and stockraiser, even h: 
Representative of Congress, under the hypnotic spell of camouflage, are about t 
be “done up.” 

The exigencies of war, they say, required the reads to be taken over; if s 
the whole people are responsible and not the helpless shippers, who are « 
the class who always pay the freight. 

If the Government loses in round figures $750,000,000 in the undertakin 
(there is no telling how much more it will pay—but plenty), partly. from wm 
reasonable standard return, which it agreed to pay many roads, inefticienc 
everywhere, and as a victim—willing or unwilling—of high prices of material 
and supplies, locomotives and cars, wages and overtime, an increase of 25 pe 
cent of employees compared to the traffic they formerly handled. 





WHO SHALL PAY) FR? 


Shall the farmer and stock raiser pay it, or shall what the war incurred b 
paid by the whole people like any other war debt, obligation, or misfortune 

Even if the burden could be so distributed by passing the charge on to th 
consumer, he would be victimized because of his remoteness from source 0 
supply. 

The inequality and rank discrimination from increasing the rates on th 
farmer and stock raiser to pay the debt of the people for the war is nothin; 
less than robbery. 

To increase rates on manufacturers for the same reasons is no less rol 
bery, not of the manufacturers, who can pass the buck, but of the fellow wh 
gets it. The point is that the farmer and the stock raiser or other consume 
of manufactures, are in both cases the victim. Having choked him som 
and seeing how obediently he stands it, they propose to choke him to death 

But: the bonehead argues that the railroads must be self-supporting, ant 
therefore the rates must be on a higher level. Both the premises and con 
clusions are wrong as applied to present conditions. It means unreasonabl 
rates leviéd on a class. The proposition as to railroads efficiently and eco 
nomically operated is correct. Boney must remember we have already sub 
mitted to 33 per cent increase to support them. 

The Supreme Court firmly established it in Smyth v. Ames that the rigly 
of return is on reasonable rates. They now reverse this and propose to mak 
unreasonable rates to pay an unreasonable return. 

Where the bone in the head makes the mistake is that the propostlin 
whether wholly sound or partly so under normal conditions, has no applica 
tion to making the shippers—part of the shippers—pay in rates what the 
zovernment owes aS a whole, because of the war, or its mistakes or mis 
fortune. 

This whole proposition is clevery concealed propaganda coming through ar 
unthinking public, petitioning for themselves to be hung—for guaranteed re 
turns to the railroads, fixed or proposed to be fixed—on some standard, say 
6 per cent, on some value, that will always be too high, and which will destroy 
all incentive to make money by efficiency. 

It means that all incentive and striving to get the most business and do the 
most business and develop the country to make more business and make thei 
men work or know the reason why, will be wiped out, and when they wait 
more money, as they will with growing inefficiency, just ask the commissior 
to increase rates to make them self-supporting—that is, to pay the guaranty 
to pay 6 per cent. 

If there is a brain too stupid to see this, it is traceable only to this epidemic 
The public is about to be torpedoed by submarines, 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 143: 


‘Not many of the law-making end of the burden bearer’s load seem yet to 
and boldly forth for a standard of reasonableness. What the public hears is 
te ery of distress from the railroads, which the Government guaranteed. Let 
le Nation pay the national debt; let the shipper have reasonable rates. 
The guaranty of a fixed return or a per cent standard for net earnings. 
istroys efficiency, individual effort, and uproots the foundation principle of 
sasonableness. 
: ; NatTIoNaAL Live Stock SHIPpPERs’ LEAGUE, 
By S. H. Cowan, 
CLIFFORD THORNE, 
GRADDY CARY, 
Attorneys. 
ONE 27, 1919. 


Fort WortH, Tex., July 18, 1919. 

yr. Joun J. Escu, 
Chairman Committee on Interstate and Foreign Commerce, 
Washington, D. C. 
‘Dear Sir: I inclose you a copy of resolution No. 8, passed by the annual 
myention of the American National Live Stock Association, at Denver, Jan- 
iry 21-23, on these same subjects of turning the railroads back and their 
gulation. Also resolution No. 9, with respect to restoring the power of the 
iterstate Commerce Commission. Also resolution on the Subject of suspension 
‘advances in railroad rates. 
‘Also, I inclose you copy of resolution adopted by the annual convention of. 
ie Cattle Raisers’ Association, in Dallas, March, 1919, on the same subject. 
Please have them put in the record along with the other matters submitted. 
Very truly, 
° S. H. Cowan. 

SOLUTION NO. 8, URGING THAT RAILROADS BE TURNED BACK TO THEIR OWNERS.. 


‘hereas the transportation of live stock is an integral and necessary part 
of our business—as much so as the ownership or possession of a ranch and 
the facilities for raising live stock—and the character of that transportation, 
and the cost of it, largely determine the question of whether our business can 
be successfully conducted; and 

‘hereas the American National Live Stock Association has, from the very 
time of its organization, given special study to the probiems of transporta- 
tion and railroad operation, rates, and service; has been foremost in all 
matters of logislation to secure the best service, and reasonable and non- 
discriminatory rates, and to those ends to provide, secure, and enforce 
necessary laws and effective remedies; and feels certain that we represent 
the wishes and desires and reflect the judgment of the stock raisers and 
shippers of the country; and 

‘hereas the time is at hand when Congress should act in the matter of turning 
the railroads back to their owners, as soon as this can be accomplished, con- 
sistent with the public service and in fairness to the railroads, and within 
the 21 months provided for by the Federal control law: Therefore be it 
hesolved, by the American National Live Stock Association, in convention 
isembled at Denver, Colo., January 21-23, 1919, 'That (1) the railroads should 
» turned back as soon as possible, consistent with public service and in fair- 
SS to the railroads. 

(2) That no more experimental operation by the Government should be 
tempted, 

(3) That Government operation is certain to be unsatisfactory under present 
nditions. 7 

(4) That the greatest measure of individual initiative and energy should be 
eserved. 

(5) That competition should be preserved. 

(6) That only such consolidations as will benefit public service in cost, and 
sturb competition for business least, should be permitted, 

(7) That we oppose undertaking any scheme of governmental ownership. 

(8) That the power of State railroad commissions and the usefulness of 
© State regulations be preserved. 

(9) That provisions be made to stabilize the rates, and simplify the tariffs 
d classifications. | 





144 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


RESOLUTION NO. 9, URGING THAT FULL JURISDICTION OF INTERSTATE COMMER 
COMMISSION BE RESTORED. 


Whereas we believe the regular and orderly course of administering the a 
to regulate commerce, to the end of affording to shippers and the publie t 
remedies provided by law, is for the tribunal which has been long establish 
for that purpose, and is fully equipped to do it impartially, to hear and det 
mine all matters of controversy committed to its jurisdiction: Therefore be 
Resolved by the American National Live Stock Association, at its twent 

second annual convention at Denver, Colo., January 21-23, 1919, That Co 

gress speedily enact that the full jurisdiction of the Interstate Commerce Co 
mission, as defined by the act to regulate commerce, be restored; that the pr 

visions of the Federal control act to the contrary be repealed; that all of t 

provisions of the act to regulate commerce be made applicable to common ¢ 

riers operated or controlled by the director general in the same manner ai 
to the same effect as if operated by the carriers; and that the director gener; 
and those acting under his authority, be treated as the agents and represent 
tives of the carriers under his jurisdiction and control. 

RESOLUTION NO. 10, SUSPENSION OF PROPOSED ADVANCES IN RAILROAD RATES, 


Whereas the railroad control act, approved March 21, 1918, took away fro 
the Interstate Commerce Commission the power of suspending proposed a 
vances in rates; and 

Whereas in justification of this action it was held out to the public as an emé 
gency matter, occasioned by the supreme needs of the country in the gre 
World War, which has now ceased; and 

Whereas the railroads of the country have made use of this provision to ma 
wholesale and revolutionary changes in rates, rules, and regulations fro 
one end of the country to the other, upsetting established rate relationshi 
and trade conditions: Therefore be it é 
Resolwed by the American National Live Stock Association, at its twent 

second annual convention, January 21-23, 1919, That we earnestly petition 0 

Representatives in Congress to immediately enact into law the Cummins bi 

known as S. 5020, which provides for the restoration of the suspension powe 

of the Interstate Commerce Commission. 


RESOLUTION OF CATTLE RAISERS’ ASSOCIATION OF TEXAS AT ITS ANNUAL CONVENTI( 
AT DALLAS, TEX., MARCH 18, 1919, FAVORING RETURN OF RAILROADS TO OWNE 
UNDER PROPER REGULATIONS. 


Be it resolved, That this organization favors the return of the railroads 
their owners, as soon as adequate legislation properly safeguarding and pt 
tecting the rights of the people during the period of reconstruction and for t 
future, can be enacted by the Congress, and including in such [egislation las 
which will protect the people in and guarantee to them the uninterrupted oper 
tion of the transportation facilities of the Nation. 

That we further favor the restoration to the Interstate Commerce Comni 
sion of all the powers, authority, and functions exercised by it prior to Ga 
ernment control, and such enlargement of its powers and functions as may | 
necessary to provide for the exigencies of the present situation, as well | 
for the future, to the end that such a regulatory system may be establish 
as shall be fair to the carriers and fully protect, the people in the efficient al 
uninterrupted operation of the railroads. 

That we further favor the restoration to the State regulatory bodies of § 
authority, powers, and functions enjoyed by them under State and Feder 
laws prior to the period of Government control, except in so far as same Di 
be inconsistent with the general plan of reorganization which may be adopteé 

That we further favor the enactment of such laws by the Congress as shi 
specifically define the powers, authority, and functions of the Interstate Col 
merce Commission and those of the State regulatory bodies, to the end ft 
conflicts and controversies as to jurisdiction and authority of each may tom a 
future be avoided. 

Adopted. 


The CrarrMan. I regret that we can not sit this afternoon, b 
cause the final vote on the liquor bill will be had in the House, ar 
so we will recess until 10 o’clock to-morrow morning. 

(Thereupon the committee took a recess until to-morrow, Wedne 
day, July 23, 1919, at 10 o’clock a. m.) 


PART 2. 
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


COMMITTEE ON INTERSTATE AND Foreign COMMERCE, 
House or REPRESENTATIVES, 
Wednesday, July 23, 1919. 


The committee met at 10 o’clock a. m., Hon. John J. Esch (chair- 
man) presiding. 

The Cuarrman. The committee is ready to hear representatives 
of the United States Chamber of Commerce this morning. In what 
order do you wish to be heard? | 


STATEMENT OF MR. HARRY A. WHEELER, 7 SOUTH DEARBORN 
STREET, CHICAGO, ILL. 


Mr. Wueerer. Mr. Chairman, if it is your pleasure, I should like 
to make a brief preliminary statement. | 

The CHarmrMan. Give your name and address to the committee, 
please. 

Mr. Wurerer. Harry A. Wheeler, 7 South Dearborn Street, Chi- 
cago, Ill.. Do you want my business affiliations, Mr. Chairman ? 

The CHarrMan. Yes. 

Mr. Wueeter. Vice president of the Union Trust Co., of Chicago, 
past president of the Chamber of Commerce of the United States, 
and chairman of the transportation conference. 

My statement, Mr. Chairman, will be very brief. The transporta- 
tion conference, called by common consent—the national transporta- 
tion conference—is sufficiently unique to make it desirable, if you 
will indulge us, in putting into the record the antecedents of this 
particular body, because it must be differentiated from the Chamber 
of Commerce of the United States at certain points, and its conclu- 
sions, which will be presented to you at this hearing, are not the con- 
slusions of the Chamber of Commerce of the United States as yet. 
Phe chamber is voting upon many of these declarations, but as yet is 
aot committed to them, and in consequence it will be desirable to hold 
in your minds the difference between the national transportation 
sonference and the chamber of commerce in its support of these dec- 
larations. 

The national transportation conference had its inception in the 
lifference between the railroads and the brotherhoods in 1916. At 
hat time the chamber of commerce, in its annual meeting in Febru- 
wy of 1916 being confronted with a possible stoppage of transporta- 
jon through the differences between the employers and the em- 
dloyees of the roads, appointed a committee to follow the situation 
md to make recommendations to the chamber from time to time, 
with respect to the progress of that difference and the relation of 
he business interests of the country to it. This created the railroad 


152894—19—-vo1 1 10 JAA 





146 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


committee of the chamber. The committee became a standing com. 
mittee of the organization and through the years, since February o: 
1916, has by its organization and its paid staff followed closely al 
of the railroad situations. 

This committee has become the adviser of the chamber with ‘re. 
spect to its activities in connection with railroad matters. It has 
orought out several referanda upon which the business interests oi 
the country have expressed their judgment and has presented in- 
numerable reports upon various phases of the railroad situation anc 
their relation with railroad labor as informative to the chamber oi 
the actual conditions existing. 

It became evident to the railroad committee that the differences 
between the roads and their employees in 1916, resulting as we al 
know in certain definite advances, constituted but the beginning of ¢ 
general wage increase, and of a general wage bill which must be ab- 
sorbed by the public, not alone for the increases in connection with 
the trainmen in their several brotherhoods but likewise in passing 
on relative increases to all classes of railroad labor; and the railroad 
committee of the chamber thereupon undertook to organize itselJ 
to ascertain the size of that wage bill as it might progress along the 
various steps in equalizing the wages of the various groups of rail. 
road labor. 

We secured from the chamber an appropriation sufficient to ente 
into a calculation upon that question which would assume to look 
ahead for a considerable distance; also put together an organization 
of experts in order to make those calculations as accurately as pos- 
sible from the records of the Interstate Commerce Commission, of the 
railroads themselves, or any other records that might be available. 
And about the time the railroads were taken over by the Government: 
we were ready to proceed with that analysis. 

Then the director general advised us that he would undertake 
through the Railroad Administration to make those calculations: and 
the committee of the chamber devoted itself to a study of the condi: 
tions that must obtain when ultimately the roads should be returned 
to their owners and of the legislation which would be necessary tc 
safeguard them back into private hands and into efficient operation’ 

Almost at once the committee found itself at a great disadvantage 
because it was composed of the business interests and professiona! 
interests alone. It had no membership that would reflect the rail: 
road executives’ side of the case nor the railroad labor side, nor the 
agricultural interests, and as a result, we requested the board of di: 
rectors of the chamber to permit us to call together a conference 
which should be all inclusive of the interests affected by transporta: 
tion. ay 

The first request was made in the fall of 1917. The resolution 
passed the board but with the recommendation that no action be 
taken because the country being at war, it seemed undesirable t0 
precipitate a series of conferences at that time. i 

Again, in the spring of 1918, at the annual meeting of the chamber’ 
the resolution was again introduced and again passed by the orgami- 
zation, but the directors again advised no action to be taken at that 
particular time, but gave the railroad committee instructions to pre- 
pare for such a conference, that conference to be convened as soon as 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 147 


the war should end and when the question might be taken up without. 
interjecting any conditions that would be unfortunate in connection 
with the Government’s operation of the railroads. 

So it happened that in December, within a month after the armis- 
tice had been signed, the railroad committee had made its prepara- 
tions for this series of conferences that should be all inclusive of the 
interests affected by transportation, and the first conference was 
called in the month of December, 1918.. 

It was the request of the railroad committee that the board should 
authorize it to call together representatives of the following inter- 
ests: The shipper, both the manufacturer and the jobber and the 
retailer in his absorption of commodities; the railroad interests 
themselves; the railroad labor interests, comprising both the brother- 
hoods and the American Federation for that section of the railroad 
labor that was under the jurisdiction of the American Federation 
rather than the brotherhoods; the agricultural interests; the eco- 
nomic interests; the public utilities; and the social-service groups; and 
30, taking each of these several interests, or sections, of our popula- 
tion interested directly in railroad transportation to bring repre- 
sentatives out of those interests into this conference to discuss the 
peneral railroad problem and, if possible, to accommodate the mindg 
of all to a general program which might represent not the program 
of a single interest Or any group of interests but of sections of our 
population representing practically all of those classes directly or in- 
directly affected by transportation. 

The conference, therefore, as called together, was as follows: 

Representing the shippers’ and manufacturers’ point of view, Wal- 
ler S. Dickey, of the W. S. Dickey Clay Manufacturing Co., of Kan- 
sas City. 

Edward J. Frost, vice president, William Filene’s Sons Co., Bos- 
con. 

George A. Post, president, Standard Coupler Co., New York. 

Charles EK. Lee, of Ford, Beacon & Davis, consulting engineers, 
New York City. 

W. W. Salmon, president of the General Railway Signal Co. 

Charles S. Keene, vice president of the American Tobacco Co.; and 

Frederick J. Koster, president of the San Francisco Chamber of 
Commerce. 

Representing the farmers of the United States: H. C. Stuart, 
shairman of the national agricultural advisory committee; R. L. 
Munce, president of the Pennsylvania Good Roads Association; and 
Hugene D. Funk, of Funk Bros.’ Seed Co., Bloomington, III. 

Representing the financial aspects of the railroad problem: Paul 
M. Warburg, formerly vice governor of the Federal Reserve Board; 
Nathan L. Amster, president of the Investors’ Protective Association 
yf America; Luther M. Walter, general counsel of the National Asso- 
lation of Owners of Railroad Securities; and your orator. 

Representing the views of labor: Frank Morrison, secretary, 
denry Sterling, legislative representative, and Martin Ryan, of the 
‘ailroad employees’ department of the American Federation of 
4zabor; and representing the brotherhoods, A. B. Garretson, presi- 
lent of the Order of Railroad Conductors; W. G. Lee, president, and 
W. N. Doak, vice president, of the Brotherhood of Railroad Train- 


148 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. — 


men; and 8S. E. Heberling, international president of the Switchmen’s 
Union of North America. 

Director General Hines appeared before the conference twice and 
explained the plans of the Railroad Administration and his own per- 
sonal views in regard to the desirable solution of the railroad prob- 
Jem. Commissioner Winthrop M. Daniels, of the Interstate Com- 
merce Commission, and President Charles E. Elmquist, of the Na- 
tional Association of Railroad and Utilities Commissioners, pre- 
sented their views and participated actively in the deliberations of 
the conference. 

The plans proposed by the Railway Executives’ Association and by 
leading individuals among the executives were outlined by Daniel 
Willard, president of the Baltimore & Ohio Railroad; 8. T. Bledsoe, 
general counsel of the Atchison, Topeka & Santa Fe Railroad; and 
I. G. Buckland, president of the New York, New Haven & Hartford 
Railroad. 

The views of the electric-railway men were presented by P. H. 
Gadsden, chairman of the committee on national relations of the 
American Electric Railway Association, and W. V. Hill, manager of 
the Washington office of the association; and those of the advocates 
of highway transport development by John T. Stockton, president of 
the Joseph Stockton Transfer Co., of Chicago. 

The economic aspects of the problem were discussed by the fol- 
lowing: 

Prof. Seligman, professor of economics, Columbia University; 
Emory R. Johnson, professor of transportation and commerce, Uni- 
versity of Pennsylvania; W. Z. Ripley, professor of transportation, 
Harvard University ; John R. Commons, professor of economics, Uni- 
versity of Wisconsin; Henry W. Farnam, professor of political econ- 
omy, Yale University; and Frederick A. Cleveland, formerly chair- 
man of President Taft’s Commission on Efficiency and Economy. 

The civic and social aspects were represented by R. G. Rhett, for- 
merly president of the Chamber of Commerce of the United States 
and resident at Charleston, S. C.; Alexander W. Smith, of Atlanta, 
Ga., formerly president of the Georgia Bar Association; Judge F. ©. 
Dillard, of Sherman, Tex.; and Charles P. Neill, chairman of board 
of adjustment No. 1, United States Railroad Administration, and 
formerly Commissioner of Labor under the Roosevelt administration. 

Mr. Chairman, that will give you an idea as to the all inclusive- 
mess of the conference. 

The conference began its sessions in December of 1918. Its gen- 
eral sessions continued throughout the months from December td 
June. There were, in all, 22 separate sessions and 5 general con- 
ferences, and innumerable meetings of subcommittees appointed by 
the conference to undertake a study of certain phases of the sub- 
ject and to bring their reports back to the conference. 

It was prophesied when the conference was set afoot that it 
could not last out to a series of declarations; that the interests were 
so diverse, that the men came from so many walks of life, that they 
had so many conflicting ideas with respect to the problem itself 
and its solution, that the very moment we began to make declarations 
of a positive character upon the subject, at that moment there would 
be dissolution of the conference by the withdrawal of those interests 
that were not taken care of by the declarations made. 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 149 


_ In order to avoid this to the greatest possible degree, we under- 
took to bring out no declarations in either the first or the second 
general conference, but rather that the men who came together for 
the first time, unacquainted with each other, should have the oppor- 
tunity of learning, without interruption, the views of every con- 
feree, given without bias and without fear of treading upon any- 
‘one’s toes, of a frank expression of the thinking of these men upon 
this rather intricate question. So we passed through the first and 
second conferences, getting ourselves a quainted with the points of 
view that were held by the conferees following each conference, we 
printed the whole record, sending the printed record to every con- 
feree that he might examine carefully and at his leisure the expres- 
sions of the various members with respect to this subject; and it was | 
not until the third general conference that we began to take up the 
questions by vote and make the declarations which will ultimately 
be presented to you here. 

Now, the Chamber of Commerce of the United States has beers 
the host of the national transportation conference. It has assumed 
no control over its deliberations, nor expressed’ at any time any 
Wish with respect to the manner in which the subject should be taken 
up or the character of the declarations that should be made. It 
wished to hold itself in this position: That when the transportatiom 
conference, made up of these diverse elenrents, had concluded a pro- 
gram which it could say met the general views of all of these inter- 
ests, that then a referendum would be put out by the chamber to its 
entire membership asking that they vote upon these questions and 
determine by the vote of the business interests of the country whether 
or not they favored the declarations. 

The reason for making this statement or sketch of the antecedents 
of the conference and its composition is because I hope to get clearly 
into the minds of this committee the fact that here a body of men, 
of wholly different interests and from different walks of life, have, 
so far as I know, for the first time, been able to sit down together 
with a problem of this magnitude and as intricate as the railroad 
problem and study it for a period of six months without interrup- 
tion and work out their differences and bring a program out of the 
conference. 

Far from the dissolutions that was prophesied when the confer- 
ence began to frame its conclusions, all differences of opinion were 
frankly stated and forcefully debated; but it was remarkable how 
unanimous the conference became upon very many of the points 
that are later to be laid before you, and instead of separating when a 
vote was taken that was contrary to the views expressed by certain 
interests, those interests with broadmindedness—and I am speaking 
now particularly of the labor interests while disagreeing with the dec- 
laration of the conference upon the fundamenta! question of owner- 
ship and operation—nevertheless stayed through to the end with 
che understanding that they would apply their minds to the best 
solution that could be found for the railroad problem, even though 
their particular constructions were disregarded, and while in each 
zase the conferees reserved the right in their own private interest as, 
for instance, in the brotherhoods or in the American Federation of 
Labor or in the public utilities commissions through association to 
still contend for the things that they had been contending for im 


150 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


the conference, they all settled down together to bring out this pro- 
gram as the program of the entire conference, making only the reser- 
vations that they were perfectly free to still contend for their own 
personal views and the views of their respective associations when 
those associations were called upon to make a declaration on this 
subject. , 

There have been chosen by the conference to represent it at these 
hearings the following gentlemen who will speak upon the subjects 
that I shall name: 

On compulsory Federal incorporation for consolidated railroad 
systems, Alexander W. Smith, of Georgia. | 

On the reestablishment of railroad credit, Paul M. Warburg, of 
New York. 
en the conference rule for rate making, W. W. Salmon, of New 

ork. 

On Federal! transportation board, its powers and duties, Emory R. 
Johnson, of Pennsylvania. 

~On wage adjustment board, W. N. Doak, of the Railroad Trainmen 
Brotherhood. 

These gentlemen, Mr. Chairman, are not chance students of the 
railroad problem; each has devoted years of study to at least some 
phase of this problem and has contributed to the conference with all 
of the others during these months that have passed and have been 
chosen by the conference to speak upon these certain subsections of 
the conference report, because they have the clearest knowledge to 
bring to your attention concerning these particular subjects. 

If it please the chairman, because Mr. Smith, of Atlanta, is re- 
quired to leave this afternoon at 2.40 and is going to the Pacific coast 
almost immediately, I should like to suspend at this point and have 
you call upon Mr. Smith who will talk upon compulsory Federal in- 
corporation, and permit me, if you will, to resume my statement at 
the conclusion of Mr. Smith’s delivery. , 

Mr. Stus. Mr. Wheeler, has there been a bill prepared putting in 
concrete form the legislation that would carry into practical effect 
the recommendations suggested ? 

Mr. Wuee ter. A bill is being drafted. 

Mr. Sims. Has it been prepared ? : 

Mr. Wueeter. It has not. Unfortunately we have not been able 
to have it finished. A rough draft of the bill has been made and 
it is now being put into proper form, so that when it comes to your 
attention a little later in the hearing, perhaps within a few days, 
you will have it in the form to which you are accustomed. 

The CuarrMan. The committee will be pleased to hear from Mr, 
Smith. 


STATEMENT OF MR. ALEXANDER W. SMITH, ATTORNEY AT LAW, 
ATLANTA, GA. ; 


Mr. Smrru. Mr. Chairman and gentlemen of the committee, I take 
it that the issue over the question of Government ownership is either 
dead or in a state of coma. Official announcement has been made 
that the administration of the railroads by the Government is to be 
terminated at an early date in the future. All opinions concur in the 










RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 151 


belief that if the railroads are turned back to their owners for fur- 
ther operation without remedial legislation and possibly without 
semporary financial assistance of the Government financial disaster 
's liable to ensue. 
| The great turbid stream of events which preceded, accompanied, 
md followed the entrance of this country into the World War has 
washed out an immense chasm between old conditions and new, and 
the country and the Congress is confronted with the absolute neces- 
sity of providing ‘a bridge over that chasm over which the railroads 
)3an pass in safety back into the operation of their owners. 
| The declarations of the national transportation conference, the 
\tharacter and details of the deliberations of which have just been 
stated to you, will present to this committee what they conceive to be 
ji consistent, comprehensive, and complete set of plans for the erec- 
‘aon of such a structure as that. They have supplied it with what 
hey conceive to be all necessary supports to carry the burden that 
)will be imposed upon it, and they believe that each of those supports 
| $ necessary to carry that burden, and that if anyone of the princi- 
gles which they advocate was removed or destroyed, without ade- 
Juate substitute, the whole structure would fall in ruins. They are 
zoing to ask you, therefore, to consider a plan as a whole and to 
uuther give it your approval or otherwise. 
| After full discussion of the subject of Federal incorporation a 
)jreat many were opposed to it on principle, others thought that it 
was illegal or impracticable, but the conclusion was finally reached 
jthat the bedrock foundation of this structure would have to rest 
\yn the concrete foundation that the Federal Government would have 
0 be endowed with full jurisdiction of the interstate carriers in 
heir corporate capacity—not only their activities but all their cor- 
)yorate functions. 
) The plan, as you will see as it is developed, calls for the direct im- 
\osition of Federal power upon the corporate functions of these cor- 
}orations, and that nothing short of the transfer of their allegiance 
/rom States that originally created most of them to the Federal Gov- 
/rnment will ever give you the firm and broad foundation necessary 
| 0 carry out the final completion of the structure that is to be erected 
|hereon. Hence it is probably better that your minds should be 
jn the outset directed to these rather technical legal questions in- 
jolved in the foundation of the structure which you want to erect. 
/t is my special province to place that question before you to-day, 
jnd I will now proceed to the accomplishment of that task without 
/urther preliminary. 7 
/ Opinions of learned counsel of the National Association of Own- 
vs of Railroad Securities have been widely circulated by that asso- 
lation declaring that there is no constitutional method for the 
{reation of Federal railroad corporations and compelling transfer 
}o0 them of their existing properties without the consent of their 
|tockholders, or of the States creating them, and thus forcing abdi- 
jation of their corporate obligations and duties under their State 
yharters. When we consider that this proposition rests on the 
remise that separate and distinct Federal corporations are to be 
‘Yreated and that they are to take over by transfer, either through 
/egotiation or condemnation, the assets of the existing railroad com- 


| 











152 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


panies, the legal conclusion of the eminent lawyers who have fur- 
nished or indorsed these opinions is unquestionably sound. 

It must be understood at the threshold, therefore, that the recom- 
mendation of the transportation conference involving compulsory 
Federal incorporation of the existing interstate carriers does not 
take issue with the legal conclusion above referred to, based as it is 
on the premise above stated. 

The country is confronted, however, with the absolute necessity 
of the Federal Government being vested with full jurisdiction of 
interstate carriers in their corporate functions in addition to the 
constitutional jurisdiction now exercised by Congress over the ac- 
tivities of these carriers in connection with interstate commerce. 
Unless this is accomplished the proposition that the Government 
shall authorize the consolidation of these existing carriers into large 
systems, which will necessarily interfere with competition in local 
territory, becomes a legal impossibility because it will run counter 
to constitutional inhibitions in a large number of States prohibiting 
such consolidations by the corporations they have severally created. 
Being creatures of the State they are necessarily subject to the con- 
trol of its constitutional requirements. 

Aside from the insuperable legal difficulty thus indicated it is a 
wholly impracticable thing to transfer and transplant the assets 
and liabilities of the existing corporations engaged in interstate 
commerce into new corporations created for the purpose. ‘Take the 
Southern Railway Co. as a concrete example. It is a system made 
up of more than 100 separate railroad corporations. . 

Mr. Merrirr. What railroad are you referring to? 

Mr. Suirn. The Southern Railway. 

It owns some of them; it controls others under long leases and 
others by majority stockholding. It has effected their merger by all 
the known methods of putting one railroad under the operative con- 
trol of another. Their obligations, under the kaleidoscopic arrange- 


ments it has made in bringing the systems together, could not be _ 
transformed and lifted out of the several State corporations and set 
down in a new Federal corporation. As a business proposition, It 


would be impractical. | 
It is respectfully submitted, however, that the problem is not in- 


soluble, for there lies on the surface a method to accomplish the de-_ 
sired results in a perfectly simple way, viz, the passage by Con-— 
gress of a general Federal incorporation act along lines parallel to _ 
the laws incorporating national banks and nationalizing State banks. 


This is the basic idea of the recommendation of the transportation 
conference on this subject, and the idea has been developed in the 


draft of the remedial railroad law, which will be presented by the 


representatives of this conference. 


At the time I prepared this paper I assumed that the bill to which. 


the gentleman of the committee has referred would have been pre- 
pared and would be before the committee for discussion. 
It deem it necessary at this point, in order that we may transfer 
the discussion from the academic to the concrete, to read into the 
record here a few paragraphs of the tentative draft of this bill. 
When it comes out the language may be changed somewhat. 
Mr. Srus. Why not put the whole bill in the record ? 





RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 153 


_ Mr. Surru. Because the whole bill is being redrafted and reshaped 
'y the reference bureau of the Congress. I think it might create 
onfusion for me to introduce anything in the bill that is not perti- 
ent to the particular question I am now discussing. | 

‘Tt will make clearer my argument if you will allow me to read into 
‘ae record such sections of the bill as refer to this particular subject, 
amely, the Federal incorporation of railroads. 


| Be it enacted, etc., That corporations ‘for carrying on the business of inter- 
fate commerce as common carriers by railroad may be tormed under this 
et by any number of natural persons, not less than five. Such incorporators 
Ajall enter into articles of association specifying in general terms the object for 
‘hich such a corporation is to be formed, and such other provisions not in- 
Jmsistent with law as said corporation may be authorized to adopt for the 
sgulation of its business and conduct of its.affairs. Proper forms for such arti- 
,e8 of association shall be prescribed by the Federal transportation board 
ad supplied on application to parties desiring to incorporate hereunder. 
hese articles shall be signed by the persons uniting to form the corporation 
‘ad shall be filed with and preserved by the Federal transportation board. 
Be it further enacted, ctc., That said Federal transportation board shall 
{so provide and furnish proper forms for organization certificates ‘here- 
der, and the persons uniting to form such a corporation shall fill out and 
le Such an organization certificate showing, first, the name of such corpora- 
fon, which shall be subject to the approval of the Federal transportation 
yard; second, the termini of the proposed line of railroad to be operated by 
ud corporation, naming the particular cities, counties, and county seats, 
ough or to which the same is to run; third, the amount of capital stock 
asired and the number of shares into which the same is to be divided and 
hether the same be common or preferred and the character and amount of the 
‘eference; fourth, the amount of bonds, if any, which it is proposed to place 
1 the properties of said corporation: Provided, however, That no stock nor 
»ynds specified in said charter shall be issued unless and until approved by 
le Federal transportation board; fifth, such other details of the objects and 
irposes of said corporate organization as the said Federal transportation. 
yard may from time to time prescribe. 


You will observe that that is a provision for the creation of new 
wrporations, ab origine. 
The next section provides that upon the filing of these articles, 
¢., it shall become a Federal corporation. That is, a new corpora- 
on. 


Be it further enacted, etc., That any railroad heretofore incorporated under 
@ jurisdiction of the United States, or of any State or Territory thereof, 
‘ay avail itself of the terms and provisions of this act and become a national 
‘ilroad corporation with all the powers, benefits, franchises, duties, obliga- 
ons, and privileges of corporations originally created under this act, by 
mpliance with the following provisions, to wit: 

Articles of association and organization certificate, as contemplated for the 
‘iginal creation of national railroad corporations, shall be executed by any 
‘ilroad corporation already in existence acting by authority of a ma- 
tity vote of its directors who shall be thereto duly authorized by the vote 
' not less than a majority of the entire common capital stock of such exist- 
g railroad corporation by appropriate resolutions duly entered upon its. 
nutes authorizing the change and conversion of said railroad corporation 
fo a national railroad corporation. Such change and conversion of any 
isting railroad company into a national railroad company as herein con- 
nplated, whether by volutary corporate actions or by compulsory order 
the Federal transportation board, shall not have the effect to close or in- 
‘rupt the business of said railroad as a common carrier, nor shall it destroy 
'2 identity of such railroad nor its corporate existence, nor shall any of 
' existing obligations to others, nor any existing obligations of others to 
be in any manner weakened or destroyed, but the said corporation shall 
itinue as a corporation, with the same officers and directors, the same 
‘Operty, assets, and business, as before its conversion, save only that juris- 












J 


154 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


diction over it as a corporation shall be vested in the Government of th: 
United States under this act. 

Be it further enacted, etc., That the railway lines of all national railroa‘ 
corporations organized under this act are hereby declared to be military ani 
post roads, and they and all their properties shall constitute instrumentalitie 
of interstate commerce. Said corporations, and, as well, their stocks, bonds 
and fixed indebtedness, operations and traffic, shall be exempt from all taxi 
tion by any State or Territory other than taxation upon their property as pro 
vided in this act. 

Be it further enacted, etc., That until otherwise provided by act of Congres: 
of the United States, the several States shall have jurisdiction over nationa 
railroad corporations in the following particulars: 

(a) The several State courts shall have jurisdiction in all suits against sai( 
corporations where legal venue exists and lawful service may be had. 

(b) The several States and the municipalities therein shall have power t 
enforce reasonable local police regulation of the operations of national rail 
roads in their respective jurisdictions. 

(c) The several States shall have power to tax the properties of nationa 
railroad companies located within their several territorial jurisdictions oj 
the same basis as other properties are taxed therein. 


If Congress should adopt this bill existing railroad companies en 
gaged in interstate commerce and operating under State charter: 
could take out certificates of incorporation, to be issued as thereil 
provided, under which they would become Federal, or national, cor 
porations without destroying their corporate identity and existence 
without changing their officers and stockholders, and without dis 
turbing the title to their assets or the integrity of their existins 
liabilities; and the continuity of their business would not be inter 
rupted. vik 

The authorities conclusively establish that such a proceeding re 
sults in a mere transition and not a new creation, and does not de 
stroy previous identity or corporate existence, and simply results i1 
a continuation of the same body, with the same officers and stoel 
holders, the same property, assets, and business under a changet 
jurisdiction. Any interstate railroad thus nationalized would re 
main one and the same railroad, and would go on doing busines: 
uninterruptedly under its existing liabilities and contractual privi 
leges and obligations. 

The leading case on the subject arose out of the conversion of 
State bank into a national bank. That case finally reached the 
Supreme Court of the United States, and is cited as follows: Clag 
gett v. Metropolitan National Bank, 4 N. Y. Supp., 15; (same case. 
56 Hun., 578; (same case) 125 N. Y., 729; (same case) 141 U. &. 
520. 

This was a suit by holders of some of the bills of this bank—thir 
Metropolitan National Bank—issued by it as a State bank and out 
standing when it became a national bank under the act of Congress 
Some of the holders of the bills of this bank brought suit against the 
bank after it became a national bank. 

At the time of the conversion of the bank it deposited with the 
superintendent of banks of the State of New York a sum of mone 
equal to its outstanding circulation, and the superintendent of banks 
pursuant to the State law, published notice that the circulatin 
notes of said bank would be redeemed at par at any time within si 
years from the date of notice, and thereafter cease to be a charge 0 
the redemption fund placed in the hands of the superintendent fo 
that purpose. The bank notes sued on were not presented for re 












: 
| RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 155 
Ww 
Jemption within the time limited and the bank (then a national 
Jyank) was sued to recover their value, and plead exemption from 
jability under chapter 236 of the New York Laws of 1859, as 
(mended, on the ground that its liability ceased because of the 
‘Teposit of the redemption fund, the notice of the superintendent of 
Janks, and the failure to present said bills for demeption within the 
ime limited. 

The court held that the act of 1859 was passed in order to facili- 
‘ate the liquidation of State banks, and was not intended to affect 
yanks whose business was to go on continuously. That if the Metro- 
yolitan Bank did close business by becoming a national bank the act 
yf 1859 would be applicable and the defense would be unanswerable. 

It thus appears that the exact question involved was, Did the 
-onversion of the State bank into a national bank close its business? 
| The court held it did not, and cited the case of Bank v. Phelps 
97 N. Y., 44), where it was held that— 


The general scheme of the national-banking act is that State banks may 
‘vail themselves of its privileges, and subject themselves to its liabilities, 
‘vithout abandoning their corporate existence, without any change in the 
‘Tganization, officers, stockholders, or property, and without interruption of 
heir pending business or contracts. All property and rights which they held 
‘efore organizing as national banks are continued to be vested in them under 
heir new status, and, although in form their property and rights as State 
‘anks purport to be transferred to them in their new status of national banks, 
‘et, in substance, there is no actual transfer from one body to another, but a 
ontinuation of the same body under a changed jurisdiction. As between it 
“nd those who have contracted with it, it retains its identity, notwithstanding 
Ss acceptance of the privilege of organizing under the national-banking act. 


|The New York court then proceeds with its own language. That 
vas a quotation from another case. 

When that case was decided in this court, Gilbert, J., whose view is indorsed 
y the Court of Appeals, said (16 Hun., 158): “The change from a State to a 
ational bank did not destroy either the existence or the identity of the cor- 
oration. Such change conferred new franchises and imposed new duties and 
abilities on the corporate body in addition to those which it previously had, 
ut nothing more. There was a slight change in the corporate name, but the 
ew name designated the same entity. In short, the legal effect of the change 
‘vas merely the acceptance of a new charter by the corporation. It remained 
) every intent and purpose as it did before, although its name was altered, 
S$ new charter was granted by the national instead of the State legislature.” 
_ The necessary result of this view of the law is that the change or 
onversion of the Metropolitan Bank to the Metropolitan National 
sank did not result in a close of its business. It remained the same 
ank, and went on doing business continuously; and a mere passing 
){ a resolution that it intended to close business could not have the 
fect now claimed, as the intention manifestly was simply to prose- 
ate its then “ pending business” and to conduct business thereafter 
nder the changed jurisdiction. 

The defense in the Claggett case, supra, was-stricken and the 
laintiff recovered. 

That case went on through the Court of Appeals of New York 
mally to the Supreme Court of the United States, and they affirmed 
e judgment of the court of appeals and used this very short sen- 
mee that ended the discussion: 


‘This decision is so manifestly correct that it needs no argument to sus- 
vin it. 
















J 


~ 


156 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


That is the language of the United States Supreme Court. 

The aftirmance of the case of Claggett v. Metropolitan Bank is con- 
trolling on this subject, but several of the courts of last resort in 
States other than New York have ruled the same way. » 

With your permission I will not read those rulings, but simply 
give you a list of the States. Maryland has decided it; Missouri 
has decided it; Pennsylvania has decided it; and I have found sinee 
I prepared this brief that Rhode Island has also decided it. | 

In the Missouri case they used the expression which I think most 
accurately expresses the legal effect of this change. They say: 

The bank neither lost any of its assets nor escaped any of its liabilities by 
the change. The change was a transition, and not a new creation. 

Mr. Dewatt. Was the depositing of this redemption fund in the 
hands of the proper authorities in the State of New York a con- 
trolling factor in the decision? 

Mr. Smit. No, sir. 

Mr. Dewatr. In other words, had the redemption fund not been 
deposited would the decision probably have been given? 

Mr. Smiru. Unquestionably, sir. The deposit of the redemption 
fund was in compliance with a State statute, and the Supreme Court 
held that if the bank had been in liquidation the deposit would have 
relieved it of liability, unless the bill holder had availed himself of 
the deposit to get his money. So the exact legal question was, did the 
bank by converting itself into a national bank go into liquidation and 
cease doing business or did its business continue. 

Mr. Dewar. Right there, clearly and in line with that decision, 
if that was the controlling factor, you take it that it would be neces: 
sary for these several corporations controlling and owning railroads 
to make deposits for the liquidation of their liabilities? 

Mr. Suiru. Not at all, sir. I do not think the deposit in that cage 
was at all necessary or proper, because the bank remained liable al 
solutely. | | 

Mr. Dewar. That is why I asked whether that was a controlling 
factor in the decision of the case. i 

Mr. Smirn. I cite the case, Mr. Chairman and Mr. Committee: 
man, to the legal proposition that the conversion of a State bank 
into a national bank does not stop its business or change its identity. 
and that was the exact question necessarily involved in that case. 

Mr. MonracvueE. It is still the same institution. 

Mr. Surru. It is the same identity; it is the same autonomy; tt 
is the same fictitious creature. . 

The principal thus settled by the authorities is applicable alone 
to corporate characteristics and is not in the least affected by the 
character of the business transacted, save only that the business mus 
be such as to come within some of the delegated powers of the Cou 
gress and thus confer jurisdiction upon it to grant corporate powel 
to transact such business. | 

Since no one questions the power of Congress to incorporate iter 
state railroads, it follows that it can authorize the conversion of such 
a railroad company from a State corporation into a national cor 
poration. When it does so, the principle referred to necessarily a 
plies. By applying it, as indicated in the bill it presents, the recoil 
mendation of the Transportation Conference that action be taken by 


RETURN CF THE RAILROADS TO PRIVATE OWNERSHIP. Lp 








Jongress to bring all interstate railroads as corporations under the 
urisdiction of the United States becomes simple and practical. 
| While Congress has no power to compel a State bank to become a 
iational bank, because a State bank is no part of the fiscal machinery 
f the Nation, it is submitted that’ it does have the power to compel 
trailroad system that is now engaged in interstate commerce to he- 
rome a Federal corporation. : 
The power of Congress to create a bank at all was contested until it 
vas settled by the Supreme Court that such power was implicit in the 
ower delegated to Congress to issue money and handle its finances. 
Jurisdiction of Congress over a railroad engaged in interstate com- 
Merce is delegated in a specific, plain, explicit, all-inclusive, and 
lenary paragraph of the Constitution committing to it control over 
nterstate commerce and all its instrumentalities. 
| If it be true that Congress has only implied power to charter a 
yank as a piece of machinery in its fiscal system, it must be true that 
1 Congress finds in the development of transportation that State lines 
lave been wiped out and that commerce disregards artificial obstruc- 
jlons, and that necessary machinery in carrying on interstate com- 
ynerce 1s a railroad corporation, the express grant of exclusive juris- 
‘fiction over such commerce carries with it the power to create such a 
| orporation. 
| If that is true, can it compel a State railroad company engaged in 
|nterstate commerce to become a Federal corporation? No one ques- 
ions its powers to create such corporations, ab initio. 
, It has been decided by the Supreme Court of the United States 
hat no single State can create a railroad company and endow it, 
|S a matter of law, with the right to operate its lines in any other 
) tate. Indiana and Ohio tried to do this conjointly. They cre- 
, ted two railroad companies, each endowed with the same name, 
| nd having the same officers, directors, and stockholders. The tracks 
jwned by these two companies came together at the State line. 
\uvery effort was made to create a single corporation with the right 
;0 do business in the two States. The Supreme Court held that 
|here were two separate and distinct corporations and that, in the 
,ery nature of the case, one State could not give the power to its 
reature to go into the domain of another sovereignty of equal 
jignity and do business there, except by permission of the other 
jtate. Hence it is that all roads that cross State lines do business 
| utside of their native State by comity between the States. Comity 
‘a privilege merely and not a legal right. (O. & M. R. R. Co. ». 
\Vheeler, 1 Black, 286.) 
_ The Southern Railway Co. was able to merge its constituent lines 
junning through 11 States by reason of the voluntary, but not neces- 
sarily concurrent, action of the several States and their corporate 
veatures. First, the States either by special acts or by general laws 
ave statutory permission for the railroad corporations to combine. 
yecond, all constituent corporations had to take appropriate cor- 
} orate action, through stockholders and directors according to by- 
/tws and charter provisions, authorizing the particular step necis- 























! y p : 
ary toa merger. So that each of the constituent corporations was 
ut into the combination by virtue of its own action taken by per- 
ussion of its creator. Thus, by virtue of the express consent of the 


158 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


several corporations and of the express legislative sanction of the 
11 States in which the Southern Railway system operates, something 
was created different from the aggregate of corporate powers pre: 
viously vested in the subsidiary companies. The Virginia corpora. 
tion known as the Southern Railway Co. became an instruméntality 
of interstate commerce, not by virtue of comity among these 11 
States, but because it crosses the lines of said States and hauls inter- 
state commerce through them as a single entity and by virtue of the 
action of each of the States, and of the concurrent or supplementa| 
action of the owners of each of the properties. Whether they m- 
tended it or not, it is a fact that every one of those States, and every 


~ 


one of those corporations, by such action, voluntarily submitted 
themselves to the jurisdiction of Congress through its exclusive con: 
trol of interstate commerce, whenever it sees fit to act. 

Congress has never exercised that power, but with all due respect 
to the eminent counsel who have raised legal objection to compulsory 
Federal incorporation, no satisfactory reply has yet been made t( 
the legal conclusion invélved, viz, that Congress has the power 
if it chooses to exercise it, to say that every system of railroads 
engaged in interstate commerce by virtue of consolidating con 
stituent lines (and no other such system can legally exist unless 
originally created by Congress) : | 

You are now an instrumentality of interstate commerce, and in the develoy) 
ment of the commerce of this country it has become necessary that full juris 
diction of your functions shall be vested in the Federal Government. There 
fore you are required to transfer your allecinnce from the State of yow 
incorporation to the United States of America, in order that the Federa 
Government may take such steps hereafter in the control of your business anc 
in the promotion of the interests of interstate Commerce as from time to time 
it sees fit. 

Congress could then establish consistent and uniform control 0) 
all systems of interstate carriers. : 

If Federal incorporation is made permissive only it is questionabk 
whether Congress will not be embarrassed by some of the line 
declining to accept Federal charters. Many of them have tax exem)) 
tions and special charter privileges which they would hesitate % 
imperil. Voluntary action would certainly destroy these privileges 
while, under compulsory action, these property rights might 1) 
preserved under other provisions of the Constitution not necessav} 
to be here elaborated. | 

It should be repeated that this argument is confined to those line 
which, by voluntary action, have been consolidated into interstat 
systems. They have thereby waived the right (if it exists) to objec 
to Congress doing anything with them that it may desire to do i 
they expect to continue in interstate commerce. : 

As to the necessity of Federal incorporation, there does not seen 
to be any room for argument. If the Federal Government is to vis 
and control the issuance of railroad securities, upon what principle 
without the voluntary cooperation of the State corporation, cl 
Congress interfere with its issue of stocks and bonds expressl, 
authorized under its State charter? They may be not necessaril} 
connected with its interstate commerce. Their proceeds may b 
needed for other purposes. Many railroad corporations engage 1 
business other than transportation. The exercise of control over th 





















RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 159 


ecurities of a State corporation by Congress is much harder to 
‘ustify under existing law than the power to compel Federal incor- 
yoration by interstate systems. The basis of the securities, espe- 
“ally the original issues, is the charter of the constituent com- 
yanies, and not of the holding or operating company. Rights in 
‘hese are vested and protected by the Federal Constitution itself. 
I pause here to remark that the bill you now have specifically 
imder consideration in one short paragraph, where it undertakes 
© vest control of the issuance of securities in the Interstate Com- 
‘aerce Commission, would amount to an amendment of the charter of 
very railroad in the United States; that one piece of legislation 
vould amend the charters of railroads which, but for their consoli- 
lation into interstate systems, would be altogether within the limits 
da State, both their termini being within the limits of the State. 
But when the corporation operating the interstate system is com- 
elled to transfer its allegiance to the Federal Government, subse- 
tent issues of its capital stock and bonds may be regulated as 
Yongress directs. 

The contractual relation between a State and its corporate crea- 
ure presents no obstacle to compulsory Federal incorporation of 
aterstate systems hereinbefore described, because the State has con- 
ented in advance that that may happen. When the State gave 
ermission to its corporation to become a part of the instrumentali- 
les of interstate commerce by virtue of its legal merger into an 
jaterstate system, it relinquished its right to object. to any sort of 
jontrol over that corporation which Congress might choose to ex- 
jveise. Of course, until Congress exercises control the allegiance of 
ne corporation remains with the State that created it. The argu- 
nent is that both the States and the corporations, by virtue of the 
/ecessities of the consolidation that produced the interstate system, 
aye contracted in advance that Congress may exercise jurisdiction 
ver this legally established instrumentality of interstate commerce 
/f, in its discretion, such action will promote the interests of inter- 
jate commerce. Such jurisdiction has been exercised in numberless 
ways. If, without destroying the corporation itself, it may be con- 
erted from a State corporation to a Federal corporation, there 
/;no legal reason why Congress may not constitutionally require it 
}) make the change. 

| The Cuairman. Mr. Smith, have you finished your statement? 

t Mr. Smairu. Yes, sir. 

The Cuarrman. Are there any questions ? 

} Mr. Srus. Mr. Chairman, I should think that some of us will want 
|) ask some questions about such a very important matter, but I 
aderstood Mr. Wheeler to say that Mr. Smith could not stay here; 
jiat he had to leave... 

| Mr. Smirn. I can not possibly stay beyond this session of the 
jpmmittee. 7 

} Mr. Smus. I think it will be impossible to finish in that time. 

} Mr. Smiru. Then will you permit me to say that after I have.re- 
tmed from this western trip, which I am taking in connection with 
us same matter, I will be glad to hold myself subject to the wishes 
|* the committee. 

) Mr. Sias. That seems fair to me. 





160 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


The Cuamman. I think we will go on with the cross-examinatior 
of Mr. Smith for the rest of the morning. 4; 

Mr. Srars. So far as I am concerned, it is such an exceedingly im: 
portant matter that I think there ought to be a comprehensive cross} 
examination, and it, might develop to be in the interest of the ver) 
things that you are in favor of doing, but to have you come here an¢ 
read an essay or an argument, however strong it may be, with ng 
opportunity, or practically no opportunity for the committee to g¢ 
into the whys and wherefores seems to me is not a desirable way oi 
conducting a hearing. 

Mr. Monracur. I would suggest that we could greatly facilitatt 
our hearings if we did not testify ourselves when we ask question 
or make elaborate statements as preliminary to our questions. 

Mr. Surru. I might state to the committee that I have been in at) 
tendance here for a week, and it is a matter I can not control. 

The Cuarrman. Yes; and we ought to try to conform as nearly «1 
possible to the convenience of the witnesses who go to great expen 
to come here to testify. 

Mr. Srus. Mr. Chairman, I understand Mr. Smith has offered t@ 
return here later and I think that is a very good idea. 

The CuHatrman. Mr. Smith, Mr. Denison would like to ask yot| 
some questions. | 

Mr. Dentson. Mr. Smith, if a State bank should incorporate unde 
the national banking act, do you think it would still have a right t 
continue doing business as a State bank? | a 

Mr. Smrru. It would retain all of its corporate functions thai 
were not in conflict with the regulations of Congress and the Comp| 
troller of the Currency affecting national banks. | 

Mr. Denison. But there is no occasion for a State bank, after hay 
ing been incorporated into a national bank, to continue operating a 
a State bank. | 

Mr. Smrru. That may or may not be true, Mr. Denison. 

Mr. Denison. Do you think it could do so? | 

Mr. Sairu. I think it could, if it were not in conflict with the regu) 
Jation of national banks. | 

Mr. Dentson. So you think a State railroad corporation that woul\) 
incorporate, under the provisions of the act which you are proposing) 
could continue to operate as a State corporation with a separate iden 
tity from its national corporate identity ? 74] 

Mr. Smiru. Its identity is never interfered with, Mr. Denison) 
Tt is always one and the same corporation. It has additional power 
transferred to it or conferred upon it by its Federal incorporatial 
perhaps, but it retains any power that it held under its Stati 
charter that is not inconsistent with its functions and obligation 
to the Federal Government under its Federal charter. Let me giv 
you what I think will illustrate the thought, and I probably ough 
to elaborate just a little one suggestion which I made in my maj) 
argument. There are two very prominent railroad corporation 
in the State of Georgia that were created in the early history 0 
railroading, when everybody was very anxious to have railroads built 
They have perpetual State charters and perpetual exemption fron 
ad valorem taxation. There is simply a percentage on their gros 
revenues required of them, and they are exempt from all othe 











RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 161 


axation. Now, that is an exceeding valuable right, and the State 
'f Georgia has done everything it could possibly do to put those 
‘oads in a condition where they would have to come and ask for . 
ome sort of amendment to their charter which, under the new 
constitution, would put them absolutely under the control of the 
egislature, and the legislature would repeal that tax exemption, 
‘wut they have always persistently declined to do that, naturally. 
Now, I am of the opinion, under the decision of the Supreme Court 
a the case which I have cited and these other supreme courts in 
he various States, that if the Southwestern Railway Co., for in- 
tance, which has one of these exemptions, was compelled to take 
ut a Federal charter by the compulsory action of Congress that it 
rould not lose its tax exemption. It would retain that tax exemp- 
ion as between it and the State of Georgia, with whom it has an 
aviolable and perpetual contract, because it can not resist this vis 
iajor which is brought to bear upon it to transfer its corporate 
llegiance from the State of Georgia to the National Government, 
do not think Congress itself could invalidate that contract. I think 
i 1s protected under the Constitution of both the State and of the 
lation, and necessarily it would retain that privilege under its 
‘tate charter, because it certainly could not look to its Federal 
narter for such an exemption. 

Mr. Denison. Then it would have to continue to operate in a dual 
upacity. 

Mr. Smrru. No, sir. 
| Mr. Denison. It would have to continue or to exist, rather, as a 
tate railroad corporation. | 
| Mr. Surrn. Yes; but one organization; there is but one entity. 
et me illustrate that thought by a natural person, Mr. Denison, and 
robably make it clearer. For the sake of the argument, and the 
Iustration, let us assume that the Southern Railroad system in- 
ead of being owned by a corporation of Virginia was owned by a 
atural person. Take my good friend, Thom, here, who used to have 
great deal to do with it. Let us assume that Mr. Thom owned these 
ulroads and was operating them and running them through all 
‘lese States, but that Mr. Thom during all that time was a subject 
[ Great Britain, not a citizen of the United States, and Congress 
1ould say to him: “Mr. Thom, you are engaged in some very large 
‘ansactions in interstate commerce here ramifying through 11 
tates. I have decided I am going to very greatly enlarge the scope 
[the control I am going to exercise over interstate commerce in the 
ture. I am going to require you to do certain things that might 
metimes make me order you to jail if you disobey my orders. Now, 
observe you are a subject of Great Britain. Tt is barely possible 
iat I might require you to do something sometime that would cause 
ou to appeal to the Government of Great Britain to protect you in 
ur property rights here. Now, I do not want any international 
mplications, and if you want to continue to do an interstate busi- 
‘ss through 11 States here, Mr. Thom, you must go to Washington 
). 0 to the proper authority having jurisdiction and take out natur- 
ization papers and become a full-fledged citizen of the United 
“ates, so that I will have jurisdiction of your person and your activi- 
*S where you are operating these various instrumentalities of inter- 
152894—19—vyor 1-11 












162 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


state commerce; you can take your choice, and otherwise you must get 
out of the interstate business.” 

Now, Mr. Thom no doubt would yield to that suggestion and 
become’a citizens of the United States, but he would be the same 
genial, lovable, Mr. Thom that he was before. He would own all 
the property he owned before, and he would owe all the debts that 
he owed before. You might change his name and he would still be 
the same individual, and he would not operate those properties in 
any dual capacity. He would still be operating them as Mr. Alfred 
P. Thom, and in no other capacity, but his allegiance has been trans- 
ferred from the Kingdom of Great Britain, or whatever its true 
name is, to the United States of America. 

Mr. Denison. Now, one more question in that same connection. 
The Illinois Central Railroad, under its original charter, was re- 
quired to pay into the State of Illinois a certain percentage of its 
gross income. 

Mr. Smiru. Yes, sir. | 

Mr. Denison. You are familiar with that. Would the State of 
Illinois still be entitled to that tax or that receipt from its gross 
annual income if it was compelled to incorporate under the pro- 
visions of this act which you propose ? 

Mr. Smirn. Is that on exclusive taxation privilege? Is it ex- 
empted from all other taxes? 

Mr. Denison. Yes; it is. 

Mr. Sarru. Is that a particular method of taxing the Illinois Cen- 
tral as distinguished from any other railroad in the State, or are all 
railroads taxed the same? 

Mr. Denison. It applies only to the Illinois Central. 

The CuarrmMan. That was a part of its original charter. 

Mr. Denison. Yes; that was a part of its original charter. It 
was granted certain lands from one end of the State to the other, 
I may say, under the action of Stephen A. Douglas, at that time, as 
I understand it, and in consideration of the granting of those lands 
and in order to secure the building of the road, which was very 
much needed, the State put in the charter that it should return a 
certain parcentage of its gross income to the State as long as it 
existed. 

Mr. Smiru. Under your statement, Mr. Denison, that is an exact 
parallel to the Southwestern Railway in Georgia which I cited you to. 

Mr. Denison. They would still have to continue paying that per- 
centage of their gross income? 

Mr. Smrru. I think if they voluntarily go into Federal incorpora- 
tion, they would waive it. They would be seeking an amendment to 
their charter which would probably, as a legal result, lose them their 
privileges under that charter of the State. 

Mr. Denison. It is not a privilege of the railroad company; it is 
a privilege of the State. The railroad company would be glad to 
get away from it. 

Mr. Suir. Oh, they would? 

Mr. Denison. Yes; but the State would not. 

Mr. Smity. You mean they get more revenue out of it than if 
they taxed its property? 


| 
| RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 163 
| 
' Mr. Denison. Yes, sir. Now, then, can the Federal Government 
ompel the State to release that right which it has in that great prop- 
Tt : 
‘i air. Smiru. I think they certainly could if it was a burden. I was 
‘onsidering it as a benefit. If it is a burden, then it would be a bur- 
‘en on interstate commerce, and undoubtedly the State can not levy 
‘ny sort of burden on interstate commerce whenever Congress says 
; must not do it. 
_ Mr. Denison. But there is a contract which the State has with 
‘his railroad company, and can Congress wipe out that contract? 
Mr. Smrru. Has not the State also authorized the Illinois Cen-- 
tal to combine with other railroads and become an interstate system ? 
Mr. Denison. As to that, I do not know. 
Mr. Smaru. That must necessarily be so. That is a legal necessity. 
“he Illinois Central operates an interstate system. Then it must 
ie it by virtue of the consent of the State of Illinois and then TIli- 
ois has consented that Congress may, whenever it chooses, exercise 
‘irisdiction over that instrumentality of interstate commerce. 
Mr. Denison. You understand, of course, that this provision only 
pplied to the original Illinois Central Railroad corporation which 
‘tended, I think, from Cairo to Chicago. Of course, since then the 
llmois Central has extended its lines, and that requirement does 
ot apply to any of the extensions, but applies only to the original 
ne. 
Mr. Smiru. Frankly, Mr. Denison, I have never considered the 
‘estion where the railroad was under a burden by virtue of a tax 
‘emption in its charter. The shoe has always been on the other foot. 
' Mr. Dentson. I am asking the question because I want your view 
F the matter, because that is a very important question to the State 
‘f Minois. ; 
Mr. Smiru. I certainly would say, as a general proposition, that 
10 State of Illinois can not possibly have any contractual relations 
‘ith its creature which it has consented shall become an instrument 
‘interstate commerce that could, therefore, result in the State of 
Tinois imposing a burden upon interstate commerce. The Constitu- 
on of the United States is the supreme law of the land and would 
verride any statutory provision that the State of Illinois might have 
i that subject. : 
Rs Denison. You understand, of course, Judge, that the State 
‘We a very valuable consideration for that right, and it can not 
er recover that consideration. It gave lands that have since 
oven to be worth an almost unlimited amount. 
)Mr. Smiru. Then, I will answer your question by a statement of 
‘neral principles. If the continuation of that contract is not a bur- 
non interstate commerce, the transformation of the Illinois Cen- 
ul into a Federal corporation would not affect it. If it is a burden 
"interstate commerce, I think that it would have to go down. 
Mr. Denison. I will say that it is a burden on the interstate-com- 
ree carrier, but I do not think you could say that it necessarily 
lows that it is a burden on interstate commerce. You may place a 
‘den on a corporation, but it will not necessarily be a burden on 
erstate commerce. 











164 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Surrn. Well, I think there is a yery great distinction. My 
answer is that if it is a burden on interstate commerce, it would have 
to go down and yield to the vis major of the Federal law, which is 
the supreme law of the land. 

Mr. Denison. But you would not want to state categorically that 
it is your opinion that that would be a burden upon interstate com- 
merce ? 

Mr. Smirn. I think it would, under your statement. | 

Mr. Denison. Now, let me ask you one more question, and then I 
am through: Do you understand that a private individual could 
own an interstate carrier in one of the States? 

Mr. SmirH. Oh, no. I was simply using that to illustrate my 
thought. 

Mr. Denison. But I want to get your opinion on that question. 
Could that be done legally ? 

Mr. Suir. I think that would depend in a large measure upon 
the statutory provisions of the States where he was operating. I do 
not know of any law in my State that prevents a private individual 
from owning a railroad if he wants to, but I did not mean to assert 
that proposition when I made the illustration. I was illustrating 
another matter altogether. 

Mr. Denison. If a private individual should own an interstate- 
commerce carrier in one of the States, do you think Congress would 
have the right to control that individual as to his residence? 

Mr. Smirx. I do not know that it would unless it became necessary 
to do it in enforcing its regulations as to interstate commerce. It 
certainly could control him if he violated any of its orders. 

Mr. Denison. They could control his business, but could they con- 
trol his legal residence ? 

Mr. Smirn. Well, probably not, because that-1s not a matter that 
would affect his activities in interstate commerce. 

Mr. Denison. Your theory of that provision of the Constitution 
which gives Congress plenary power to regulate interstate commerce 
includes the power to control and regulate the person who is en- 
gaged in it. 

Mr. Smirn. No; the instrumentalities. Mr. Denison, it may be 
unfortunate that I used the illustration of a person in connection 
with this other subject. J was then illustrating the continuity of 
the identity of the person. Now, we all understand, we lawyers 
particularly, that a corporation is a fictitious person. It has its 
being only by virtue of the charter of the sovereignty that creates 
it. I has no soul. It has no inalienable rights of personal liberty 
that a natural person enjoys under the Constitution. It is a piece 
of legal machinery, and when that legal machinery becomes itself 
an instrumentality of interstate commerce I assert that Congress 
has jurisdiction to say to it that “thou shall, and thou shalt not.” 

Mr. Denison. Then you think Congress would have the legal 
power under that provision of the Constitution to forbid a corpora- 
tion of a State from engaging in interstate commerce? 

Mr. Smirn. If it is engaged in interstate commerce by virtue of 
2 consolidation with corporations in other States. é 

Mr. Dentson. Leaving out that thought, and taking any corpora- 
tion of any State that wanted to engage in interstate commerce, d0 
you think Congress could forbid them from doing so? 


-RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 165 


Mr. Smiru. I think so. If they wish to cross State lines and get 
into the position of being an instrumentality of interstate commerce 
Congress can say anything to them that it chooses to say—that it 
says to everybody else. It could not, of course, indulge in favoritism. 

But the very word “ interstate” means you must cross a State line. 
Now, of course, if a railroad begins and ends in a State, and con- 
fines all of its activities to the State, Congress has nothing on earth 
to do with it—not a thing on earth—but whenever it crosses the 
State line it is engaged in interstate commerce, and then it has done 
things, as I have explained in my argument, which voluntarily sub- 
mits it, and its constituent elements, to the full, plenary jurisdiction 
of Congress, because it has become an instrumentality of interstate 
commerce. 

Mr. Denison. The thought that was in my mind, and I presume 
I have expressed it, was whether or not the right of Congress which 
was conferred by the State to control or regulate the commerce 

between the States included the right to regulate and control the 
persons, whether they be artificial or natural, that engage in that 
commerce. You think it does? 
_ Mr. Suiru. I think the extension of that doctrine by the decisions 
of the courts, that it embraces all instrumentalities of interstate 
commerce, would bring in the piece of legal machinery which has 
been created by the concurrent action of the States and of the cor- 
porations, fully and completely under the jurisdiction of Congress. 

Mr. Sweer. Mr. Smith, if I understand your statement correctly, 
‘it is your contention that Congress has the authority and the power 
‘to require a railroad doing interstate business to organize under a 

Federal incorporation act? 

Mr. Smiru. Yes, sir. 

Mr. Sweer. And that authority is gained by Congress, through 
the interstate-commerce clause in the Constitution, by the States 
voluntarily allowing a foreign corporation, a railroad, we will say, 
to do business in that State. For instance, a railroad corporation 
that was organized in the State of Tlinois under the incorporation 
act of that State, and then went over into Iowa, and received the 
consent of that State under its incorporation acts for the organiza- 
tion of foreign corporations, by that act, it consented that Con- 
gress should have the authority to force it to organize under the 
Federal incorporation act. 

Mr. Smiru. Judge, I think you misunderstood my premise just a 
little. My premise is based upon the other end of the proposition, 
not the permissive grant to a corporation of another State to go into 
a given State, but the affirmative assent of a given State to permit its 
Own creature to form an alliance with like creatures created by 
other States, and by the merger and consolidation of these creatures 
of these different States an interstate piece of machinery has been 
created, by the consent of both States, or of all the States involved. 
That is a piece of legal machinery that is engaged in interstate com- 
merce by virtue of the legislative action of each of the States, and 
the corporate action of each of the constituents, and that piece of 
legal machinery by virtue of that conjoint action has become an in- 
strumentality of interstate commerce. 


166 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Sweer. In other words, the State has given up some right t¢ 
the Federal Government which it did not contemplate at the time 
it gave its consent to the railroad to do business in the State. 

Mr. Srrn. Well, I do not think it 1s a fair argument to say that 
a man does not contemplate what is in the Constitution and the law; 
of the land. Whether it was actually in the minds of the legisla. 
tors or not, in legal contemplation, they are bound with knowledgé 
of the fact that when they allowed their creature to become an in- 
strumentality of interstate commerce, they thereby gave their con- 
sent under the Constitution of the United States that it should he 
forever thereafter subject to the exclusive and plenary jurisdiction 
of Congress whenever Congress chose to exercise that jurisdiction 
That is a necessary legal consequence. 

Mr. Sweet. And without this act of the State, Congress would not 
have the authority or power—that is, originally—to require the 
organization of the railway under a Federal incorporation act. 

Mr. Smirn. If it is not an instrumentality of interstate commerce, 
That is the basic premise. 

Mr. Sweet. At the moment it becomes an instrument of interstate 
commerce then you believe it has that right ? 

Mr. Smiru. The Supreme Court of the United States has decided. 
I suppose, in a hundred cases, that Congress has exclusive and 
plenary jurisdiction of interstate commerce and all of its instru- 
mentalities. 

Mr. Sweer. That is all. 

Mr. Drewatrt. Take the case of the Southern Railway, controlling 
either by a majority of stock or in other ways other railroads, under 
this system of Federal incorporation what, in your judgment, would 
it be necessary to do with these underlying corporations, would they 
have to incorporate separately ? 

Mr. Smiru. No, sir; I do not think so, as a general rule. Theré 
may be some special condition, I could imagine, that might make 
that necessary, but the Southern is the only instrumentality that 
Congress would deal with. 

Mr. Drewaxt. With the Federal incorporation of the Southern 
Railway would there be the same management, direction, and, per- 
haps, ownership of a majority of the stock of the roads now con- 
trolled by the Southern Railway? 

Mr. Smirn. To the same extent that it now owns, controls, and 
manages; no more and no less. 

Mr. Dewaur. Let us pursue that a little further. You have stated 
that railroad companies are engaged in other enterprises than the 
mere transportation of passengers and freight, which is true. Sup- 
pose a railroad, A, owns and controls through another corporation, 
subsidiary to it, coal mines, what would become of the coal mines? 

Mr. Sorry. Well, sir; I will answer that by the general statement 
that I think Congress would take control of them just, as I under- 
stand, it has done with the coal business and various and sundry 
things that interstate carriers have been forbidden to do. 

Mr. Dewar. That is, to my mind, quite a different problem. My 
question is, What would become of the not fictional but actual owner- 
ship ¢ | 

Mr. Suiru. I do not think that it would be disturbed in the least. 

Mr. Drwatr. Taking a concrete instance, there is an organization 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 167 


known as the Temple Iron Works, a corporation, and they have a 
_yery broad charter in the State of Pennsylvania. It is alleged, and 
Isuppose it could be shown, perhaps not now, but certainly in a not 
far distant past, that the Philadelphia & Reading Railway Co. owns 
_and controls a majority, if not all, of the stock of that corporation. 
That corporation was engaged in quite a number of enterprises, the 
“manufacture of iron, the operation of furnaces, the shipment of 
_ coal, the operation of mines, etc. You take the position that by this 
compulsory Federal incorporation this Temple Corporation, under 
‘control and really managed by the Philadelphia & Reading rail- 
_ way, if such is the fact, would still remain under Federal incorpora- 
tion, but exercising the same power as the Philadelphia & Reading 
now has? 
, Mr. Smirn. If the Philadelphia & Reading Railway Co. should 
become a Federal corporation its relationship to the Temple com- 
| pany would not be in the least affected unless activities in connection 
with it had some bearing on interstate commerce that was in conflict 
with congressional regulation of that subject. 
Mr. Drwaur. As I understand, your general thought would be 
| this, that in reference to compulsory incorporation under the Fed- 
eral authority the local corporation, to wit, the State corporation, 
‘goes into the Federal corporation with the same rights that it had 
under the State corporation, with the same liabilities that it had 
under the State corporation, subject only to the reservation that 
those rights and liabilities shal not interfere with interstate com- 
merce. Is that your general proposition ? 
_ Mr. Smrru. Yes, sir; that 1s my general proposition. 

Mr. Dewatr. In this bill you propose that certain things shall 
be reserved. I notice that one of them is the power to tax by the 
States. If I recollect cerrectly, I am not very definite about it—the 
bill provides that the States shall have the power to tax the prop- 

erty of the railroad corporations as they now do. Will you please 
read that again ? 

Mr. Siru. Certainly. 

The several States shall have power to tax the properties of national rail- 

road companies located within their several territorial jurisdictions on the 
Same basis as other properties are taxed therein. . 

Mr. Drewatr. I suppose you grant, for the purpose of argument, 

\that when a Federal corporation is in existence that the Federal 
authority would have the right to tax? 

. Mr. Smrru. I think it has the right to tax whether it is a Federal 
corporation or not, if it chooses. 

| Mr. Dewarr. Let us pursue this a little further. I think that 

‘we both concede that as to a Federal corporation Congress would 

have the right to pass.a tax law? 

| Mr. Surry. Unquestionably. 

' Mr. Dewaur. You say.in the same breath that the State shall 

have the right to tax the property. In the States of Pennsylvania 

the bulk of the taxes for State purposes are derived from corpora- 

‘tions. Suppose in the case of a Federal corporation an act of Con- 

gress levies a tax, as, of necessity, the situation may demand, and 

‘the State of Pennsylvania, relying upon the right it now has to de- 
rive most of its State revenues from corporation taxes, and mainly 





| 





168 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


railroad taxes, also passes a law and says that is necessary for its 
revenues, where is the limit of taxation upon these corporations? 

Mr. Suiru. The power to tax is the power to destroy. The Goy- 
ernment can tax anything in the world out of existence. 

Mr. Dewaut. I grant you that, but you have now concurrent 
power to tax. I should like to know where the limitation is, if any. 
With both having the power, both can destroy ? 

Mr. Smirn. Unquestionably. 

Mr. Dewatr. Are there two Frankensteins or only one? 

Mr. Smiru. No. The State can tax only in so far as Congress per. 
mits it to do so. After Congress takes jurisdiction of the corpora: 
tion Congress has limited the State’s right to tax to the same rate of 
taxation that she charges on all other property. The State power ta 
tax national railroad corporations is limited to the same basis as 
other properties that are taxed therein. 

Mr. Dewar. Granting the limitation is just as you state. It 
strikes me—I may be wrong—that you have two powers to tax here. 
one the Federal power and the other the State power, both of them 
with the power to tax according to their necessities, because the 
State of Pennsylvania would say, “ We want the same tax from thé 
Pennsylvania Railroad that we have always had,” and the Federal 
Government would say, “ We want the tax,” and the question in my 
mind—it may be merely chimerical—is where the limitation of this 
taxing power really ends. 

Mr. Smiru. Is there any limit now ? 

Mr. Dewar. Pardon me. 

Mr. Smrru. I beg your pardon; excuse me. 

Mr. Dewar. The question in my mind is whether the State of 
Pennsylvania can at its own sweet will raise its taxation rate and get 
its taxes first from the Pennsylvania Railroad ‘or whether the Fed- 
eral power under the Federal corporation could levy its rate and get 
its taxes first—to my mind that is a pretty serious thought and it 
may be worthy of consideration. Therefore, I want your thought 
upon that matter, because I have not the slightest doubt that you haye 
given it far more attention than I have. 

Mr. Smiru. I am unable to see that the question of the power to 
tax, either in the National Government or in the State government, 
is going to be any larger under Federal incorporation than it is right 
now. The evils to which you have referred might occur under the 
present arrangement without any Federal incorporation or any 
change in the situation at all, as I understand it. 

Mr. Dewarr. Just permit me to ask you one more question i 
reference to what Mr. Denison asked. There are other instances simi- 
Jar in character to the one cited by Mr. Denison, quite a number of 
them. As I understood your answer to Mr. Denison it was in sub- 
stance this, that if the State of Illinois or the railroad company im 
that State voluntarily went into a Federal corporation that it would 
be a resignation of its right to receive a certain stipend from the 
Tlinois Central Railroad Co., but if they were compulsorily put 
into a Federal incorporation that right would still remain in the 
State to receive this emolument from the Illinois Central Railroad 
Co., unless it was a burden upon interstate commerce. Am I cor- 
rect in stating that? 

Mr. Smiru. I think so; substantially. 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 169 


_Mr. Denison. This provision in the bill says that the State may 
ax the railroad properties as all other properties are taxed. In 
dlinois the Illinois Central Railroad is not taxed as any other prop- 
rty is taxed. It is a special tax in lieu of other taxes. There is an 
? arent conflict. 
_ Mr. Sims. That is under the charter? 
Mr. Denison. Yes, sir. i 
| Mr. Dewar. Permit me to continue for a moment to see whether I 
m right. 
When the State of Illinois granted that charter and when it gave 
0 the Illinois Central certain lands in order that the road might be 
onstructed, and when it put into that charter a provision that the 
ailroad company, in consideration of receiving the lands, would 
hereafter pay to the State of Illinois a certain sum, whether 5 cents 
‘T $5,000,000 does not make any difference, was there not a con- 
‘ractual relation established between the State of Illinois and the 
llinois Central Railroad Co. ? 
_ Mr. Soiru. Yes, sir. 
| Mr. Dewar. If there was a contractual relation established be- 
|ween the two, did not the State of Illinois have a property right in 
his amount of money, 5 cents or $5,000,000. Is not that so? : 
Mr. Smirn. Judge, your question would involve a careful investi- 
‘ation of the statutes of the State of Illinois or of the charter of the 
inois Central Railroad, the terms and conditions on which this 
roposed privilege was conferred, which has now turned out to be a 
uurden, and any answer that I could make, without that previous in- 
estigation, would not be of any benefit to the committee; but assum- 
ig that what you suggest might be the result, that there would flow 
tom the compulsory incorporation of the Illinois Central as related 
) that contract a change of that situation, I respectfully submit that 
aat does not touch the question of power we are now considering. 
/ongress could do that. 
rt. Dewarr. It may not, my dear sir, and if you will permit me 
) say that many people and, perhaps, many governments live power 
nd they can, at their own sweet will exercise that power, neverthe- 
48s, there is a function of the legislature, if there be a legislature, 
control that power, and to question and give advice in the exercise 
rc. 
Mr. Suaru. Precisely. 
Mr. Dewatr. That is just what we are trying to do here, 

Mr. Sarrn. Precisely so. 

Mr. Dewarr. Pursuing what I have to say, taking for granted as 
rrect what Mr. Denison has said—I do not know whether it is so 
* not—as to this charter, and taking for granted that he is correct 
| Stating that, again, we must refer to the question whether there is 
ta property right, whether there is no property right in the State 
- Illinois and by your Federal incorporation you say that. if this 
_a burden upon interstate commerce we Wipe out this property 
ght. The question in my mind is whether or not you are quite ac- 
irate in saying that you will wipe it out. 

-Mr, Smrrn. Let us assume that we can not wipe it out. 

Mx. Dewatr. That is a violent assumption. I do not think so. 
Mr. Suiru. All right. Suppose Congress, representing the whole 
untry, thought it might be very desirable to have compulsory 













170 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Federal incorporation of all the railroads in the United States whic 
would be a consistent advance along which to build up an instru 
mentality for the control of interstate commerce throughout th 
United States, but because the exercise of that power might interfer 
with contractual relations between the State of Illinois and he Illi 
nois Central Railroad they should decide that we will not exercis 
that power, that still would not be any argument against the existenc 
of the power. | 

Mr, Dewatr. No; I grant that. I am not going to the length tha 
vou possibly would infer from my questions. Some people might ¢g 
that far, but I am going to this length, that if you have compulsor 
Federal incorporation it strikes me you must also have a right ¢ 
condemnation which you have already intimated you have. Am 
correct in stating that? 

Mr. Smiru. Yes, sir. 

Mr. Dewar. I suppose your proposed bill provides not only fe 
Federal incorporation, but the right to condemnation; and have yo 
also compensation ? 

Mr. Suirn. Yes, sir; the Constitution requires that. 

Mr. Dewar. You drew the bill we are considering with regard | 
compensation, and arranged how that compensation shall be dete 
mined—just compensation ? 

Mr. Smiru. Yes, sir. 

Mr. Dewar. There is one question. Taking our example agai 
of the Illinois Central, and taking the example of the Temple Iro 
Co., and similar instances, do you take it that the thought in th 
mind of this conference body, which drew up this bill, was that coi 
pensation following condemnation, which might result from Feder: 
incorporation, would include damages or such things as the State ¢ 
Tllinois has against the Illinois Central and for such things as th 
Philadelphia & Reading did have, or may now have, in the rigl 
to mine coal and transport the same and to continue the business ¢ 
the Temple Iron Works? | 

Mr. Smirn. I assume that the members of the conference wh 
thought about that subject at all acted with the idea that the sul 
stantive provisions for the protection of property rights and veste 
interests would continue to function in the future as in the past, au 
their entire pronouncement on the subject that we have been discus 
ing this morning is expressed in less than six lines in these words 4 

The conference favors action by Congress that will bring all interstate ra 
roads and corporations under the jurisdiction of the United States either b 
Federal incorporation or in such other manner as Congress may determin 
the matters of local taxation and policy regulation to be reserved by the State 

This is merely the method of carrying into effect that fundament 
declaration of principle. I have never considered any of the detai 
you have inquired about. 

Mr. Dewatt. Those were only thoughts that came into my mind 
they may have no relevancy at all. 

Mr. Sanvers of Indiana. What do you desire to do for, or to, intel 
state railroads by means of Federal incorporation that you can n¢ 
already do without Federal incorporation ? 

Mr. Sire. Well, I do not know that I could enumerate all thos 
things. I know that a great many lawyers differ with me, but 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 171 


have the greatest difficulty in understanding how Congress can go 
‘to a corporation of a. State, a creature of a State, which draws the 
breath of life by virtue of the permission of the State, and which has 
‘been granted by the State the express power to issue its stocks and 
bonds in specific amounts and in specific denominations, and can say 
‘to it, “Nevertheless, you shall not issue stocks and bonds as your 
‘charter authorizes you to do, and, therefore, you must accept an 
‘amendment to your charter.” I do not see how Congress has any 
jurisdiction over the corporation or the issuance of the securities of 
such a corporation unless it has jurisdiction of the corporation in its 
orporate capacity. 

or instance, the Georgia Railroad is a railroad and banking com- 
yany, and operates a large bank. Its funds are employed partly in 
vhe construction of railroads and partly in the capital of the bank. 
50 with the Central Railroad & Banking Co. of Georgia, which was 
-eorganized many years ago, which had a bank in the city of Savan- 
jah and had a alrge amount of its capital employed in the banking 
jusiness. It was a creature of the State of Georgia. It was author- 
zed to issue its capital stock and to issue bonds by virtue of the 
yuthority of the State of Georgia. I confess that I have great dif- 
iculty in arriving at the conclusion that Congress has the power to 
ake a foreign corporation—for that is what it is; it is foreign to the 
Jnited States in a strict legal sense, because we still have a dual 
ystem of Government notwithstanding we have been trying all these 
years to preserve some semblance of sovereignty in the States, cer- 
ainly as regards the creation of her corporations—I do not under- 
‘tand by what process of reasoning Congress can still take one of 
hese creatures of the State and say, “ You shall not issue stocks and 
vonds.” . 
Take the question of consolidation. This plan, when it is developed 
‘0 you, you will find recommends the creation of a relatively small 
umber of large consolidated interstate systems, which would mean 
he throwing together of a large number of constituent corporations. 
Jnless Congress takes jurisdiction over the corporations as such, and 
ndertakes to combine two or more of those corporations, in a great 
any of these States you will run right in the teeth of constitutional 
shubitions against such a thing as that. I certainly am not pre- 
ared to admit that an act of Congress can amend the constitution 
fa State, and yet consolidation is one of the policies that is going to 
ipport the structure that will be submitted to you for the proper 
nd comprehensive control of railroads under the new conditions 
1at confront us. I do not see how it is possible, with all due re- 
ect to the Esch-Pomerene bill and the other bills which have been 
itroduced along that line, for Congress to ever arrive at any satis- 
vctory solution of this.question by patchwork and additions to the 
usting laws. Of course, there are a great many laws that will 
ltimately have to coalesce with the final plan that may be adopted 
wr the control of the railroad systems of this country, but I sincerely 
dpe that before Congress comes to its final conclusion you will 
ok at the question as a whole and will not try to merely patch up 
d and unsatisfactory conditions. 
‘Mr. Sanvers of Indiana. In addition to the insurance of stocks 
id bonds and in addition to the question of compulsory consoli- 








172 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 
dation, what other power do you think they will have that they 
would not have now? 

Mr. Sniru. It is a little unfortunate that the exigencies of the case 
required Mr. Wheeler to yield to me before he laid before you gen- 
tlemen the general outline of this plan. 

This plan contemplates the creation, for instance, of a railroad 
contingent fund that each interstate system of railroads must create, 
and the control over the disposition and distribution of that fund. 
That is to be vested in the Federal transportation board, which is 
one of the creations of this plan. It also provides for a general rail- 
road contingent fund that shall be applied in a certain way to the 
corporate functions and corporate necessities of these railroads. I 
then also provides for the creation of a guaranty fund by an appro- 
priation of Congress, all of which relations, it seems, would be wholly 
in the discretion of Congress dealing with a hetergeneous mass oj 
corporations and each having their various charters, limitations, anc¢ 
restrictions, under the various laws of the several States. 

Mr. Smirn. It is impossible in my conception that Congress ear 
formulate any consistent, complete, and harmonious plan unless i 
has control of the corporate functions of the agencies that are going 
to carry that plan into operation. 

Mr. Sanvers of Indiana. What about rates? 

Mr. Suiru. I think the Federal Government should control every 
railroad rate in the United States without any exception. 

Mr. Sanpers of Indiana. What I have in mind to inquire abow 
is this: Do you think that by Federal incorporation Congress i 
given a different control over rates than they would have withow 
Federal incorporation ? 

Mr. Smrru. Unquestionably so. I think the greatest benefit 6 
Federal incorporation will be to take the railroads out from unde 
the 48 railroad commissions that. have been expounding to then 
all their conflicting and irreconcilable regulations. My honest opi 
ion is that that is what choked the railroads down to begin with. 

Mr. Sanpers of Indiana. Then you really propose a plan of Fed 
eral incorporation in order to endow Congress with additional pow 
ers over railroads engaged in interstate commerce? 

Mr. Smrrxn. Yes; to broaden the field for the exercise of th 
powers it already enjoys. 

Mr. Sanvers of Indiana. It is your opinion that the provision 
of the Esch bill, by which it is proposed to give the Interstate Com 
merce Commission contro] and supervision of capital issues of th 
railroads is unconstitutional ? 

Mr. Smiru. I am not prepared to say that. 

Mr. Sanvers of Indiana. But you doubt its constitutionality? — 

Mr. Smiru. I say it is very much harder to justify than the pro 
position which I am advocating. 

Mr. Sanvers of Indiana. Do you not advocate that Congress ha: 
the power to compel Federal imcorporation which will give thi 
power to control the issuance of securities ? 

Mr. Smrru. Oh, yes; but that is a consistent procedure. The pro 
cedure of amending the charter of a State corporation over the cor 
porate functions of which Congress has no jurisdiction, is an ano 
aly to my legal thought. 


} 
| RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 173 
li | 

_ Mr. Sanvers of Indiana. Is it not consistent to say that Con- 
“Tess has not the power to control the issuance of securities by cor- 
oo engaged in interstate commerce and to say that Congress 
‘oes have the power to compel Federal incorporation and thereby 
‘ontrol the issuance of securities? ‘ 
_ Mr. Smrrn. I do not think there is any inconsistency at all in the 
sroposition because the issuance or the regulation of the issuance 
‘f securities does not necessarily have any effect on interstate com- 
erce. 

Mr. Sanvers of Indiana. Passing the question of the issuance of 
ecurities, your proposal would admit of compulsory consolidation. 

Mr. Smirn. Yes, sir. 

Mr. Sanvers of Indiana. The Esch bill, as I understand it, only 
ermits voluntary consolidation. ; 
~The Cuarrman. Under direction, of course, of the Interstate Com- 
jerce Commission. 

Mr. Sanpers of Indiana. Voluntarily on the part of the railroad 

a the first place to initiate or to propose it, and then final determina- 
ion to rest with the Interstate Commerce Commission. 
Mr. Suirx. You will find, when you get the details of the plan 
‘efore you, that it contemplates allowing the railroads a period of 
_ve years in which to indicate to the Federal Transportation Board 
that consolidations they would like to make voluntarily. 

Now, if those consolidations are making fair progress at the 
nd of five years, there will be no compulsion, but if they stand 
ff and will not do those things which a broad view of the whole 
‘ransportation system of the country leads the transportation board 
,0 think ought to be done, it ultimately has the power to compel 
/onsolidations, the underlying thought of which is to provide a 
olution to that hitherto unsolved problem that with a fixed level 
‘ate of rates you either enrich the strong road beyond endurance or 
(ou starve to death the weak road. Now, the scheme is to bring 
;}20se extremes nearer together; take the weak sister out of the wet, 
|) to speak, and to fix it so there will be a nearer relation between 
/a¢ effect of a fixed level of rates as between the railroads that serve 
le sparsely-settled and ru..l districts, compared with those that 
rve the great centers of population, and there is one economic 
{spect of it that a Congressman ought and all good citizens ought 
|) look at, and that is that while it is a very important thing to 
1aintain the Pennsylvania and the Baltimore & Ohio systems, and 
‘nd all that sort of thing, for the protection and benefit of the 
eople up here, it is equally important to a very much smaller num- 
ar of people to maintain the little “ jerk-water ” railroads which 
mstitute the only means of transportation for the people in some 
mote section of the country, and which constitute the only means 
1e people there may have to go to and from their markets and 
ave their needs supplied. Now, some provision ought to be made 
|) eare for the little fellow as well as the big fellow, without making 
jie big fellow get too large a revenue cut of the level of rates that 
ust be applied to everybody. 

'Mr. Sanvers of Indiana. Your thought is that without Federal 
|\corporation if “ A” company is a strong company, and “ B” com- 
Jany is what is known as a weak sister, that you could not compel a 















174 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


consolidation of “A” company and “B” company, but that the 
need being desirable, you can compel Federal incorporation which 
will amount to a compulsory consolidation of “A” and “B” com- 
anies. 

: Mr. Smrru. Yes, sir. It is a question of conferring jurisdiction, 
Just take the question of the jurisdiction of a court. You will say 
why would a court have to have a man in a certain position before 
it can compel him to do something. You have got to get jurisdic- 
tion of him first. A man might be right in the middle of the court- 
room, looking the judge right in the face, and unless process has 
been served upon him and he has been brought into court in the 
regular manner, and jurisdiction of his person conferred in a civil 
procedure, the court might pronounce a judgment, but it would be 
absolutely void. It would have no effect upon him whatsoever; 
but if the court has served him with process and brought him into 
court, presented him with a complaint, and_he stands mute, it 
can render a judgment that will bind him. He can absolutely ig- 
nore the judgment of the court unless it has jurisdiction of him. I 
want to confer jurisdiction on Congress to do what it pleases with 
these corporations consistent with good judgment, and good man- 
agement, and the law of the land. 

Mr. Sanpers of Indiana. It would be a little hard on the stock- 
holders of the strong company to compel such a consolidation, would 
it not? 

Mr. Smiru. That is a detail I do not feel competent to discuss. I 
have confined my attention almost exclusively to the legal questions 
involved. I am not a practical railroad man. It has been 10 years 
since I represented a railroad, and I think it would be better for 
me not to undertake to enter into that realm. There will be other 
gentlemen here very much better able to discuss that question. 

Mr. Sanvers of Indiana. What is the length of the life of the pro- 
posed incorporation ? 

Mr. Surru. Well, there is no limitation in the bill as drafted. I 
do not know how it will come out of the drafting bureau. I should 
say, though, it should be perpetual. | 

Mr. Sanpers of Indiana. Suppose you have State corporations 
where the stockholders have become stockholders and where the 
organizers have organized because of the fact that it was only going 
to last fo: a period of 50 years and you have compulsory Federal 
incorporation by means of which those organizers and those stock 
holders become interested in a perpetual corporation. Do you think 
there would be any constitutional question about that procedure? 

Mr. Suir. I do not, because the stockholders themselves have 
made their corporation an instrumentality of interstate commerce, 

Mr. Sanvers of Indiana. Suppose that the corporation dealt only 
in State commerce, but was connected up either by order of the 
commission or otherwise with a railroad that was engaged in inter- 
state commerce, not by voluntary action of the owners of the railroad 
but by public regulation. 

Mr. Smrru. I am unable to see how the incorporation of the hold- 
ing company would affect its contractual relation with its stock 
holders. When its charter expired it would have to be liquidated. 


— 
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. Hid 


Mr. Sanpers of Indiana. Suppose five years before the date of its 
xpiration you compel Federal incorporation which makes those 
ockholders interested in a perpetual corporation. 

Mr. Smiru. They are not interested except in the original con- 
‘ituent company. In the case you state the stockholders would only 
ave contractual relations with the local company. | 

_Mr. Sanvers of Indiana. Recurring again to the question of rates, 
hat constitutional objection is there to the absolute control of the 
‘ites of all carriers engaged in interstate commerce if the Congress 
sould consider that was necessary in order to regulate commerce 
\ they have been granted the power in the Constitution to do? 
_Mr. Smirn. That would depend upon whether the particular rates 
» which regulation by Congress was attempted affected interstate 
ommerce, and that raises a great question of fact which you would 
ive to thrash out on every occasion, because the States are jealous 
* the power to regulate their local rates, and also the State com- 
‘issions, and I think they would contest that question and they 
ould insist on the one side that it was purely a local matter and 
ee not affect interstate commerce, and the Federal Government 
‘ould insist on the other side that it did. My personal opinion is 
at there is not a rate of freight to-day in existence in the United 
tates that does not affect interstate commerce, necessarily so; but 
verybody does not agree with me on that subject. 

| Mr. Sanvers of Indiana. Then, according to your personal opin- 
‘n, Congress now, without Federal incorporation, has the power to 
_gulate the rates of all carriers engaged in interstate commerce. 

| Mr. Smiru. That affect interstate commerce. 

| Mr. Sanvers of Indiana. Do not all the rates affect interstate 
mmerce ? 

Mr. Smrrn. I think they do, but the majority of people do not 
‘Tee with me. 

Mr. Sanvers of Indiana. So if you are right—— 

Mr. Sworn (interposing). They decided in the Shreveport case 
jey did, and they have decided that in the Minnesota case. 

Mr. Sanvers of Indiana. If you are right, and I think you are, 
ere is not any necessity for Federal incorporation in order to 
ntrol the rates. 

»Mr. Smaru. I think there is, for the:reason that you would be in 
| everlasting lawsuit if you did not. My little experience in repre- 
jating railroads was that there was a continuing, never-ending law- 
it between the railroads and the Interstate Commerce Commission 
'd the State commissions over those questions. 

/Mr. Sanpers of Indiana. That might be unless the Supreme Court 
1 the power, and then there would not be so much litigation over 
}at question. That is all, Mr. Chairman. 

(The committee thereupon took a recess until 2 o’clock p. m.) 





—_—_—— 






AFTER RECESS. 





‘The committee reassembled at 2 o’clock p. m., pursuant to recess. 
The CHAIRMAN. Just as we were about to start there has been a 
t call for the House. I have sent word to the cloakroom for 


176 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Members to come down as speedily as possible, but if agreeable we 
will start now, Mr. Wheeler. 


STATEMENT OF MR. HARRY A. WHEELER—Resumed. 

The Cuarrman. Is it desired to have your testimony, as well as 
Mr. Warburg’s, concluded this afternoon ¢ 

Mr. Wueetrr. If possible, I think it is very desirable. 

The Cuatrman. About how much time shall you require on your 
direct statement ? 

Mr. Wueeter. I think I can finish the direct statement in 30 
minutes, and the preparation of our material for the committee has 
been made in such a manner that the questions that are hkely to be 
controversial, and upon which a cross-examination would be likely, 
are to be treated by the four speakers who are to follow. It would 
then be for me to outline the general program of the transportation 
conference, and if it pleased the committee progress would be made 
and the avoidance of duplication of questions if the interrogations 
follow the presentation of the specific subjects upon which the 
larger interest would probably accrue. That, of course, I understand 
is wholly with the committee, but it would be a matter of time-saving 
if that could be done. 

Briefly stated, the program provides for: | 

Return of the railroads to private ownership and operation as 
soon as the necessary remedial legislation can be enacted. 

Consolidation of existing railroads into strong competitive 
systems. 

Requirement that all carriers engaged in interstate commerce 
subject themselves as corporations to Federal jurisdiction. | 

Exclusive Federal regulation of the capital expenditures and the 
security issues of all carriers engaged in interstate commerce. 

Interstate Commerce Commission to retain its present powers 
and to be given additional powers over rates. : 

Creation of a ‘Federal transportation board to promote the de- 
velopment of a national system of rail, water, and highway trans- 
portation; to pass upon the public necessity for capital expendi- 
tures; to regulate security issues; to administer and enforce the 
measures that may be adopted for strengthening and stabilizing 
railroad credit; to determine the grouping or consolidation of rail- 
roads deemed to be in the public interest; and to carry out plans 
authorized by Congress for merging all railroads engaged in intel> 
state commerce into strong competing systems. . 

Adjustment of the wages and working conditions of railroad em 
plovees by boards consisting of equal numbers of representatives of 
railroad employees and railroad officers, with the Federal transpoi- 
tation board as referee. } 

Adoption by Congress of a plan for the stabilization of railroad 
revenues and credit by means of— | 

(a2) Enactment of a statutory rule providing that the rate struc 
ture established by public authority shall be designed to yield a net 
return of 6 per cent per annum upon the aggregate fair value of 
the property of the roads in each traffic section of the country, such 
fair value to be determined after due consideration of both physical 
value and earning power. 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 177 


_(b) Use of the aggregate property investment accounts of the 
ailroads as the fair value of the property for rate-making purposes 
ending the completion of the valuation now being made by the 
nterstate Commerce Commission. sigh 
(¢) Creation of two kinds of contingent funds—an individual 
allroad contingent fund established by each road to support its own 
redit; and a general railroad contingent fund maintained by con- 
ibutions from all prosperous roads, managed by trustees appointed 
y the Federal Transportation Board and used to support the credit 
f all of the railroads of the country. Any excess in the general 
auilroad contingent fund above $750,000,000 is to be used for the 
eneral development of the transportation system of the country. 
Creation of a railroad reserve fund administered by the Federal 
‘ransportation Board to facilitate the prompt stabilization of rail- 
vad credit; and loan of $500,000,000 to this fund by Congress as 
yon as the railroads are returned to their owners; the loan to be 
‘sed, if necessary, in making advances to the general railroad con- 
ngent fund, and to be repaid with interest from moneys contri- 
uted by the railroads to the general railroad contingent fund. 
_ Determination and announcement by the Federal Transportation 
‘oard of the grouping or consolidation of railroads deemed to be in 
je public interest; and authorization for the board to require such 
| ions if they shall not have been effected or well advanced 
: 





ithin a period of five years after the board has declared them to be 
esirable. 

Organization of the board of directors of each consolidated rail- 
vad system with 12 members of the board—one to be a representa- 
ve of the employees of the system nominated for such position by 
1e employees, and three to be selected by the Federal Transporta- 
‘on Board to represent the principal interests involved in the ter- 
tory served. 

(The full text of the program of remedial railroad legislation 
lopted by the national transportation conference is as follows:) 





CORPORATE OWNERSHIP AND OPERATION OF RAILROADS. 
| Section 1. The transportation conference favors corporate ownership of the 
‘ilroads in the United States; and is therefore opposed to Government owner- 
lip of the roads and to their operation either by the Government itself or, 
ader lease, from the Government, by corporations whether organized as 
| ‘gional monopolies or as large competing systems. 


PROMPT ENACTMENT OF REMEDIAL RAILROAD LEGISLATION. 


Sec. 2. The conference favors the enactment of remedial railroad legislation 
; the earliest possible date. It favors the continuation of the present Govern- 
/ ent possession and operation of the railroads only until such legislation can 
> enacted and made effective. If possible legislation should be enacted within 
}¢ present calendar year. 





CONSOLIDATION OF RAILROADS INTO STRONG COMPETING SYSTEMS. 


Sec. 3. The conference is in favor of permitting and facilitating the con- 
lidation, in a manner to be approved by the Government, of existing rail- 
jads into strong competitive systems so located that each of the principal 
affic districts of the country shall be served by more than one system. 


“RAILROAD CORPORATIONS TO BE BROUGHT UNDER FEDERAL JURISDICTION. 


| Suc. 4. The conference favors action by Congress that will bring all interstate 
roads as corporations under the jurisdiction of the United States either 


152894—19—-vor 1-12 x 


178 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


by Federal incorporation or in such other manner as Congress may determine 
the matters of local taxation and police regulation to be reserved by the States 


FEDERAL REGULATION OF CAPITAL EXPENDITURES AND SECURITY ISSUES. 


Src. 5. The conference favors Federal regulation of the issuance of securitie 
by all railroads engaged in interstate commerce. This regulation should he 
exclusive and should be exercised in the following manner: Such Federa 
agency as Congress may designate shall be authorized to pass upon the public 
necessity for expenditures of capital (in excess of a stipulated amount) b) 
carriers engaged in interstate commerce and to determine the amount-and t 
regulate the conditions of the issuance of securities to obtain the funds re 
quired to cover authorized capital expenditures; a railroad company applying 
to the Federal agency for authority to make capital expenditures, or to issu 
securities, shall be required to file with the proper authorities of the States 
in which the railroad is located copies of the original petition; and the Federa 
agency shall be required to notify said State authorities of the hearings upot! 
the petition. 


INTERSTATE COMMERCE COMMISSION TO REGULATE RATES THAT AFFECT INTERSTAT} 
COMMERCE, ; 


Src. 6. The conference favors the sole regulation by the Interstate Commer 
Commission of all railroad rates and of all rules and regulations bearin; 
thereon affecting interstate commerce. For the performance of its duties thr 
commission should be given power to organize in the manner it may deem best 
and be given authority to function through such local officials or agencies 2 
it may deem necessary to create or designate. 


FEDERAL TRANSPORTATION BOARD—ITS DUTIES. 


Src. 7. The conference favors the creation of a Federal transportation boar 
of five members. It shall be the general duty of the board to promote the deve! 
opment of a national system of rail, water, and highway transportation t 
inquire into and propose measures for preventing abuses therein, to pass upo! 
the public necessity for capital expenditures, and to regulate security issues a 
provided by section 5. The Federal transportation board shall act as th 
referee in cases of the disagreement (deadlock) of.a board intrusted with th 
adjustment of wages, hours of labor, or other conditions of service of railroa 
employees. It shall also be the duty of the Federal transportation board t 
administer and enforce the means and measures that may be provided fo 
strengthening and stabilizing railroad credit; it shall determine the groupin 
or consolidation of railroads deemed to be in the public interest, and carry ov 
plans authorized by Congress for merging all railroads engaged in interstat 
commerce into strong competing systems severally owned and operated by com 
panies subject as corporations to the jurisdiction of the United States. . 


| 
| 


BOARDS FOR ADJUSTMENT OF WAGES AND HOURS OF SERVICE OF RAILROAD 
EMPLOYEES. 


Src. 8. The conference favors the adjustment of wages, hours of labor, ati 
other conditions of service of railroad employees by boards consisting of equé 
* numbers of representatives of employees and officers of the railroads, with ay 
peal, in case of the disagreement (deadlock) of an adjustment board, to th 
Federal transportation board as referee. 

The conference favors the adoption by Congress of the plan contained in th 
following sections, 9 to 19, inclusive, for the purpose of strengthening an 
stabilizing railroad credit, of protecting the interest of the investing public, al 
of promoting in the highest degree both legal and moral accountability upon th 
part of-railroad directorates and of railroad executive officers, and of brin j 
about as promptly as practicable the consolidation of existing railroads int 
such number of competitive systems, owned and operated by companies subjec 
ne corporations to Federal jurisdiction, as shall be found to be in the publi 
nterest. 










STATUTORY RULE OF RATE MAKING. 


_ Sec. 9. The conference recommends that a statutory rule be enacted by Cor 
gress requiring that railroad rates and fares, to be established by publi 


| 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 179 


authority, shall be designed to yield the railroad companies in each traffic 
section of the United States (as shall be designated by Federal authority) 
iggregate revenue sufficient to produce, after proper provision has been made 
for renewals and depreciation, a net return (which shall be available for in- 
Jerest and dividends) of not less than 6 per cent per annum upon the aggre- 
sate fair value of the property of the railroads devoted to the public service in 
each of the several sections. The items of “ renewal and depreciation” shall 
uso include unproductive improvements not properly chargeable to investment 
iecount and against which no capital or capital obligations shall be issued. 


TEMPORARY AND PERMANENT VALUATION AS A BASIS FOR RATE MAKING. 

Sec. 10. The net return to be obtained by the railroads as a result of the 
‘mforcement of a statutory rule of rate making shall be based upon a fair value 
# the railroad property devoted to the public service, as ascertained by the 
nterstate Commerce Commission, such valuation to include a consideration of 
‘yhysical property, earning power, and such other elements as may be proper 
‘n determining fair value. 
- Until such valuation shall have been determined, the valuation to be adopted 
or the railroads in the United States as a whole, and by traffic sections, shall, 
or the purpose of making the rates that yield the aggregate net return to be 
rovided by statute, be their aggregate railway property investment accounts. 

For the purpose of ascertaining excess income, the valuation of any indi- 
idual railroad system, pending the completion of the said Federal valuation, 
{pon which it shall be entitled to retain 6 per cent per annum, shall be that pro- 
‘ortion of the aggregate property investment accounts of all the railroads of 
he traffic section in which it is located, which its average annual railway 
‘perating income (computed for the period and in the manner prescribed by 
he Federal control act of Mar. 21, 1918) bears to the aggregate annual railway 
perating income of all the railroads of such traffic section, computed in the 
| ame manner ; provided, first, that if the use of the above-stated formula shall 
roduce a valuation of any particular railroad system, greater than the amount 
f its average property investment account for the three-year period ending 
‘une 30, 1917, the amount of such property investment account shall be used 
astead of the valuation derived by the formula; and provided, second, that 
othing herein contained shall operate to reduce the railway operating income 
thich any particular railroad system shall be permitted to retain below its an- 
ual average railway operating income or compensation as computed or allowed 
‘2 it under the Federal control act of March 21, 1918. To such valuation as 
| hall be derived for any railroad system in the manner above stated there shall 
| ‘ hh all increases of property investment made by such system after June 
i 0, 1917. 
| The Federal Transportation Board shall be vested with the same power to 
| lake such specific adjustments, in particular cases, as it may deem requisite 
nd equitable, as is conferred on the Director General of Railroads under the 
iilroad control act, March 21, 1918. 











CREATION OF INDIVIDUAL RAILROAD CONTINGENT FUND. 


) Sec. 11. All railroad companies engaged in interstate commerce shall be re- 
‘aired to observe the following regulations under the direction of the Federal 
: ransportation Board: 

| (@) Whenever the net railway operating income of a railway company avail- 
\dle for the payment of interest and dividends (after provision has been made 
wr renewals, depreciation, and unproductive improvements as defined in sec. 9) 
tall exceed 6 per cent upon the fair value of its property, or upon its tem- 
wary valuation as determined by section 10 (the “ fair value of property ” 
ing used in this section to include both temporary and permanent valuation) 
1e-half of the said excess railway operating income above 6 per cent shall be 
aced in a contingent fund of the company until such amount to 6 per cent 
’ the fair value of the company’s property. The remaining half shall be 
irned over to a general railroad contingent fund as provided by section 12. 





MAINTENANCE OF INDIVIDUAL RAILROAD CONTINGENT FUND. 


'(b) A railroad company may draw upon its own contingent fund whenever, 
id to the extent that, its said annual railway operating income shall fall 


180 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


below 6 per cent of the fair value of the property as determined by section 10 
but whenever the railroad’s contingent fund is thus drawn upon, the fund's 

be replenished from the company’s share in subsequent excess earnings until the 
fund is restored to 6 per cent of the fair value of the company’s property. 


DISTRIBUTION OF EXCESS OPERATING INCOME, 


(c) When any individual railroad company earns an annual railway operat 
ing income of 6 per cent upon a fair value of its property and has establishec 
and is maintaining a contingent fund of its own amounting to 6 per cent on the 
fair value of its property, the company shall turn over to a general railroad con 
tingent fund, two-thirds of the company’s railway operating income in excess 
of 6 per cent, the remaining one-third of said excess to be retained by the rail 
road company for distribution among its stockholders or for such other lawfu 
purposes as it may determine. | 





CREATION OF GENERAL RAILROAD CONTINGENT FUND. 


Src, 12. There shall be established a general railroad contingent fund fo) 
the purpose of making good any deficiency in any year below 6 per cent upon the 
ageregate fair value of the properties of the railroads of a section. Th 
amount of such deficiency shall he drawn from the general railroad contingen 
fund for distribution among the railroads in any traffic section, upon the basi) 
of the gross earnings from railroad operations of the railroads within sucl 
section; and if the result of this distribution causes the railway operating in 
come of any individual railroad to exceed 6 per cent this excess shall be applie: 
as provided in section 11. : 


MAINTENANCE OF GENERAL RATLROAD CONTINGENT FUND. 


Src. 18. In any year, following the completion of the mergers hereinafter pre 
vided for, when the yield from rates established by Federal authority equal 
6 per cent upon the aggregate fair value of the property of the railroads in an 
traffic section, and the total contribution made in any such year to the genera 
railroad contingent fund amounts to less than 5 per cent of the aggregate ne 
earnings from operation in that traffic section, then the railroads in that set 
tion shall contribute to the general contingent fund the sum necessary to briny 
the contribution for the year up to 5 per cent of the aggregate net earning 
from operation—each company being required to contribute for this purpos 
pro rata to its net earnings from operation for that year. : 


, 
MANAGEMENT OF GENERAL RAILROAD CONTINGENT FUND. 


Src, 14. The general railroad contingent fund shall be mauaged by trustee 
appointed by the Federal Transportation Board from men nominated by th 
railroad companies. Moneys turned over to the fund shall be invested by th 
trustees in United States Government securities, or shall be deposited in th 
Federal reserve banks. 


AMOUNT OF GENERAL RAILROAD CONTINGENT FUND. 


Sec. 15. The general railroad contingent fund shall be accumulated by it 
trustees until it amounts to $750,000,000, and be maintained at that sum f¢ 
the purpose hereinbefore provided, and any excess thereafter acquired shall b 
used when and as directed by the Federal Transportation Board for the devel 
ment of the railroad transportation system of the country, or for the increase ¢ 
transportation equipment and facilities, or for the pro rata reduction of th 
eapital or capital obligations and property investment accounts of the rai 
roads, or, if so ordered by Congress, the excess shall be turned over to th 
Treasury of the United States. 











RAILRGAD RESERVE FUND. 


Src. 16. To facilitate the-prompt stabilization of railroad credit and suc 
consolidation of railroads as the Federal Transportation Board shall decide 1 
be in the public interest, it is recommended that Congress create a railroad rT 
serve fund and appropriate for this purpose the sum of $500,000,000. ‘This fun 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 181 


‘hall be administered by the Federal Transportation Board which shall invest 
{in United States bonds or notes, the interest accruing from such bonds or 
‘otes, or the earnings upon the proceeds thereof, to be paid annually into the 
Inited States Treasury. In ease, at any time during the first 10 years after 
‘he enactment of this legislation, the general railroad contingent fund, pro- 
ided by section 12, shall not be sufficient to make good deficiencies as described 
4 that section, then the Federal Transportation Board shall pay into the gen- 
‘yal railroad contingent fund, as far as the board’s available funds permit, the 
‘mount necessary to enable the trustees of the general railroad contingent fund 
‘9 make over to the railroads the sums due them for that year under the stipu- 
‘utions. of said section 12; provided, however, that any sums so paid by the 
‘ederal Transportation Board shall be repaid with interest by the trustees of 
‘he general railroad contingent fund from contributions received from the 
‘ailroads after the general railroad contingent fund shall reach and be main- 
ained at the amount of $500,000,000. 


GROUPING AND CONSOLIDATION OF EXISTING RAILROADS. 


Sec. 17. The consolidation of railroads into a limited number of strong com- 
-etitive systems under conditions to be prescribed by Congress is believed to 
e in the public interest and should be carried out as promptly as practicable, 
1 accordance with plans to be submitted by the carriers and approved and 
nnounced by the Federal Transportation Board. In order to bring about this 
onsolidation of railroad companies, jurisdiction of which has been perfected 
'$ contemplated in section 4, the Federal Transportation Board shall determine 
or itself and announce the grouping of railroads in case such railroads have 
ot within a reasonable time submitted plans for its approval for consolidation 
1 any given section and the board deems such consolidation to be in the public 
iterest. 

Tf the consolidations thus announced by the transportation board shall not 
ave been affected or well advanced within five years after announcements the 
‘oard should be given power to carry through such mergers by compulsory 
‘rocedings, if in its judgment the public interest would be thereby advanced. 





GOVERNMENT DIRECTORS ON RAILROAD BOARDS. 


Sec. 18. Any railroad corporation that may be allowed by the Federal 
“‘ransportation Board to acquire the securities or properties of other railroad 
ompanies and to form a consolidated railroad system under the jurisdiction of 
he United States shall be required by the board to organize with a board of 12 
irectors, one of whom shall be a representative of the employees of. the system 
/nd nominated for that position by such employees, and 3 of whom shall be 
elected by the Federal Transportation Board to represent the principal inter- 
!sts involved in the territory served by such system. The board of directors 

hus selected shall make such regular and special reports to the transportation 
oard as that board may require. 





TEMPORARY AID TO CERTAIN RAILROADS PENDING CONSOLIDATION, 


Src. 19. Should it be found by the transportation board to be in the public 
iterest to protect the credit and financial operations of some railroads pending 
‘ie completion of the railroad consolidations herein contemplated, it is recom- 
‘iended that one or the other of the following plans be adopted: 

1. That the transportation board be endowed with power and granted the 
‘ecessary funds to extend credits to such railroads during the period of con- 
Jlidation; or , 

| 2. That the existing machinery of the War Finance Corporation be employed 
ow this purpose. 

| If the second recommendation is adopted, appropriate legislation should be 
jjacted to enable the War Finance Corporation to Advance funds to railroads 
nder terms that may be approved by the Federal Transportation Board. 


Mr. Wueeter. Necessarily the first question that came before the 
‘onference at the time of its opening in December was the question 
\f Government ownership versus private ownership of the railroads 
f the country. The question was probably more an open question 








182 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


at the time of our first session than it became later when there seemed 
to be a general crystalization of opinion in regard to Government 
ownership, but it seemed to the transportation conference necessary 
that that question should have the right of way, since we knew in the 
diverse interests that were represented in the conference there were 
certain elements that held tenaciously to the desirability of Govern- 
ment ownership of the roads, consequently that question was given 
ample discussion through two full conferences and a part of the 
third, and in the third conference came the declaration of the trans- 
portation conference that the roads should be returned to then: 
owners, as soon as adequate remedial legislation could be enacted. 
The question was divided in two sections, one having to do with Goy- 
ernment ownership and Government operation, the other having to 
do with Government ownership and private operation, for there was 
a distinct division in those who favored Government ownership with 
_respect to the operation of the properties, but the conference, by a 
very large majority vote, made the declaration that I read in the 
beginning, namely, the return of the railroads to private ownership 
and operation as scon as the necessary remedial legislation can be 
enacted, but provided that it favors the continuation of the present 
governmental possession and operation of the railroads until such 
legislation can be enacted and made effective, hoping that the legis- 
lation would be enacted, is possible, within the present calendar year. 

A description of the program of railroad legislation favored by 
the National Transportation Conference may well begin with a 
statement of its proposals regarding railroad revenue and credit, 
The most fundamental problem to be solved by the legislation that 
must precede the return of the railroads to their owners is the 
adoption of measures that will give the carriers reasonable assurance 
of revenues sufficient to enable them adequately to perform the serv- 
ices required by the public. In the interest of the carriers and the 
public the authority which determines rates must adopt measures 
that will afford the carriers reasonably adequate revenues. 

The restoration of railroad credit is believed by the National 
Transportation Conference to be of primary importance. Commis: 
sioner Clarke spoke on Thursday of last week of this matter, giv- 
ing certain figures of earnings of class 1 roads, applicable to divi- 
dend distribution, as an answer to the charges that had been made i 
certain quarters that because of the action of the Interstate Com- 
merce Commission the credit of the railroads was seriously inter- 
ae with. The transportation conference has no such criticism to. 
offer. 

It is contended, however, that the earnings stated by the commis- 
sioner were not sufficient to invite the public to purchase railroad 
securities for the necessary replacements and extensions demanded 
or needed by the public, and that apart from the earning power, s0 
stated by the commissioner, there must be something of a positive 
character that will give assurance to the investing public of rates 
and fares sufficiently liberal to provide stable and adequate earn- 
ings applicable to dividends, so that in making investments in rail- 
road securities there shall be the ability to put these securities upon 
something of a parity with the industrials and other securities that 
have come forward as being much more popular in these latter years. 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 183 


_ Until such assurance has been given and is sufficiently fixed so 
hat the public mind will rest in confidence in the fact that its in- 
estments will be adequately protected, it seems inevitable that the 
unds for the extension of our railroad system to meet the public 
mand and the public necessity will not be forthcoming. 

- One method discussed by the transportation conference for provid- 
ag such assurance would be the Government guaranty of adequate 
sturn. This the transportation conference set aside as impractical 
od undesirable. It believes that it will be possible for Congress to 
dopt a policy of rate-making and control that will give the carriers 
sasonable assurance of adequate revenues without involving the 
rovernment in the obligation of guaranteeing the net return of pri- 
ate corporations and without imposing upon the public the Lurden 
f unreasonable transportation rates. 

Briefly stated, it is recommended that Congress adopt a statutory 
ale of rate- -making requiring the Interstate Commerce Commission 
) be responsible for railroad rates and fares designed to yield the 
urriers in each designated traffic section not less than 6 per cent net 
pon the aggregate fair value of the property of the railroads. The 
jatutory rule recommended by the conference provides that it shall 
‘2 the duty of the Interstate Commerce Commission to authorize or 
stablish rates and fares that will produce, not for each railroad com- 
any, but for the railroads in the aggregate in each natural traffic 
ction of the country, aggregate revenue sufficient to yield, after 
‘rovision has been made for renewals, depreciation, and unproduc- 
‘ve improvements not properly chargeable to investment account, a 
‘at return (which shall be available for interest and dividends) ‘of 
ot less than 6 per cent per annum upon the aggregate fair value of 
1e property of the railroads devoted to the public sérvice in each 
' the several traflic sections. 

\It is admitted that some of the railroads may be overcapitalized 
be others may be undercapitalized. It is a fact, however, that for 
ie test period, three years ending June 30, 1917, the actual operating 
‘venues were $895, 000,000 in round fioures, upon $17,000,000,000 of 
coperty investment account, an average of 5.2 per cent, and if you 

vide the country into sections, taking the main geographical divi- 
ons, eastern, western, and southern, you will find that the per cent 
: Operating revenue upon this same property investment account is 
21 for the eastern roads, 5.15 for the western, and 5.36 for the 
uthern roads. 

It is recommended that “ fair value” shall be ascertained by the 
iterstate Commerce Commission by giving consideration not only to 
lysical property, but also to earning power and such elements as 
ay properly receive attention. 

I wish to read for the committee the sections 9 and 10 of the actual 
/clarations of the conference which bear immediately upon this 
/vestion : 











STATUTORY RULE OF RATE MAKING, 


Sec. 9. The conference recommends that a statutory rule be enacted by 
/ngress requiring that railroad rates and fares, to be established by public 
jes ae shall be designed to yield the railroad companies in each trafhe 
‘tion of the United States (as shall be designated by Federal authority) 
| zregate revenue sufficient to produce, after proper provision has been made 
‘ renewals and depreciation, a net return (which shall be available for 








184 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


interest and dividends) of not less than 6 per cent per annum upon the aggre 
gate fair value of the property of the railroads devoted to the public service { 
each of the several sections. The items of “ renewal and depreciation” shal 
also include unproductive improvements not properly chargeable to investment 
account and against which no capital or capital obligation shall be issued. 


TEMPORARY AND PERMANENT VALUATION AS A BASIS FOR RATE MAKING. 

Src. 10. The net return to be obtained by the railroads as a result of the 
enforcement of a statutory rule of rate making shall be based upon a fair valu 
of the railroad property devoted to the public service, as ascertained by the 
Interstate Commerce Commission, such valuation to include a consideration 
of physical property, earning power, and such other elements as may be propei 
in determining fair value. 

Until such valuation shall have been determined, the valuation to be adopter 
for the railroads in the United States as a whole, and by traffic sections, shall 
for the purpose of making the rates that yield the aggregate net return to be 
provided by statute, be their aggregate railway property investment accounts 

For the purpose of ascertaining excess income, the yaluation of any indi 
vidual railroad system, pending the completion of the said Federal valuation 
upon which it shall be entitled to retain 6 per cent per annum, shall be tha 
proportion of the aggregate property investment accounts of all the railroad 
of the traffic section in which it is located, which its average annual railway 
operating income (computed for the period and in the manner prescribed by thy 
Federal control act of March 21, 1918), bears to the aggregate annual railway 
operating income of all the railroads of such traffic ;ection, computed in thy 
same manner; provided, first, that if the use of the above stated formul 
shall produce a valuation of any particular railroad system, greater than th 
amount of its average property investment account for the three-year perio( 
ending June 30, 1917, the amount of such property investment account shal 
be used instead of the valuation derived by the formula; and provided, sec 
ond, that nothing herein contained shall operate to reduce the railway operat 
ing income which any particular railroad system shall be permitted to retail 
below its annual average railway operating income, or compensation as com 
puted or allowed to it under the Federal control act of March 21, 1918. 
such valuation as shall be derived for any railroad system in the manner aboy 
stated, there shall be added all increases of property investment made by sud 
system after June 30, 1917. 

The Federal Transportation Board shall be vested with the same power ti 
make such specific adjustments, in particular cases, as it may deem requisit 
and equitable, as is conferred on the Director General of Railroads under thi 
railroad control act, March 21, 1918. 

The illustration would be that, taking two roads out of the souther1 
district, the Seaboard Air Line and the Louisville & Nashville, tly 
property investment account of the Seaboard Air Line was givel 
as $176,000,000, in round figures. Operating revenues, $6,500,000, 01 
3.68 per cent upon the property investment account, while the Louis 
ville & Nashville had a property investment account of $278,000,000 
with an operating revenue of $17,500,000, or 6.32 per cent, so tha 
here you have a road running over and a road running considerably 
under the 6 per cent. 

In the calculation of the adjustment of property investment ac 
count upon which 6 per cent shall be earned, applying the formul: 
that I have just read to you, it produces for the Seaboard Air Lin 
a property investment account of $121,000,000 instead of $176,000,000 
with an earning upon the 6 per cent basis of $7,500,000, or 4.12 pe 
cent upon the property investment account as stated for the period 
that is, the $176,000,000, but, as you will see, does not provide a ' 
per cent upon the basis of the property investment account as state 
under the test period, but upon $50,000,000 less than that amount 
while the Louisville & Nashville, by the application of the same for 


mula, would not change its property investment account, it being 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 185 


already upon a basis in excess of 6 per cent, and that would remain 
at $278,000,000. 

The earning power, however, applying the 6 per cent, would be 
raised from $17,500,000 to $19,500,000, or from 6.32 per cent to 7.5 
per cent, but in the contribution out of those revenues to these con- 

tingent funds that. I suggested in the early part of my statement, 

each road would make a contribution. The Seaboard Air Line’s con- 
tribution being exceedingly small, amounting under this formula to 
only $10,900 per annum, while the Louisville & Nashville, whose 
revenues would have been increased from $17,500,000 to $19,500,000, 
under the application of the same formula, would contribute $2,000,- 
000 annually to the contingent fund, 

I will turn now to the plan for strengthening and stabilizing rail- 
road credit. 3 


PLAN FOR STRENGTHENING AND STABILIZING RAILROAD CREDIT. 


From the rates made in carrying out the foregoing statutory rule, 
the best situated, or most ably managed, railroads will receive more 
than 6 per cent net, while the less favorably located or less efficiently 

“managed roads will obtain less than 6 per cent net per annum. By 
the plan adopted by the conference, each of the railroad companies 

that receive a net return of more than 6 per cent per annum upon the 
fair value of their property are to be required to put half of the 
excess into a company contingent fund until that fund shall amount 
to 6 per cent of the fair value of the company’s property, while the 
other half of the excess is to be turned over to a general railroad 

contingent fund administered by trustees appointed by Government 
authority and maintained and used for the benefit of all the railroads 
of the country. 

When any railroad company has brought its own contingent 
fund up to 6 per cent of the fair value of its property the company 
shall increase its annual contribution to the general railroad con- 
tingent fund to two-thirds of its net income in excess of 6 per cent, 
the other third of the excess being retained by the company for dis- 
tribution among the stockholders or for other lawful purposes. 
This plan would keep the profits of individual railroad companies 
within reasonable limits without taking away from the management 
of the companies the incentive to effort and efficiency. 

The purpose of the general railroad contingent fund is to assure 
‘to the railroads in the aggregate, by traffic sections, a return of 6 
per cent per annum upon the fair value of their property. The 
fund is to be the means of strengthening and stabilizing railroad 
| credit, and to do this (a) without making the Government respon- 

sible for a fixed return to individual railroad companies, (0) with- 
out imposing unreasonable rates upon the public, and (c) without 
permitting the railroads that have been unfortunately located or 
have been overcapitalized or otherwise mismanaged to shift their 
burdens from their own shoulders onto the Government or the pub- 
' lic or the other railroads. The general railroad contingent fund, 
accumulated in the manner indicated, is to be drawn upon by all 
railroads of a designated traffic section when in any year the net 
return upon the aggregate fair value of the property of all the rail- 
roads in that section falls below 6 per cent, due to the fact that the 





186 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


rates authorized or established by the Interstate Commerce Com- 
mission, in consequence of fluctuations in volume of business or of 
an unexpected increase in expenses, have not yielded the carriers the 
minimum net return of 6 per cent provided by the statutory rule 
of rate making. 

The company contingent fund is of course the property of the 
railroad company; provision should be made for its proper invest- 
ment, as Mr. Warburg will refer to in his paper, but it is available 
for the use of the road in the event its earnings fall below the re- 
quired 6 per cent of fair value, and may be used by the company to 
stabilize its own credit conditions. And the general contingent 
fund, called upon as I have outlined, applicable for division not to 
a single railroad but to the railroads of a traffic section, so that a 
call upon the general contingent fund would be divisible among all 
the railroads of any traffic section that fell under 6 per cent, in pro- 
portion to their gross operating revenues for that particular year, 
and a weak road would receive its proportion, and a strong road 
would receive its proportion, the difference being that if the strong 
road had completed its company contingent fund and the general 
contingent fund of $750,000,000 was also complete, there would be 
returned to the general contingent two-thirds of whatever came out 
of such distribution within the traffic section until the general con- 
tingent fund was restored with provision that thereafter the two- 
thirds would be subject to such uses as Congress may elect. 

As has been explained, the proposed general railroad contingent 
fund is to be created and maintained by contributions required from 
such companies as have net returns (after they have provided for 
renewals, depreciation, and unproductive improvements and are 
keeping up their several individual contingent funds) in excess of 6 
per cent per annum upon the fair value of their property devoted to 
the public service—two-thirds of the excess being contributed. The 
fund is to be drawn upon only when, and to the extent that, the rates 
and fares, which are controlled by the Interstate Commerce Commis- 
sion, do not yield the railroads the contemplated annual net return 
of 6 per cent upon the aggregate fair value of their property, the car- 
riers being grouped into such natural traffic sections as may be desig- 
nated by the commission. 

Last week Commissioner Clarke asserted that it would be impos- 
sible for the Interstate Commerce Commission to make effective a 
rule of rate making that would be designed to yield a definite per 
cent return, and you will note that the transportation conference has 
protected this particular point, not by asking the impossible of the 
Interstate Commerce Commission, but by creating these two shock 
absorbers which may be called into play when because of a depressed 
condition of business or an unusual increase of expense there should 
be a failure on the part of the rate schedule to produce the 6 per 
cent upon aggregate fair value. 

When the railroad contingent fund is drawn upon for the purpose 
of bringing the aggregate net revenues of the railroads in any traf- 
fic section up to 6 per cent upon the fair value of their property, 
all of the railroads in the traffic section shall share in the distribu- 
tion pro rata to their gross earnings. By this plan the weak roads 
that will presumably have contributed nothing to the general fund 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 187 


gill receive their share; but they will not be the sole beneficiaries 
\f the distribution. It is not the purpose of the general contingent 
‘und to give to the properties of the weak roads values which they 
o not possess; its purpose is to assure to the railroads as a whole, 
rear by year, a net return of not less than 6 per cent upon a fair 
‘alue of their property ; and thus to establish the first condition prec- 
‘dent to stabilizing railroad credit as a whole, and to securing for 
the public adequate railroad transportation at reasonable capital 
‘ost. It is not proposed to provide the weak roads with a net return 
(pon an amount in excess of a fair value of their property. 

It is proposed that the general railroad contingent fund, by means 
of which railroad credit as a whole is to be strengthened and stabi- 
ized, shall be built up gradually during a period of years until the 
und amounts to $750,000,000, and that it shall be maintained at 
hat figure. If the fund should eventually amount to more than 
750,000,000, the surplus may be covered into the Treasury of the 
Jnited States or be used to provide the public with additional trans- 
ortation facilities, or be employed to lessen the cost to the public of 
ransportation by reducing the capital and investment accounts of 
he railroads. 

|The grouping or consolidation of the railroads in the United 
‘Mates within a reasonable time into a limited number, possibly 
0 to 30, strong competing systems is essential, because railroad 
‘ates must be the same for similar services, whether performed by 
‘he weak, necessitous railroad or by the strong and prosperous one. 
| t is in the interest of the public that railroad charges shall be 
\ 





either so high as to cause the strong roads to profit unduly nor so 
yw as to force the weak lines, upon which large sections of the coun- 
ry may be vitally dependent, into bankruptcy or into such a per- 
aanently enfeebled condition as to prevent them from serving the 
ublic adequately and efficiently. All sections of the country ought 
a the future to be served by railroad systems managed by com- 
anies strong enough to serve the public with progressive efliciency 
.nd economy. 

| It will be necessary for the Government to return the railroads 
|) the companies from which they were taken, but the obstacles to 
jhe grouping or consolidation of railroads, under conditions ap- 
lroved by the Government, should be removed, and_ provisions 
|hould be made for bringing all of the railroads in the country 
; = a reasonable time into such a number of strong competing 
ystems as it may be found desirable or necessary to perpetuate in 
rder to secure for each principal district of the country the service 
)£ more than one system. The grouping or consolidation should be 
| bout the present strong systems, that is, along commercial lines, 
jod not by arbitrary territorial subdivisions of the country. 

_ While presumably it will not be practicable for the Government 
|) require the immediate grouping or consolidation of the railroads 
jito a limited number of strong competing systems, voluntary con- 
Dlidations should be permitted and facilitated. The railroad com- 
‘anies should be called upon to submit, for approval of the Govern- 
ient, plans for the grouping or consolidation of the roads, and if 
jae companies do not submit such plans within a reasonable time the 
overnment, acting through its appropriate authority, should deter- 










188 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


mine and announce what permanent groupings or consolidations are 
deemed to be in the public interest. Should the consolidations thus 
declared to be in the public interest not have been effected, or should 
they not be well advanced, at. the end of a reasonable period, say 
five years, power should be given the appropriate public authority 
to carry through the desirable mergers by compulsory proceedings, 
if in the judgment of Congress such power can be granted, and the 
public interests will be thereby advanced. 

The transportation conference recognizes certain constitutional 
rights and perhaps certain constitutional difficulties, but it is believed 
that with the powers exercised as outlined by the general report of the 
transportation conference there may be found many ways or means 
other than by arbitrary, compulsory action of inducing the companies 
to so far merge and combine lines in keeping with the public in- 
terest as to make an arbitrary, compulsory condition unnecessary. 

I will omit any reference to the federalizing of railroad corpora- 
tions, which Mr. Smith addressed himself to this morning, and with 
which you are quite familiar. 7 


LABOR REPRESENTATIVES AND GOVERNMENT DIRECTORS ON RAILROAD 
BOARDS. 


It is recognized by everybody that the railroad business is of a 
public nature. Railroad corporations differ from those having to 
do with the management of private enterprises. ‘The public is 
entitled to information regarding the corporate activities of railroad 
companies, and provision may properly be made for participation by 
representatives of the Government in the deliberations and actions 
of the directors of railroad companies. Although it may not have 
been necessary in the past that the public, through the Govern- 
ment, should be represented upon the directorates of the multitude 
of railroad corporations, it seems clearly in the public interest that 
the public shall have a voice in the management of the large and 
powerful railroad corporations that may be allowed to own and 
operate the limited number of consolidated systems which it is 
proposed shall be perpetuated. It is recommended that Congress 
require these large corporations of the future to organize with a 
board of 12 directors, 8 of whom shall be selected by appropriate 
Federal authority to represent the principal interests in the several 
territories served by the different systems. 

The public has an especial interest in the maintenance of har- 
monious relations between the railroads and their employees. There 
should be mutual understanding and confidence on the part of the 
employer and the employed. It is believed that this relationship 
will be greatly promoted by requiring each of the railroad corpora: 
tions that are to own and operate the large systems contemplated im 
this plan to include in its directorate one member who shall be 4 
representative of the employees of the system managed by the 
board and shall be nominated for that position by the employees. 


BOARDS OF ADJUSTMENT OF WAGES AND HOURS OF SERVICE, 


nd other conditions of service of railroad employees by boards con- 
sisting of equal numbers of representatives of employees and officers 


\ 


\ 
es 


nd ot conference favors the adjustment of wages, hours of labo’, 
a 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 189 
of the railroads, with appeal, in case of the disagreement (or dead- 
as refereee. 

May I state parenthetically here that this is a point at which I) 


‘am particularly anxious that the committee should not regard these | 


or being authorized by or conceded by the Chamber of Commerce of | 
the United States, because this is the conclusion of the transporta- | 





opinion of the membership of the chamber of commerce that, in a | 


; 
} 


referendum submitted some time ago, insisted that there should be 
a definite recognition of the public interest in any event, where 


jock), of an adjustment board, to an appropriate Federal authority 


‘recommendations of the transportation conference as coming from | 


tion conference after many hours of discussion of the relationship | 


between the roads and their employees, and the means of adjusting | 
wages and other regulations, and is quite contrary to the expressed | 


i 
| 
| 


boards were created or formed for the adjustment or the fixing of / 


wages and hours and working conditions. 

This recognition, concerning which Mr. Doke, of the Brotherhood 
of Railway Trainmen, will speak at a later time, is the conclusion 
of the conference made up of its many interests, and is quite con- 
trary to the conclusion that was reached solely by the business in- 
‘terests of the country when this matter was put up to them some 
time ago in referendum. 


FEDERAL REGULATION OF CAPITAL EXPENDITURES AND SECURITY ISSUES 
OF RAILROAD COMPANTES. 





body seems to have reached the conclusion that in the future the 
capital expenditures and the security issues of railroad companies 
should be regulated by Federal authority. The States should be, 
and apparently are, quite willing to retire from this field of regula- 
tion, provided the regulating authorities of the States are officially 
notified of proposed security issues and afforded an opportunity to be 
heard thereon. 

It is recommended by the transportation conference that in pro- 
jyiding for exclusive regulation by the Federal Government of the 
\capital expenditures and the security issues of railroads, Congress 
{adopt the following method: Such Federal agency as Congress may 
designate, shall be authorized to pass upon the public necessity for 
| Pependitures of capital (in excess of a stipulated amount) by car- 
(riers engaged in interstate commerce and to determine the amount 
‘and to regulate the conditions of the issuance of securities to ob- 
\tain the funds required to cover authorized capital expenditures; 
}a railroad company applying to the Federal agency for authority 
\to make capital expenditures, or to issue securities, shall be re- 
quired to file with the proper authorities of the States in which 
\the railroad is located copies of the original petition; and the Fed- 
j2ral agency shall be required to notify said State authorities of the 
hearings upon the petition. 


| Upon one subject that must be included in remedial railroad legis- 
3 there is apparently little or no difference of opinion. Every- 
| 







—— 


REGULATIONS OF RATES BY THE INTERSTATE COMMERCE COMMISSION. 


| The Interstate Commerce Commission has performed a task of 
(great magnitude. Its work or regulating rates and of developing 


| 


190 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. — 


and supervising the bureaus connected with rate regulations and 
railroad valuation has increased steadily until the commission has 
come to carry a heavy load. It would be unwise to add unnecessar- 
ily to its present duties, especially in view of the fact that its re- 
sponsibilities must unavoidably be increased, should Congress by 
legislative enactment confer upon the commission such power over 
intrastate rates, rules, and regulations affecting interstate com- 
merce as may constitutionally be granted. It will doubtless be 
possible, and probably in the public interest, for the Interstate Com- 
merce Commission to enlist the cooperation of existing State com- 
missions in the regulation of intrastate rates affecting interstate 
commerce. The conference recommends that the commission be 
given power to organize in the manner that it may deem best and 
be given authority to function through such local officials or agen- 
cies (including State commissions) as it may deem necessary to 
create or designate. 


A FEDERAL TRANSPORTATION BOARD AND ITS POWERS. 


To carry out the plan of legislation recommended by the trans- 
portation conference extensive administrative powers must be vested 
in some Federal agency. It is believed that the Interstate Commerce 
Commission ought not to be burdened by the addition to the tasks it 
now performs of a large number of administrative duties. Should 
the commission, as is contemplated, become the authority for the 
sole regulation of all railroad rates, rules, and regulations affecting 
interstate commerce, its duties will necessarily be enlarged. To re- 
quire the commission to exercise the administrative functions con- 
templated in the proposed plan of remedial railroad legislation 
would be to the detriment of the public interest because it would 
seriously interfere with the prompt action of the commission as a 
body for the regulation of rates, the task for which it was especially 
created and for the performance of which it is peculiarly adapted. 

It is recommended that a Federal transportation board of five 
members be established to exercise the administrative functions re- 
quired for the enforcement of the proposed remedial railroad legis- 
eee) The following specific duties should be intrusted to the 

oard: 

(a) To pass upon the public necessity for capital expenditures 
and to regulate the security issues of railroads. . 

(6) To act as the referee in cases of disagreement (deadlock) of 
a board intrusted with the adjustment of wages, hours of employ- 
ment and other conditions of the service of railroad employees. 

(c) To administer the general railroad contingent fund and to 
enforce the means and measures that may be provided for strength- 
ening and stabilizing railroad credit. | 

(d) To determine and announce the grouping or consolidation of 
railroads deemed to be in the public interest, and to carry out plans 
authorized by Congress for merging all railroads engaged in inter- 
state commerce into strong, competing systems severally owned and 
operated by companies subject as corporation to the jurisdiction of 
the United States. ‘a 

(e) To promote the development of a national system of rail, 
water, and highway transportation, by providing for the articula- 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 191 


tion of the railroads with the waterways in a traffic sense, by bring- 
ing about the common use and construction of terminal and transfer 
facilities at the larger centers of traffic, and by such other means as 
may be found to be practicable and in the public interest. 
_ (f) To inquire into the practices of railroad management and 
_to propose measures for preventing abuses therein. 
. (g) To appoint the directors that shall represent the Government 
upon the directorates of the proposed consolidated railroad com- 
anies. 
: The board which performs the duties enumerated in the foregoing 
list will be intrusted with an executive task of the first magnitude. 
Tt should be a board composed of men of the highest character and 
attainments. It will equal, if not exceed, in importance, the Federal 
Reserve Board, whose creation was more fortunate and whose serv- 
‘ices have been of great value to the public. The Federal transpor- 
tation board should be primarily administrative in purpose and or- 
‘ganization. It will have the large and exacting task of guiding and 
facilitating the development of an adequate and efficient national 
‘system of transportation. 





i RAILROAD RESERVE FUND FOR USE DURING THE PERIOD OF TRANSITION 
| FROM GOVERNMENT TO CORPORATE MANAGEMENT. 


A severe strain will be placed upon railroad credit and upon the 
financial stability of the railroads during the period of transition 
of the railroads from Government to corporate operation unless 
special precautionary measures are adopted. At the present time 
‘the railroads are being operated with a large and increasing deficit 
| id it is doubtful whether the deficit can be overcome during the 





remainder of this calendar year. In all probability many of the 
railroads now being operated by the Government will be showing a 
|Jeficit at the time they are returned to their owners. 

| The several railroad companies will resume the operation of their 
properties under abnormal conditions. Most rolling stock is being 
sed by the railroads as a whole without much regard to individual 
\Ywnership; to some extent terminals are being jointly occupied and 
/ised; traffic has been largely rerouted and the traffic organizations 
\:f the carriers have been to a considerable extent disintegrated. It 
‘will take the corporations some little time to readjust themselves to 
he new conditions and it is evident that the Government will need to 
\ssist the carriers financially until they can get going. 

| It has been suggested by the Hon. Charles A. Prouty, director of 
|\ecounting in the United States Railroad Administration, and for- 
jnerly for many years a member of the Interstate Commerce Com- 
/nission, that “the Government should guarantee for one year (after 
‘urning the railroads over to their owners) a return equal to 75 per 
{ent of the contract compensation in all cases where contracts have 
yeen executed; and the carriers should be required to pay over to 
he Government in all such cases 75 per cent of any excess which it 
}aay make over and above the contract compensation.” If this sug- 
‘ested were adopted, the United States Government would guaran- 
8e to pay the railroad companies during the first year of private 
‘perations 75 per cent or over $900,000,000, and would have little 











192 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


assurance that the sums which might be advanced would ever be re- 
turned to the Government. 

Recognizing that it will probably be necessary for the Govern- 
ment to assist the carriers temporarily during the first few years of 
corporate operation while the railroad companies are building up 
their individual contingent funds and while a start is being made in 
establishing the general railroad contingent fund, the transportation 
conference recommends that Congress make an appropriation loan- 
ing $500,000,000 for the creation of a railroad reserve fund to be 
administered by the Federal Transportation Board. It is recom- 
mended that the board be required to invest the sum thus loaned in 
United States bonds or notes, the interest on the securities to be paid 
annually into the United States Treasury. The fund, which is to 
be established for the purpose of bringing about the prompt stabili- 
zation of railroad credit and of facilitating such consolidation of 
railroads as the board shall decide to be in the public interest, may 
be used as follows: 

The reserve fund created by congressional loan may at any time 
during the first 10 years after the enactment of the proposed legisla- 
tion be drawn upon to whatever extent may be necessary to enable 
the trustees of the general railroad contingent fund to pay over to the 
railroads the sums which they may be entitled to draw in accordance 
with the provisions controlling the distribution of money from the 
general contingent fund. The plan recommended by the transporta- 
tion conference provides, however, that any sum advanced by the 
Federal Transportation Board to the trustees of the general railroad 
contingent fund shall be repaid to the board with interest as soon as 
the general railroad contingent fund shall reach, and be maintained 
at, the amount of $500,000,000. In other words, after the general 
railroad contingent fund shall, from the contributions received from 
the railroads, have reached $500,000,000 the first claim upon the fund 
will be repayment to the Government of the amount loaned at the 
time of the transition of the roads from Government to corporate 
operation. 


MAINTENANCE OF GENERAL RAILROAD CONTINGENT FUND. 


Section 13: In any year, following the completion of the mergers 
hereinafter provided for, when the yield from rates established by 
Federal authority equals 6 per cent upon the aggregate fair value of 
the property of the railroads in any traffic section, and the total con- 
tribution made in any such year to the general railroad contingent 
fund amounts to less than 5 per cent of the aggregate net earnings 
from operation, in that traffic section, then the railroads in that se¢- 
tion shall contribute to the general contingent fund the sum neces: 
sary to bring the contribution for the year up to 5 per cent of the 
aggregate net earnings from operation, each company being fe: 
quired to contribute for this purpose pro rata to its net earnings 
from operation for that year. 

And the purpose of that section is that after the mergers and 
consolidations have been made, and the rate structure is established, 
and depreciation and renewals, and these other matters that must 
be taken into account may easily fail to cover outside net earnings 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 193 


ito a general contingent fund, an amount that will be sufficient to 
‘aintain that fund for the purpose for which it was originally 
reated, hence this provision as a safeguard for that period, but it 
stitutes a safeguard for a period after mer gers and consolida- 
‘ons, and not during the supposedly five-year period in which those 
ergers would be pr roceeding. 

. Finally it is recommended by the transportation conference that 
ie Federal Transportation Board or the War Finance Corporation 
the act creating that corporation having been. appropriately 
nended) be authorized to advance public funds (under terms that 
ill insure the Government against loss) to certain individual roads 
hose credit and financial operations it may be necessary in the 
iblic interest temporarily to protect during the transition to nor- 
al stable conditions. 

‘That finishes the statement, Mr. Chairman, and if I may repeat 
‘ie statement that I made at the opening, inasmuch as Messrs, War- 
‘ig, Salmon, Johnson, and Doke are to take up the questions in- 
lved in the restoration of railroad credit in the statutory rule for 
‘te making, and the statistics and figures upon which it is based 
‘the Federal Transportation Board, and its functions, and the 
ved for it, and upon the matter of adjustment of wages and work- 
g conditions, if the committee sees fit to omit interrogations from 
uur present orator upon those matters and will consent to inter- 
gate the men who will present specific papers upon those papers, 
id elaborate them very much more than I have done, we shall 
ve no crossing of the record and no duplication of questions and 
nsequent consumption of the time of the committee unnecessarily. 
‘The CHatrmMan. As you have given a broad survey of the pro- 
ised plan, I wish to ask you some questions as broad as the scope 
your own testimony. 

On the 9th of June the Chamber of Commerce of the United 
‘ates issued referendum No. 28, consisting of 10 questions, that 
xe submitted to the organization members of the chamber. I am 
ing over each one of these very rapidly. 
First. “The committee recommends adherence to the policy of 
‘rporate ownership and operation, with comprehensive regula- 
m.” Does the bill 4378, which I had the honor to introduce, carry 
't that principle? 

Mr. Wueeter. I can not answer that question. 

The CuarrMan, Is there anything in it adverse to the doctrine of 
‘rtporate ownership ? Aa a 
(Mr. Wueeter. I do not think so. 

)The Cuatrman. Or of operation? 

Mr. Wueeter. I think not, sir. 

|The CuarrMan. And is it ‘rather comprehensive so far as regula- 
/n goes? 

Mr, Wuereter. I a think so. 

\The Cuarrman. Rather more than the existing legislation? 

\Mr. Wuerter. I would think so, sir. 

}Phe Cuarrman. In fact, some complaint has been made against 
}aecause it is so comprehensive. 

(Interrogatory 2: “The committee recommends return of roads 
/ corporate operation as soon as remedial legislation can be 
icted.” 


152894—19—-vor 1——_18 










: 
194 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Under the Federal-control act we have 21 months after the pro- 
mulgation of declaration of peace. Our view in starting these 
hearings at this time is with the hope that we may frame a bill for 
action by Congress before the expiration of the current year, and 
I rather think that same spirit animates the Senate. That being 
true, Congress can not perhaps be criticized for not speedily seek- 
ing to enact legislation of a remedial character, so interrogatory 2 
would really be complied with by the pending bill, would it not?» 

Mr. Wueeter. I think so. 

The Cuarrman. Interrogatory 3: “The committee recommends 
adherence to the period of Federal control as now fixed unless and 
until impossibility of remedial legislation in this period clearly 
appears.” 

We are trying to comply with the spirit of that, are we not? 

Mr. Wuee er. I think you are, Mr. Grn | 

Mr. Srms. In that connection, does that mean we continue this 
control together with the present guarantee? We are losing money 
every month. 

The Cuairman. No; of course Federal control shall continue 
until remedial legislation has been enacted, and of course unless 
there is an impossibility of securing such remedial legislation. 

Mr. Sts. I do not know whether it is an impossibility or not 
until the whole 21 months have passed. 

The Cuarrman. I will read it again: 

The committee recommends adherence to the period of Federal control as 
now fixed, unless and until impossibility of remedial legislation in this period 
clearly appears. . 

I rather think there will not be that impossibility in view of the 
fact that both Houses are seeking to enact legislation at this early 
date, and the proclamation of peace has not yet been forthcoming 

Mr. Sims. Mr. Chairman, in the meaning of that article, what is 
the remedial legislation that is intended to be referred to there? 

The Cuarrman. I suppose possibly the recommendations they sug: 
gest. 

Mr. Sims. This is not their recommendation, as I understand; only 
the conference’s recommendation. 

The Carman. We are coming to that. 

Mr. Wueeter. May I make this observation, Mr. Chairman, that 
I think the phrasing of the question that you have just read had more 
in mind distinguishing between the 21 months’ period and the sug 
gested extension of time. | 

The Cuarrman. The five-year extension ? | 

Mr. Wueerter. The five-year extension, and inasmuch as the ment 
bers of the chamber have become familiar with the period of presen 
control and its termination, and the suggestion for the longer 
period by extension, I think the question has been framed more & 
bring out the answer as to whether they are in favor of adhering t 
the present status rather than creating a new one. . 

The Cuamman. Fourth. “The committee recommends permissior 
for consolidation in the public interest, with prior approval by Gov 
ernment authority, in a limited number of strong competing systems.’ 

The pending bill, 4378, seeks to grant permission for consolidatior 
in the public interest, does it not? : 

Mr. Wueeter. I think you are quite in line. 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 195 


|The Cyarrman. However, it does not specifically indorse the 
woposition of consolidation of a limited number of strong com- 
yeting systems. There is a difference between the two. 

| Mr. Wueeter. I think that is the only difference, Mr. Chairman. 
The Cuartrman. You are convinced that it would be to the public 
nterest to lessen ‘the number of railroads or railroad systems because 
if the ease with which the fewer number could be regulated by Goy- 
rmment, and because of the less differences between the fewer 
tumber ? 

Mr. Wuerter. Well, if by the latter part of your statement you 
ave reference to the difficulty of leveling rates as between very poor 
nd very rich, I should say that would be the answer. That, I think, 
3 one of the principal reasons for commending the consolidation 
long natural lines. 

The Cuarrman. What do you mean by natural lines? 

“Mr. Wuerter. I should express it as lines of natural selection, 
vain roads, that have always had large feedings from lesser roads, 
nd the development of systems by the merger of these roads that 
‘ould naturally group as being productive of a higher efficiency in 
ransportation and ease of operation and of stabilizing earning power 
y having those controls go largely within the lines of natural selec- 
on rather than an arbitrary demand that roads A, B, and C shall 

e put together. 

The Cuarrman. As I understand, your conference is opposed to 
ay regional disttibution of roads? 

‘Mr. Wureter. The conference has so expressed itself, Mr. Chair- 
ian. 

‘The Cuarrman. Do you think it would be feasible to establish 
ich a system as you contemplate in view of the interlocking and 
iterlacing of the systems as they now exist? 

Mr. Wueeter. I think it would be quite feasible. 

The Cuarrman. And to maintain a proper degree of competition 
| Service. 

Mr. Wuerter. I think so, sir. 

The Cuatrman. There would be no competition within the system ? 
Mr. Wueeter. Our provision, you remember, states that in the 
erging or grouping of the roads'so far as may be possible all prin- 
pal traffic centers of the country shall be served by competing sys- 
ms. I would not be competent to lay out the railroad net or to 
adjust it or merge it, but it is the belief of our conference, if I 
ay speak for them in this hearing, that such a consolidation pro- 
b sg for competitive systems at principal traffic points can be 
eated. 

The Cuarrman. So interrogatory No. 4 differs from the pending 
ll in that it does advocate a limited number of strong competing 
stems. 

TInterrogatory 5: “The committee recommends a requirement that 
Uroad companies engaging in interstate commerce become Federal 
; aati with rights of taxation and police regulation reserved 
v States.” 

‘T think it is conceded that that is not embraced within the scope 
| the pending bill. You are of the opinion that Federal incorpora- 
Mis necessary to carry out your plan and to carry out the highest 












196 RETURN OF THE RAILROADS TO F nIVATE OWNERSHIP. ; 


efficiency in railroad operation of the United States, is that the 
thought ? . 

Mr. Wuerter. That was the conclusion of the conference, Mr. 
Chairman, after very deliberate consideration of that question. 

The CuarrmMan. Did you not consider Federal incorporation nec- 
essary in order to control interstate traffic? | 

My. Wurerer. Answering for myself alone, I should say that if 
Congress saw fit to exercise the fullest powers that are given to it for 
the control of the rate, that would be true, but I take it that Congress 
has not, up to the present time, ‘seen fit ito exercise the limit of its 
power in that direction, and it has resulted, as Mr. Smith indicated 
this morning, in interminable lawsuits and in litigation that has been 
rather distressing. 

The Cramman. You reserve to the States the right of taxation 
and police regulation? . 

Mr. Srats. Is it limited; as Mr. Smith this morning contended ? 
You have a statement before you as to'the right of the States to tax, 
The Cuarrman. No; you heard Judge Smith’s testimony this morn- 
ing? ) 

Mr. Sits. Yes; he'limited it, not to exceed the tax on other prop- 
erty in the same State. 

The CuarMan. Of. course, there is.a contention now that railroad 
property in some States is not taxed on the same basis that other 
property is taxed. In fact, there is much complaint that it is taxed 
excessively. Would your plan, Mr. Wheeler, solve that problem ? 

Mr. Wueeter. You are speaking of the conference plan? 

The CuarrMan. Yes. | 

Mr. Wueerier. Well, I'can only reiterate what Mr. Smith presented 
to the committee this morning as the belief that it would be a step m 
the direction of the solution of those questions. We do not any of 
us know that any provision would be a final controlling factor and 
ideal in its operation, but we believe it would tend to lessen. those 
difficulties. F 

The Crarrman. You know how jealous the States are of their 
taxing power. | 

Mr. Wuereter. That is a reason we have made the provision that it 
should be left with them. | | 

The Cuamman. I suppose that in carrying out your plan: you 
contemplated that through Federal incorporation you would have 
less corporations than we now have companies, that, of course, being 
coupled with interrogatory No. 4, which I have just read ? re 

Mr. Wueerter. That is so stated in the conference report, Mr: 
Chairman. +a 

The Carman. Interrogatory 6: “The committee recommends 
exclusive Federal regulation of capital expenditures and security 
issues of railroads engaged in interstate commerce, with provision 
for notice and hearing for State authorities.” “itil 

Is there any objection to the provisions in the pending bill giving 
the commission power of stock and bond issues? 

Mr. Wueeter. I could only recite the objections that Mr. Smith 
made this morning, Mr. Chairman, as perhaps representing a reason 
why the bill that you are referring to may not quite cover the point 
we have in mind, or quite so easily be enforced and carried out as 










RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 197 


-the plan we have in mind. Beyond that, I would not be competent 
to offer a criticism of either measure. 

_ The Cuarrman. I do not care to ask you a constitutional ques- 
‘tion with reference to it; I can only say this, that this committee 
‘first in 1914 and again in 1916 passed bills through the House, 
giving the commission these powers, and on both of those occasions 
‘there was little question, either in committee or on the floor of the 
House, of the constitutional right of Congress to grant such powers 
to the Interstate Commerce Commission. So that, as far as this 
committee is concerned, we were never worried about our constitu- 
tional right to legislate these powers to the commission. ‘That being 
so, the pending bill pretty well takes care of interrogatory 6. 

Wr. Wueeter. Let us draw the line again, Mr. Chairman, if 
you please, between the referendum from which you are reading, 
which is the document of one body, and the report of the trans- 
portation conference, which is the offering of another. In answer- 
ing your question, I would say regarding the referendum that you 
have in your hand, that I think the principal interest of the Cham- 
‘ber of Commerce was that there shall be such a supervision in the 
public interest, and whether it is done under the provisions of the 
‘bill that you have under hearing, or under some other means, such 
as the transportation conference may propose, what the Chamber 
‘of Commerce wants is the thing done, and I am satisfied they would 
\not be opposed to the provisions of your bill if it could be carried 
| out in that way. 
| The Cuatrman. I understand that. That is not the reason I am 
seeking the information. I may have made the violent assumption 
(im believing that this referendum, from which I am reading, met 
}with the approval of the conference committee, in view of the fact 
‘that the personnel is somewhat identical. 

Mr. Wueerrre. The only identical personnel hes with certain 
‘members of the railroad committee of the Ghamber of Commerce 
who have participated in the conference, but, of course, the confer- 
amee is all inclusive of many interests that are entirely outside of 
ihe chamber, and not included in its membership. ; 
“The CHairmMan. But if these 10 interrogatories are affirmatively 
‘mmswered, the conference committee would feel that the member- 
ship of the United States Chamber of Commerce backed your plan. 
) Mr. Wueeter. I think quite so, Mr. Chairman. 

The Cuarrman. That is a safe and correct deduction? 
Mr. Wueeter. I think you have a perfect right to that assump- 
lon. | | 

The CrHarrman. Interrogatory 7: “The committee recommends 
| Tederal regulation of intrastate rates affecting interstate com- 
merce. 
The pending bill makes all rates that are discriminatory or preju- 
\lieial, or that impose an undue burden upon interstate traffic un- 
}awful, and gives the commission power to adjust these conflicting or 
rejudicial intrastate rates, through the Interstate Commerce Com- 
|nission, sitting with the State commissions. Do you not think that 
»rocedure might carry out in effect, at least, interrogatory No. 7? 
_ Mr. Wueeter. I would think if the question, or the statement that 
ou have just made, would be presented to the members of the Cham- 
ver of Commerce of the United States, as an answer to interrogatory 








198 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


No. ‘, that they would say, “that quite satisfies us in its inclusive- 
ness, 

The Crarrman. Interrogatory 8: “The committee recommends a 
statutory rule providing that rates in each traffic section shall yield 
an adequate return on a fair value of the property as determined by 
public authority.” 

That is where the bill and the conference plan are together. Now, 
do you believe in a strict guarantee by the Government ? | 

Mr. Wueeter. No; I do not. 

The Crarrman. A return on capitalization, or a fair value, or any- 
thing of that kind? 

Mr. Wnerter. I do not believe in Government guarantee at all. 

The Cuarrman. The pending bill has nothing in the nature of a 
guarantee. It does, however, seek to establish the rule of rate mak- 
ing, which may not be as embracing as some people desire. What is 
your statutory rule for rate making? 

Mr. Wueeer. Will you want me to go over it again? 

The CuHarrmMan. Yes. 

Mr. Wueeter. It is rather a long rule in its principles. 

The CrarrMan. Just repeat the elements of it. | 

Mr. Wueerer. The conference recommends that a statutory rule 
be enacted by Congress requiring that railroad rates and fares, to be 
established by public authority, shall be designed to yield the rail- 
road companies in each traffic section of the United States (as shall 
be designated by Federal authority) aggregate revenue sufficient to 
produce, after proper provision has been made for renewals and de- 
preciation, a net return (which shall be available for interest and 
dividends) of not less than 6 per cent per annum upon the aggregate 
fair value of the property of the railroads devoted to the public sery- 
ice in each of the several sections. The items of “renewal and de- 
preciation ” shall also include unproductive improvements and prop- 
erly chargeable to investment account and against which no capital 
or capital obligations shall be issued. 

The CuHatrman. Now, if that is the rule of rate making, do you 
think that your provision for a division of the excess and the placing” 
of it in the company contingent fund and a part in the Federal con- 
tingent fund leaves a sufficient incentive for the carriers? 

Mr. Wueeter. The conference thinks it does, Mr. Chairman. 

The CuairMANn. That is a very moving question. You have no 
doubt as to the result of the operation of the proposed rule for rate 
making, and the maintaining the initiative and the high incentive 
which heretofore has developed American railroads as the most 
efficient in the world? 

Mr. Wueeter. I, personally, have no doubt that if the plan pro- 
posed by the transportation conference could be made effective that 
it would give all of that incentive and would produce the result we 
seek for, and I think if you pursue that matter, as you will undoubt- 
edly do with Mr. Salmon when he lays the tables before you indicat- 
ing that, you will get the reason for my belief, which is the belief 
only of a layman who has had the opportunity to sit in these con- 
ferences and listen to the arguments and also have access to the im 
formation that has been presented. It comes as the opinion from 
no expert source, of course. 4 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 199 


|The CuHatrman. With your wide business experience, value is 
fiven to whatever you say with reference to this. We are glad to 
tet your judgment. 
| Mr. Wuerter. It is my best judgment that it would accomplish 
he purpose and provide the incentive. 
_ The Cuarrman. Interrogatory 11: “The committee recommends 
yayment into a fund of a share of the excess earned by any railroad 
ystem under application of the above statutory rule, over an equi- 
able minimum return upon fair value of property, this fund to be 
sed as Congress directs, for strengthening general railroad credit 
nd increasing general railroad efficiency.” 

There is nothing of that specific character in the pending bill, nor 
3 there as to interrogatory 10, where the committee recommends a 
ederal transportation board to promote development of a national 
E of rail, water, and highway transportation, and articulation 
| 





f all transportation facilities. ‘This pending bill, as you perhaps 
‘otice, seeks to articulate water and rail transportation with exist- 
ig lines. Are you in accord with the pending bill in so far as it 
3eks to accomplish that? 

Mr. Wueeter. In so far as it goes, I think, Mr. Chairman. 
' The Cuatrman. I do not wish to monopolize more time on ques- 
tons. Does Judge Sims wish to inquire of Mr. Wheeler ? 

Mr. Sims. Mr. Wheeler, you are not an expert—at least you 
10destly claim not to be one—so I do not think I will harm you by 
sking a few straight questions, and I expect straight answers. Is 
ot the object and the purpose of requiring Federal incorporation 
D escape, as far as possible by such means, the control and the pow- 
ts of the States through legislatures or their regulating commis- 
ions ? 

Mr. Wueeter. That is one of the reasons. | 
Mr. Sims. Is not that the real reason—the real object to be at 
vined ? 

Mr. Wueeter. I think it is a prime reason, Mr. Sims. 

Mr. Sirus. “ Prime” means “ first,” does it not? 
| Mr. Wueeter. I will not put it in that sense. 
| Mr. Stus. Now, as a layman, suppose that Congress will not au- 
10rize compulsory Federal incorporation; then has the key of your 
rch fallen ? | 

Mr. Wueeter. Oh, I think we would worry along, as we always 
ave, with some other scheme. ~ 
) Mr. Sims. No; I mean under this particutar plan. Suppose you 
hun not get compulsory Federal incorporation; then what is the rest 
|E your proposition worth? Do you insist on it without that? 

Mr. Wueeter. I think it would be exceedingly difficult to build a 
yutable piece of legislation embracing the other recommendations 
/E the conference without Federal incorporation. 
} Mr. Stas. And compulsory Federal incorporation ? 
) Mr. Wueeter. Well, we approve of compulsory Federal incor- 
joration, for the reasons stated by Mr. Smith this morning. 
Mr. Sims. Then, I think it is a reasonable assumption that Con- 
press will not authorize or will not enact a compulsory Federal in- 
j»rporation law, and if I am correct, then the other recommenda- 


}ons which follow in your plan need not be further considered. 





















200 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Wueeter. We are not ready to admit that you are correct i 
your assumption. . 

Mr. Srms. Maybe not; but I thought, as you are not an expert, 
would get an answer to every question. Now, Congress can only d 
that which a majority may vote for and the President will agree t 
and in the short time that we have between now and the 31st o 
December to pass any kind of legislation, do you not think that t 
undertake anything as revolutionary as compulsory Federal incor 
poration of every railroad in the country would be practically im 
possible to accomplish and get it through Congress before the rai 
roads are returned to their owners? | 

Mr. Wueeter. I have never been a believer in halfway measure: 
and I am not in this case, and if we had to delay action beyond th 
close of this year in order to get proper legislation, I should take m: 
chance on having an improved situation as the result of such a dela) 
rather than to take a halfway measure just because it was the onl) 
thing that could be obtained at this time. . 

Mr. Srmus. But under the law the President has the right to retur 
these roads immediately, if he returns them all, regardless of th 
consent of the owners; and now we have had fair notice from th 
President that he expects to do so at the end of this calendar yea 
Now, why not. accept such legislation as will be practical and possibl 
to enact before that time, and then consider these other propositions 
which you and other gentlemen propose, that can be superimpose: 
following that; and if it is necessary, give confidence to the investor 
that they might at least have that much anyway to stimulate then 
in sustaining their securities rather than throwing them on the mat 
ket and having them sacrificed ? 

Mr. Wueeter. It is not going to be sufficient to maintain securi 
ties. You are going to develop a constantly decreasing efficienc 
in railroad operation. It will be bad enough under any conditions 
but if all that you gain by legislation is simply to maintain th 
status quo or to hold level as nearly as you can, with the danger 0 
decreasing efficiency and the withdrawal of public confidence, yo 
have accomplished nothing; and I am not at all sure that the Presi 
dent has definitely fixed in his mind that he will do that. We wer 
told a few months ago that he would put the roads back into thi 
hands of their private owners after a certain number of months, i 
certain things were not done, and he did not do it. He has the in 
terests of this country at heart and is going to do only those thing 
that are for the public interest—and to put the roads back withou 
satisfactory legislation could not be said to be in the public interest 
in my judgement. | 

Mr. Stus. Mr. Wheeler, as a member of the committee I did al 
I could, in passing the railroad Federal control act, not to put aly 
calendar limitation on the period that the Government should oper 
ate the roads, but Congress, wisely no doubt, took a different view 
and put a maximum limit that should not be exceeded. Now, if. 
catch your meaning, it is that the railroads should be continued ii 
Government control to the end of the 21 months, as provided for }; 
Congress, unless the railroads, or those interested in them, get legis 
lation in the meantime which is satisfactory to them, although th 
taxpayer may, from month to month, continue to pay a deficit grow 


: 
j 
| 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 201 


ng out of the continuance of the railroads in Government control, 
‘imply in order to secure the legislation that you advocate. Is not 
hat asking a great deal of the public? 
Mr. Wueeter. In the first place, we do not advocate the retention 
i the roads for 21 months. 
Mr. Sims. It is not necessary. 
’ Mr. Wueretrr. We advocate their retention for such a period of 
ime as may be necessary to provide adequate remedial legislation; 
1ot what the railroads want, but what the public demands, in order 
hat public service may be kept at the highest basis of efficiency. 

Mr. Sims. When I say “what the railroads want” I mean what 
hey think is necessary in order to do the tthings you are pointing 
ut. I mean the legislation that they propose and which, from their 
jewpoint, is considered necessary, just as you think in this case 
here is certain legislation necessary and you propose what you think 
all supply the need. 

Mr. Wurrter. May I finish my answer? 

Mr. Stus. I beg your pardon. J thought you had finished. 
Mr. Wueeter. No. You also speak of the retention of the roads as 
ubjecting the public to a heavy tax because of the deficits that ex- 
st. If those deficits continue to exist with the roads back in private 
wnership there would be receiverships, would there not? 

Mr. Sirus. Probably so. 

Mr. Wueerer. If those deficits are made good, what is the differ- 
nee between one tax and another? 
“Mr. Sms. I can not assume there will be receiverships. We are 
laying them $940,000,000 a year for the use of their property, which 
xceeds any average they have ever been able to make for any lke 
eriod heretofore, including the two years previous to the war, in 
thich traffic was exceedingly heavy due to the European war. We 
re paying the railroads now more than they ever could or would 
‘ave earned if they had not been taken under Federal control. Now, 
thy are we under obligation to continue giving them more than 
yey could have earned if they had not been taken over? 
Mr. Wueetrr. Did that three-year period contemplate the ad- 
‘ances that have been encountered in the costs of operation that 
je Railroad Administration has been put to? 
| Mr. Stms. During which time the Government has paid out and 
ill have to pay out many millions of dollars in excess of what was 
stimated. 
~My. Wueeter. Of course they will. It is not an immoral tax. 
- Mr. Srus. Do you claim that the increased cost of supplies and 
ibor was due alone to the fact. that the Government had charge 
Ethe railroads during that period ? 
Mr. Wueertrr. Not in the slightest sense. 

Mr. Sims. Then, it is reasonable to suppose that these increased 
sts of supplies and labor would have come regardless of Govern- 
ent control, and, of course, railroad people would have had to bear 
ter losses just as everybody else did, upon the return of peace 
iddenly, before new business could adjust itself to existing peace 
mditions ? 
Mr. Wuereter. The only difference between us is that I am not 
ute ready to admit they would have come to the same extent as 
ey have, 






202 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Sims. That is really a matter of opinion, because we do see 
in private employment that wages were increased fully as much 
over former wages paid as they were in the railroad service, and 
we find public utilities, like street car companies, that were not 
taken over, going into the hands of receivers on account of the 
increased cost of supplies and increased cost and everything of that 
sort—enterprises that the Government never had anything to do 
with. What I am trying to get at is this: Are not the railroads 
and their owners willing to take some risk in order to get the 
advantage of an early return of the roads, so that they may adjust 
themselves to permanent conditions? As long as the Government: 
is paying the standard return the railroad owners can be just as. 
indifferent as they please as to whether they make anything or not, 
Now, in order to get the benefit of private initiative and the interest 
of the owners of the securities they ought, it seems to me, to be 
restored to private operation just as early as possible, and the 
referendum seems to foreshadow an early return and to advise it. 
They do not, any of them, advocate the five-year proposition that 
Mr. McAdoo made, in order that Government control and operation 
might have an opportunity to demonstrate what it could do inde- 
pendently of existing war conditions. 

Now, you say that you do not ask for a guaranty. You mean you 
do not ask for a Government guaranty, but you do ask that which 
makes it unnecessary to ask a Government guaranty, and that is 
that your proposed commission shall make rates and continue theni 
that will bring a dividend return—I mean money that may be ap- 
plied to dividends—of not less than 6 per cent. Now, is not that 
an operating guaranty ? 

Mr. Wueeter. We do not so regard it, Mr. Sims. 

Mr. Sus. If it does not make 6 per cent it is a failure, is it not! 

Mr. Wueerer. As you will find when you come to go into the 
figures a little later on, it does not do that thing. There are great 
variations in these percentages. It is simply providing an assurance 
that this 1,000,000,000 a year, or such amount that may be needed ia 
order to develop the transportation system of this country to serve 
the public, may be safely contributed by the public—and of course) 
the funds can come from no other source—upon a Federal a 
that capital invested will be given reasonable consideration. Rail- 
road securities must be bought by the public in competition with 
all other classes of securities, and they are not being bought to-day, 
in spite of the earning power under the three-year test period, 
They are not attractive investments by any manner of means, and 
it is not because certain roads do not earn enough to pay a reason= 
able dividend, but it is because the investing public is very uncertain) 
as to the continuance of a policy that will assure a reasonable 
return upon investments that the public may make in railroad securi- 
ties, and it is for that purpose alone that we have in mind the plan 
that has been suggested here. | 

Mr. Sts. Is it not in the nature of a guaranty, though? 

Mr. Wueeter. I do not think so. | 

Mr. Stms. Then, what is the use of making any provision as to 
compulsory rates if it is not in the nature of a guaranty? | 

Mr. WHEELER. Jf is an assurance. ADD 











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- 


{ 
| 
/ ; 
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RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 203 







« Mr. Sts. What is an assurance but a guaranty ? 

' Mr. Wueeter. That fair treatment will be given to corporations 
‘ngaged in the interstate transportation business. 

\ Mr. Srus. I understand that your plan does provide, in contin- 
‘rencies, that weak roads may receive or have the benefit of partici- 
ation in a fund which did not grow out of their contribution ? 

» Mr. Wueeter. Mr. Sims, you are wrong in that particular, because 
‘he assurance of a 6 per cent return has nothing to do with the indi- 
iidual road, but only applies to the system or consolidation that 
esults, creating a traffic section, or from the several consolidations 
\hat may create a traflic section, and the rate that shall assure 6 per 
ent upon the aggregate fair value has nothing whatever to do with 
\he aggregate fair value of the individual property of a single cor- 
joration, but over the entire aggregate of the traffic section that is 
/nder consideration. 

| Mr. Stms. All the property, then, in a traffic section—all of it 
|\ogether—must bring the 6 per cent; that is, the rates must be such 
s will give a 6 per cent return upon the aggregate fair value of all 
|he property within the section? 

| Mr. Wueeter. Yes. | 

| Mr. Sms. That means 6 per cent on the weak as well as the strong 
oads, does it not, on an average? 

Mr. Wueeter. Oh, no; you can not average it and still have it 
gular. You can not say it will average 6 per cent and that it will 
|e 6 per cent on the weak and 6 per cent on the strong. 

» Mr. Sims. If you say 6 per cent upon the aggregate fair value of 
ir property within a section, the public pays 6 per cent on that value, 
\thatever it is, does it not? 

Mr. Wueeter. They do not pay 6 per cent upon the value of the 
idividual weak road; they pay upon the aggregate property value 
‘fall the roads, either all the roads in the country or in any traffic 
ction of the country. 

Mr. Sims. Then, what is it worth to a weak road to have this 
ominal guaranty of a return of 6 per cent, and not get it? That is, 
ou say it does not mean they would get 6 per cent. I got an idea 

lat your strong roads would pay over 6 per cent, and you would 
\dd that to the return of the weak roads to help them. That is not 
\1e fact, is it? 
| Mr. Wureter. They are paying very largely into the contingent 

md, remember, Mr. Sims. 

: Mr. Stms. What does that contingent fund provide for? 

: Mr. Wuzeter. It goes for the period of depression, when, perhaps, 
|) rate-making power could anticipate what would happen. 

| Mr. Sts. You mean a depression on the particular strong road as 
jell as the weak? 

Mr. Wuerter. Of cotirse, it would apply to both. 

Mr Sims. And none of it would ever go to the weak road ? 

| Mr. Wuertrr. Yes; some of it would. 

| Mr. Sims. I mean in proportion to its weakness? 

| Mr. Wueerer. I am very glad, Mr. Chairman, to answer Mr. 
ms’s questions just so far as I can do so; but I do feel that the 
mmittee will get much more information if it will take these very 
testions that Mr. Sims is now asking and interrogate Mr. Salmon, 








\ 








. 


aS 
ant oe ag 


204 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


who will have before him all of the tables and the data that we will 
put into the record, and who can accurately answer what would be 
more or less haphazard answers to questions propounded to me at 
this point; and, therefore, I hope Mr. Sims may consent to redene 
his questions for that time. By that I do not wish to convey the idea 
that I am not very glad to go on, but I am sure I am only taking up 
time unnecessarily. 1 | 
Mr. Snrs. You are a banker, and I am trying to see what credit 
is necessary to stabilize the situation. How would your plan enable 
a weak road to borrow money at a less rate of interest than 1t doug 
now ¢ if 
Mr. Wueerer. I do not think I can answer that question for you. ¥ 
Mr. Sry. You are a banker, and you are looking after those 
things, and I supposed that would be a question In which you your 
self would be an expert. 7 | 
Mr. Wuerrer. There is a stabilization by the plan that will cer 
tainly attract the consideration of capital, which is entirely absent 
under the existing conditions. | oF 
Mr. Sts. Your bill here provides for declaring these railroads tobe 
military and post roads. Therefore, they become a United States Gov- 
ernment facility or a machine for the purpose of performing a Gov- 
ernment service—a national service. Now, that being the case, why 
should there be any weak roads? If they are all Government roads. 
and are all necessary to perform military and postal service, whi 
should not the Government of the United States take such measure 
as may be necessary, so far as the Government is concerned and s¢ 
far as military and postal purposes are concerned, that every road 
can perform that service as well as every other railroad, and not 
have to depend upon competitive biddings for capital in the markets 
of the world against the strong as well as the weak? ) eo 
Mr. Wuretrr. You have a condition, not ‘a theory, confronting 
you in this transportation problem, that will not fit to your prescrip: 
tion. | at 
Mr. Surs. Your bill wants to make them military roads? ~ ay 
Mr. Wueeter. It says they may be used as such in times of emer 
eency, which is perfectly right. , f 
Mr. Srats. I know, but they are declared to be military and 
roads in the bill as given out by Mr. Smith. Do you believe it 
morally or econmically right to take the earnings from one privat 
owner and give them to another private owner, because that othe 
private owner does not make as much money as the first—that is, a 
applied to anything, whether it be a railroad or a farm or anythnig 
else? ak 
Mr. Wueeter. I think under the provisions of the conference 
recommendations it is quite in order that there should be certa. 
distribution Ft 
Mr. Srms (interposing). Therefore, you reduce private initiative 
and the desire to have the strong roads make all they can, .becavs 
they can not keep all they make? oh 
Mr. Wueeter. Not at all. They are allowed to keep all th 
should make, under the conditions that you can not make a level rat 
that will apply equitably in the public interest to the rich and 00) 
roads alike in the same traffic section; and as Mr. Salmon will sho 














RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 205 


‘ou, as again I suggest that you ask him these questions, he will 
oint out to you exactly wherein these differences lie, and that the 
gestions that you are asking regarding taking from the rich to 
ed the poor does not actually operate as you imagine that. it 
‘ould 


‘Mr. Srus. Let me ask you another question, and then I will quit. 
his is a matter of policy that touches everybody. Whatever the 
vockholders have, they have a right to use as they may see fit. They 
im take their dividends and invest therm in other railroads, or in 
iloons, or pianos, or anything they please. They have a perfect 
ght to pay out their own money for anyth ug they want, and to 
ay just as large salaries as they see fit to the managing officials of 
ie railroads, to lawyers, doctors. preachers, and everybody else; 
at for the moral effect that it may have upon the wage earners and 
ie employees of the railroads, do you not think that it would be 
voper legislation to limit the amount of salaries that could be paid 
it and charged up to operating expenses? Let the stockholders 
ay just as big salaries as they want to—of course, that can not be 
eevented—but if they want to pay a chairman of the board of direc- 
rs or « general manager an enormous salary, when it comes to 
jarging that up to operating expenses—salaries of $100,000 or 
0,000 a year—while the engineer and the trackman and the wage 
ceiver feels that he is not getting a square deal, that he is earning 
oney as well as they are, but does not get in proportion anything 
'ke the amount he earns—for the moral effect upon labor do you 
| xt think it would be a good thing to limit the amount that can be 
uid to operating officials and charged up to operating expenses? 
j/hat is not at all a question for an expert. 

Mr. Wuerter. I do not agree with your assumption at all upon 
jy limitation. The corporation will pay what the skill and the 
lity is worth, and will not long pay more; and to fix the wage or 
ie salary of an operating official upon any pro rata, using as a base 
le wage of an engineer or conductor, is, to my way of thinking, an 
ter impossibility. There is no relation between those two services, 
id there can be no relation between the compensation accorded to 
ch of those services. 
| Mr. Srus. You know Mr. Milton H. Smith, ox the Louisville & 
jashville Railroad, do you not? 

) Mr. Wueeter. Yes. 

L¢ Sims. The president of the Louisville & Nashville Railroad 
12.8 

| Mr. Wueeter. Yes. 

| Mr. Smuts. One of the most distinguished and successful and expert 
ilroad men in this country. 

Mr. Wuerrrr. Yes. _ 

Mr. Stus. Well, he never told me this, but gentlemen have told me, 
“whom I have absolute confidence, that Mr. Smith himself said 
at no living man could render a railroad company service exceed- 
|& $25,000 a year in value, and he refused to accept a salary of 
0,000 per annum offered him by his directors. Do you think Mr. 
jilton H. Smith did not have a good opportunity to know what s 
}an is worth to this industry? 

| Mr. Wueerer. I disagree with his conclusions. 




















206 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Sus. Are you a railroad man? 

Mr. Wueeter. No; I am not. 

Mr. Sims. Then, his is an expert conclusion and yours is a, lay 
conclusion ? : 

Mr. Wueeter. I still hold my lay conclusion on that question, 
Mr. Sims. 

Mr. Srus. I simply spoke of it with reference to its moral effect. 
I know the stockholders have a perfect right to pay all that they] 
please, if it comes out of their pockets; but if it comes out of the pub-| 
lic by way of increased rates, and if you have continual labor agitation 
on the ground that they are not getting what they ought to have, 
it would at least be worth something in its moral effect in that way, 
would it not? That was my reason for asking you the question, 
I did not know what your views were. I did not know whether you 
had any views on it or not, but being a banker and business man 
generally, I would trust your judgment on a thing of that sort 
rather than I would an operating official or an engineer, as to its 
psychological effect. I think this country ought to avoid Bol- 
shevism by removing the cause, or alleged cause of it as much ag) 
possible. Mr. Chairman, that is all. | 

The CuarrMan. Mr. Stiness. 

Mr. Srrness. I wish to ask just one question. I was not here, Mr. 
Wheeler, when you started your testimony. As I understand it! 
your plan is to make a road that can earn 10 per cent divide up, se! 
that a road that can only earn 2 per cent will get onto the 6 per cent 
basis. Is that your plan? | 

Mr. Wueeter. No; that is not an accurate statement of the plan} 
We are not considering individual roads at all. We are considering 
roads massed in traffic sections; and whether that traffic section he 
very large or be limited in its number of roads or individual con) 
panies it is all by the traffic sections, and not by the individual roads 
that the calculation is made; but if you might hold in your miné 
the question that you have now, and the reason for your interroga:: 
tion on this question until Mr. Salmon can give you_those figure: 
I know that you will find the answer there. It would probably he 
a long story to differentiate between individual roads and trafic 
sections, and the earning power of the weak road and the stro 
road in putting these figures together; whereas Mr. Salmon wil 
have them so that they will be as clear as an open book to you wher) 
he is interrogated. Ai 

Mr. Srrness. I would much rather have your opinion, as a busi! 
ness man, than that of an expert with a lot of figures that I do noi 
know anything about. | 

Mr. Wuesver. Mr. Salmon is a business man, just as I am, 2 
he is only having these figures presented because they have beer 
gathered together and put into his hands for this very purpose by) 
the conference—not because he has made them as an expert ac! 
countant or will present them as such. He will present them as # 
business man, and will do it much more intelligently than I could| 

Mr. Srrness. Would not the effect of your plan be this: That 7 
a man is a stockholder in a road that is capable of earning 12 pél 
cent, let us say, and had the shrewdness to invest in that road, un el 
your plan he could not get the full benefit of his investment and 0: 


his shrewdness in putting his money into it, but he would have t 


i| 
i 




















I 
| RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 207 


livide up some of those profits with a weaker road; is not that the 
jractical effect of your plan? 

| Mr. Wueeter. The strong road to which you refer would un- 
\loubtedly be in a traffic section in which there were also weak roads, 
\Che rate that would provide an average of 6 per cent upon the ag- 
sregate property investment account of all the roads of the traffic 
ection, would provide an income to your road much larger than 
ihe Interstate Commerce Commission would probably give them, if 
hey were dealing only with that single unit and its power to carry 
\reight at a rate that would be in the public interest. In conse- 

{uence, in providing for the traffic section and the 6 per cent upon 

he aggregate value of that section, you are providing an increased 

arming power for your 12 per cent road, which will be divisible 
jn the public interest into its own contingent fund, and the general 
ontingent fund, and perhaps the United States Treasury by and 
iy; but it will have its earning power quite as much as it ever had, 
| nd if it is deprived of any of that earning power, it will be be- 
jause the rates which are established in the traffic section in which 
jhat road is located are of such a character as to produce a larger 
|mnual operating income for the road than they would have had if 
‘hey had not had to consider the weaker roads. 

| Mr. Sriness. Then, it is your idea that. it would not reduce the 
ividends of the stockholders in the strong road ? 

Mr. Wueeter. Quite possibly, but certainly not unfairly, and cer- 
junly not more than the public interest would demand, over and 
|bove a given reasonable maximum. There are many conditions 
there Mr. Salmon will show you how, in excess of 6 per cent, there 
/aould be certain accretions to those strong roads, who, by virtue 
|f{ the density of traffic and their age, and the cost of constructing 
jem, and so forth, will have the right to compensation in excess 
/£6 per cent. 
| The Cuarrman. I wish to express the appreciation of the com- 
| eee to the representatives of this conference for the vast amount 
‘€ work which they have put upon the plan and for the information~ 
hich they have already given and will give. The committee is 
jeking light, and we feel sure that the information of so responsible 
}) body will be valuable in our deliberations. 

Mr. Wueeter. Thank you, Mr. Chairman. 

The Cuarman. Mr. Warburg, give your name and address. 


STATEMENT OF MR. PAUL M. WARBURG, OF NEW YORK. 












— 


Mr. Warsurc. Mr. Chairman and gentlemen, I used to be a banker 
itil I went on the Federal Reserve Board. I was vice governor of 
‘© Federal Reserve Board until 1918. I am now a private citizen, 
ving at Hartsdale, N. Y. oo . 

The conference asked me to address myself primarily to the credit 
| financial side of the question, and I have prepared a statement in - 
at connection. I apologize for the length of that statement, but 
}1s financial question is, to my mind, the crux of the problem; it 
volves the rehabilitation of the credit of the railroads. As Mr. 
heeler has indicated, the enactment of a law will not do us any 
‘od unless that law will bring the investors back into the railroads. 
e have, as our conference report points out, the choice between 


208 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Government ownership and operation and Government guaranty on. 
the one side, and private operation and private ownership on the 
other. The conference assumes that it is the wish of the country at 
large that we should try to develop a plan which would enable us to 
return the railroads to private ownership. If that is the case, we 
have got to take into consideration present financial conditions and 
world financial conditions, and we have got to provide a basis upon 
which the investor will go back into the railroads. If we can not 
do that, no matter what law we pass it will be of no avail. If 1 may 
read this statement now, I think I can make myself clearer. 

The CuarrMan. You may proceed. 

Mr. Warsura. The national transportation, conference,, 1n aip- 
proaching the subject of remedial railroad legislation, was guided 
by the fundamental thought that transportation should pay its own 
“board,” i.e. that the yield of transportation. rates, both, freight 
and passenger, should be sufficient to pay for the transportation 
cost, including a reasonable return on the value of the railroad prop- 
erties devoted to the public service. If by paying higher prices for 
all necessaries of life the consumer bore the cost of increased wages 
involved in the cost of production of these articles, there is no rea- 
son why, quite arbitrarily in the case of freight charges, the prin- 
ciple of cost should be abandoned. There appeared no reason why 
this cost of transportation, forming a fraction only of the total cost 
of things, should be furnished at a loss, to be made good by taxation 
levied indiscriminately from all instead of having the transporta- 
tion paid for by those directly served. There is no reason why the 
man paying a high rent for dark and narrow quarters in crowded 
city tenements should pay the transportation for the commuter who 
lives in healthier and more commodious quarters and pays a lower 
rent. There would be no reason why a fairly self-sufficient farmer 
should pay taxes in order that the manufacturer may receive coal or 
ores at a transportation charge below cost. +} 

The problem of raising through taxation the gigantic sums re- 
quired by the country for interest charges and other matters affecting, 
the national welfare is perplexing enough in itself, and I believe 
the transportation conference made no mistake in assuming that the 

ublic interest would best be served by not unnecessarily increasing 
the burden of taxation by arbitrarily adding to it deficiencies caused 
by transportation to be furnished below cost. 7 1 

In the opinion of the conference, it 1s the object of remedial legis- 
lation to establish conditions under which the carriers as groups are 
certain to receive a return sufficient to cover the cost of operation, 
including a reasonable adequate return on the fair value of their 
properties; while, on the other hand, such legislation must safeguard 
the public’s interests in assuring adequate service at charges which 
are not excessive. Transportation must be furnished at the lowest 
possible price, but under conditions generous enough to preserve & 
healthy spirit of competition and enterprise imperative for the fw 
ther development of the country. ‘| 

The first question to be determined by the conference was, What 
shall be considered a fair value of the railroads? It is evident that a 
physical valuation—that is, reproduction value of the railroads—i 
taken as the sole standard, for many reasons, which it is unnecessary 
to elaborate, would produce an entirely misleading and unsatisfac- 


| 
















RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 209 


jry result. As one of the experts stated to our conference, “It isn’t 
ie cost of some tons of dirt dumped somewhere that constitutes the 
\ulue of a railroad investment. It is the question of whether or not 
jey were dumped intelligently and what they produced after they 
jid been dumped.” 

) The conference understands that it is the purpose of the Interstate 
jommerce Commission in the near future to define what principles it 
\ill apply in establishing the value of a railroad as a whole. It is 
sheved that such definition will provide that a consideration of the 
erage earning power of a railroad, for a given period of years, 
| ould be given at least the same weight as the physical value of a 
;ilroad, and that the commission’s definition will take into account 
| ch other elements as may be proper in determining fair value, leav- 
|g room for adjustments in individual cases. | 

|The report of the conference assumes that a definition on these 
jiaes will be given in the near future by the Interstate Commerce 
/ommission, or that, failing that, a proper direction will be laid 
jywn in the law. 

; For the purpose of discussing the final stage of the plan the con- 
rence assumed that the value of the railroads will be satisfactorily 
}}termined under due consideration of these various factors, and that 
“final valuation ” will have been established. 

|The second question before the conference then was, What shall 
nstitute an adequate return on this “ final valuation ”’? 

It has been the consensus of opinion of members of the conference 
| at if private capital is to enter freely upon the venture of further 
\\veloping the railroads, and if railroad credit is to be reestablished 
).a solid basis of genuine confidence, that 6 per cent on the final 
| uation plus a modest share in earnings in excess of this percentage 
puld constitute the minimum required. The chances for profitable 
| vestments in other industries are so much more attractive that the 
er of a lower return would be certain to defeat the very objects to 
| accomplished by remedial legislation. 

)May I suggest that the committee kindly bear in mind that we 
jeak of a 6 per cent return on the valuation, and this valuation, in 
\P opinion, will, of course, be based, to a large extent, on the exist- 
)y earning power of the railroad. That will answer the question 
st raised by Mr. Stiness of whether or not a railroad will be de- 
ved of its present earning power by this 6 per cent, limitation. 
e@ are providing here for a 6 per cent minimum on the final 
\luation of a property, with provision for sharing or rather dis- 
}buting the excess profits into a contingent fund, but this excess 
er 6 per cent is based on a valuation bottomed upon existing earn- 
3s and a property valuation, so that a railroad earning at present a 
)th dividend, such as Mr. Stiness had in mind, would have com- 
)nded a valuation when completed, which no doubt would express 
» present strong earning power of that railroad. The valuation 
uld not ignore existing conditions. The transportation conference 
| cussed that at length, and the Interstate Commerce Commission, 
my mind, will have to make itself entirely clear as to that point, 
/ich, I think, is alarming the railroad investors to-day more than 
ything else. They do not know what really is considered the value 
arailroad. The Interstate Commerce Commission has been grad- 
/ ly finding its mind about that; but I believe that before the rail- 
152894—19—-vor 1—_—14 











ee 


210 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


roads may be returned or before legislation can be passed, the Intei 
state Commerce Commission must make itself entirely clear as t 
what will be the definition of the valuation of a railroad. If th 
valuation includes capitalization of the present earning power to th 
same degree as the property value, I do not believe that there need 
any fear that the strong roads will be unduly deprived of thei 
present worth. If they have earnings in excess of 6 per cent on tha 
valuation, which is the minimum that should be their due, then y 
might say that the public is entitled to some limit on top, and the 
then these various contingent funds, which Mr. Salmon will explan 
will go into effect. 

The plan, therefore, proposes that a statutory rule be enacted b 
Congress requiring that rates and fares be established by public aa 
thority shall be designed to yield the railroads of each traffic sectio 
of the United States revenue sufficient to produce, after proper prc 
vision for renewals and depreciation, a net return available for inter 
est and dividends of not less than 6 per cent on the aggregate fin: 
valuations of the property of the railroads devoted to the publ 
service in each of the several sections. 

It is furthermore proposed that each railroad netting earnings 7 
excess of 6 per cent on its final valuation shall turn over one-ha 
into a general contingent fund until its own contingent fund amouni 
to 6 per cent on the fair value of its property, after which (as long: 
this company contingent fund is maintained at 6 per cent) two-thirc 
of the railroad company’s earnings in excess of 6 per cent would ¢ 
into the general contingent fund, while one-third would be retaine 
by the railroad company for distribution amongst its stockholde 
or for such other lawful purposes as it may determine. 

The payments into the general contingent fund, it is propose 
shall be accumulated until it amounts to $750,000,000 and be man 
tained at that sum, and any excess shall be used when and as directe 
by the transportation board for the development of the railroa 
transportation system of the country, for the increase of transport: 
tion equipment and facilities, or for the pro rata reduction of th 
capital obligations and property investment accounts of the rai 
roads; or if so ordered by Congress, the excess shall be turned over 
the Treasury of the United States. | 

In formulating this plan the transportation conference Wi 
guided by the thought that in order to attract capital for the futw 
development of our transportation system it was neither desirab) 
nor necessary to erect a structure of speculative investments, bv 
rather to lay so strong a foundation for railroad securities that the 
would prove attractive to the investor on account of their solidit 
rather than on account of their speculative possibilities. | 

The plan does not propose to give railroad security holders muc 
more than they get to-day; the increase in return necessary to ba 
ance the very delicately poised scales, when measured in dollars, 
comparatively insignificant. The benefits of the plan would rest 
primarily from the better organic structure of the whole system ar 
from the greater confidence that it would inspire. j 
' Through the contemplated consolidations the inequalities of di 
tribution of earnings and profits are removed and the rate-makit 
problem is simplified, greater clarity and a definite assurance are pr’ 
vided as to what once and for all shall be the return to which as a 1 











RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 21 


) er of acknowledged right private capital shall be entitled ; and, finally, 


she machinery of the contingent funds is designed to give such solid 
stability to railroad credit that private capital may be expected to 
e satisfied with the prospect of an assured though not over-generous 
veturn—but one that promises to be free from the vicissitudes and 
meertainties of the past. That, I bélieve, is the crux of our plan. 
__The realization of the power of practically unrestricted regula- 
ton vested in the Government naturally engendered the thought 
hat private capital could not possibly be expected to venture freely 
nto the field of railroading unless it were assured that this power 
4 regulation could not be wielded in a manner to reduce the return 
veyond a reasonable limit. 

_ This consideration led to the demand, by some of the most promi- 
1ent students of the question, for a guarantee of a minimum return 
o be granted by the very government that exercises the power of 
egulation and of determining the return. Serious fears are, how- 
ver, entertained by others lest the granting of such a guarantee 
‘aight lead to incompetence on the part of the individual railroads, 
while on the other hand it is apprehended that the incurring of a 
‘lirect liability on the part of the Government ultimately might lead 
‘o direct Government operation, a result abhorred by the vast ma- 
ority of the people. 

Tt appears to be the general desire of the country to see the Gov- 
rnment withdraw from active business as fast and as far as possi- 
\le, and the transporation conference plan proceeds on this hypothe- 
ie It avoids direct guarantees given to any individual railroad. 
t recommends a rate-making structure producing no less than 6 per 
ent upon the aggregate final valuation of all the railroads of a 
raflic section. It assures the railroads against failure on the part of 
ie rate-making body to produce the minimum 6 per cent yield to 
e prescribed by the statute, but it leaves the railroads free to com- 

ete with this assured statutory minimum return for a section. 

This feature of our plan is important. While it assures a certain 
/efinite return to a section, within that section the railroads have got 

) compete with one another. In other words, one might conceivably 

et all the business and earn more than 6 per cent, while the others 

ould only get 1 or 2 or 3 or 4 per cent. It is a measure against 

Zzimess and incompetence. 

Tt is left to the energy, ability, and spirit of enterprise of each 
julroad to secure its maximum share of the aggregate assured for 
| 1. The statute would protect the carriers as a group, not as indi- 
|\dual corporations, and this, it is believed, is one of the strongest 
‘atures of the plan. 
| We must contemplate the project, however, in its completed form, 
jid this would show us in each section a small number of competing 
jmsolidated railroads, the weak sisters having been merged with 
;me of the so-called strong companies. In these circumstances a 
per cent rate structure for a traffic section is not likely to leave dis- 
epancies between competing companies as marked as in the past. 
would seem likely that most of the consolidated railroads would 
“me reasonably near earning their full share of the minimum. 

It should be borne in mind, however, that such minimum reason- 
We return is to be figured on the valuation, as finally to be deter- 
‘med by the Interstate Commerce Commission, and not on actually 










912 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


outstanding securities. In the case of conservatively managed and 
strong railroads the final valuation no doubt will in some cases pro- 
duce a value in excess of the present capitalization; in others the 
final valuation may prove to be much lower than the capitalization; 
indeed, it may wipe out the entire stock and possibly some of the 
bonds. The latter companies, it is to be assumed, will be merged 
with the stronger companies by an exchange of securities on a basis 
to be approved by the proposed Federal T ransportation Board, and 
presumably on a basis approximating the relation established by 
the valuations, or they might first adjust their capital and obliga- 
tions by a process of reorganization. This plan does not _contem- 
plate to make good something that is intrinsically weak. It is im- 
perative that the mergers result in establishing consolidated com- 
panies whose stock will sell substantially above par, because any 
future plan of rehabilitating railroad credit under private owner- 
ship and private operation will fail unless the plan establishes for 
the railroad stocks of the future values well above par and suffi 
ciently attractive to enable the railroads to finance themselves 
through sales of their stocks on such scale as is necessary to preserve 
a proper proportion between their outstanding bonded indebtedness 
and capital stock. 

We are not speaking about existing stocks but about stocks of the 
future consolidated companies, which will be based on valuations. 
and those valuations, in at least a number of cases, must produce 
stocks which shall sell above par, for if we do not get that we will, 
sooner or later, be in the same position which we are to-day; that is 
to say, that the railroads have been forced to finance all the time by 
selling bonds. Probably only 10 railroads are now able to sell thei 
stocks above par, and the consequence is that we are always getting 
nearer the edge where either trouble will come | 

Mr. Srms (interposing). Only 10 railroads in the United States 
whose stock is selling at par? 

Mr. Wareurc. Ten or twelve. I have a list here, and I will he 
glad to put it in. : 

(See list at the end of statement. ) | 

Mr. Srrness. What will be the effect on the outstanding bonds ) 





the railroads, or bonds to be renewed, if the stocks are guarantect 
practically 6 per cent? | 

Mr. Warsurc. No existing stock is guaranteed 6 per cent? 

Mr. Stiness. The new stock issued, then ? 

Mr. Wareurc. Not even the new stock as issued. The new stocl 
will have to fight, just as it does to-day. All that we assure in tht 
future is that the Interstate Commerce Commission, or whoever wil 
fix the rate—the Interstate Commerce Commission in this case—wil 
fix rates high enougn to produce 6 per cent on valuations that thi 
Interstate Commerce Commission itself will have found to be th 
true value of the railroads. The question is—and I will come t 
that in a moment—is that too much or too little? It is a very gray 
question whether or not it is not too little. 7 “ay 

Mr. Drntson. Would not that make railroad stocks of a highe 
commercial value than the average bonds, under this plan? | 

Mr. Warsure. They should be. | 

Mr. Dentson. Then, how would you expect to sell bonds? 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 213. 


_ Mr. Warsoure. The higher the stock the better you can sell the 
vonds. It is only when the stock sells below par, and the credit of 
the company is impaired, that you can not sell your bonds on a 
favorable basis, It is one of the dangerous weaknesses of the pres- 
‘nt situation, that stocks are selling so low that they do not show 
a sufficient equity to protect the bonds; and that is why the rail- 
roads at present have to pay—one of the reasons, at least—why the 
vailroads at present have to pay very high rates for interest charges; 
ind that, again, makes for high transportation charges. 

_ Mr. Dentson. Who would determine the amount of the capital 
‘stock of the consolidated railroad—the new issue ? 

' Mr: Warzoure. All capital issues, according to this plan, would be 
subject to the approval of the transportation board. There is no 
dossibility in the future of any watering process, under this plan. 
‘But what is hoped is that we will find at least one railroad in each 
ection—take a strong railroad like the Atchison—where the valua- 
‘ton will prove to be higher than its outstanding capitalization, so 
hat 6 per cent on its valuation will be more than 6 per cent on its 
tock. That has got to be if railroad credit is to be resurrected. 
You buy railroad bonds to-day on a basis of 64 or 7 per cent; and 
how can we expect to get the investor into railroad stocks—which 
juarantee the bonds—if you give the stockholder less than you give 

he bondholder, and if the investor in any other investment gets a 
eturn which is so much larger? You may pass a law that he shall 
set only 44 per cent, but you can not pass a law that will make that 
nvestor invest. I am coming to that a little later in my statement. 
_ The strongest railroad would naturally furnish the best backbone 
‘or a new consolidated system. | 
In hoping that the plan as proposed will furnish a foundation 
trong enough to sustain the future credit of the railroads, the trans- 
yortation conference places great faith upon the effect to be pro- 
luced by the two contingent funds. 

The company’s own contingent fund to be maintained by each 
ailroad is devised for the purpose of protecting the carriers against 
-dverse circumstances unexpectedly affecting an individual com- 
any. 

I should add here that the company’s own contingent fund, which 
1ay amount to 6 per cent of its valuation, should be invested in se- 
urities of a very liquid character; probably only Government bonds 
r such securities as the transportation board may ‘approve. This 
und should not be permitted to be merged with the general fund 
f the railroads or to go into the property of the railroads, because 
|n¢ idea of the fund is that in a time of adversity, unexpectedly as it 
|lay come, the railroad should have these funds to fall back upon, to 
ise them quickly, to pay its dividends, and to conserve its credit. 
| Mr. Winstow. How would you carry those bonds that might be 
met out of the surplus contingent fund? 

r. WarBure. You mean how would I write them down? 
| Mr. Winstow. How would they be carried from year to year? 
,n the basis of the purchase price or the market value? 
Mr. Warsure. I think the transportation board would have to reg- 
\late that. I should say they should be carried at the market value. 
| always believe in that; I do not believe that the purchase price 
jeans anything when a thing has gone down in value. I think they 

















| 


914 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


should be carried at the market price. We do not, if I may say, | 
presume to present an absolutely perfect plan in all its details. We) 
have tried to present certain outlines and certain principles. If we 
find that your committee is interested in the plan as we submit it we | 
will, of course, be at your disposal to work out the details, some of ! 
which we have not even considered. We had a conference of over 
‘ people, and it was hard work to agree even on these general out- | 
ines. ) 

Mr. Winstow. Would you have the interest on the bonds bought | 
out of the contingent fund added to the contingent fund itself and | 
not reported as an earning of the railroad ? | 

Mr. Warsure. Until the fund reached the 6 per cent. After that | 
it might very well be proper that the interest, or any excess of 6] 
per cent, might go into the general income of the railroad. | 

Mr. Winstow. But you would build up the contingent fund with | 
the interest on that fund? | 

Mr. Warsure. Oh, yes; until it amounted to 6 per cent of the| 
value of the railroad. | 

The general contingent fund, on the other hand, which 1s to ac-| 
cumulate to an amount of $750,000,000, is designed to make good a| 
deficiency arising in any year when the rates fixed by the Interstate | 
Commerce Commission do not produce a minimum return of 6 per 
cent on the aggregate final valuation of the railroads composing a) 
traffic section. | 

To illustrate, if the aggregate valuation of railroads of a section} 
amounted to $7,000,000,000, and if the earings available for distri-| 
bution for interest and dividends during any one year amounted to) 
only 5 per cent, or $350,000,000, instead of the statutory minimum of| 
6 per cent, or $420,000,000, the deficiency of $70,000,000 would be) 
taken out of the general contingent fund and would be distributed | 
amongst the railroads of the section on a pro rata basis of their gross, 
earnings—the underlying thought being that, if the rates had been 
fixed in accordance with the statutory rule, each railroad would) 
have earned so much more on its gross business. A company having} 
earned, including such contribution received from the general con-| 
tingent fund, in excess of 6 per cent on its valuation would be per-| 
mitted to retain one-third of the excess, the other two-thirds going) 
back into the general contingent fund, just as if the rates had been, 
fixed right in the beginning. Or in case it had not yet completed, 
its own contingent fund, one-half of the excess over 6 per cent would| 
go into its own contingent fund and one-half into the general con- 
tingent fund, in the same manner as if these earnings had originally 
been made through rates aggregating the statutory minimum of 
$420,000,000. 

The plan thus provides for two shock absorbers, one against ad: 
verse circumstances affecting individual roads and the other against) 
miscalculations on the part of the rate-fixing body, or against un 
expected emergencies bringing about such reduction in tonnage Or) 
such extraordinary conditions of operation as would render impossi- 
ble a prompt readjustment through increases in rates. | 

It is of the greatest importance, however, that the investing pub- 
lic should feel reasonably assured against such eventualities. eg | 

The weakness of the situation in the past was due to the fact that 
the Interstate Commerce Commission could neither know the true) 



















RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 215 
ue of the railroad properties nor what constituted an adequate 
| turn, and thus was put in the predicament that if it granted ade- 
jiate rates to weak roads it would be overfeeding the strong ones. 
/ was not surprising that this lack of clarity with regard to the 
)te-making basis had a very unfavorable effect on the public mind. 
the shipper was ready to believe at all times that he was the victim 
* extortionate rates due to excessive capitalization and overgenerous 
)turn to the railroads. The obscurity as to values and reasonable 
‘turns thereon stood in the way of the clear recognition of a just 
turse, and, in the long run, created a hostile attitude toward the 
| Uroads which resulted disastrously to railroad credit. There are 
her reasons for that, too, but it is unnecessary for me to go into 
em now. 

| Under the plan recommended the rate-making body would not need 
) fear that adequate rates would place the strong roads in a condi- 
|on of excessive or unjustifiable affluence. When once the valuations 
je definitely determined there can not be any reasonable objection 
industrial enterprises earning a minimum of 6 per cent and a 
;ird of moderate earnings in excess of that limit. That is less 
jan would be required to satisfy any other industrial venture. 
fe rate-making body could thus act with greater independence, 
owing that two-thirds of the excess would go into a general con- 
jagent Tund, designed to protect the general situation. The Inter- 
\we Commerce Commission, moreover, would soon realize that the 
/neral contingent fund would prove an invaluable protection for the 
‘te-making body itself, and that it would be wisdom on their part 
| build it up as promptly as possible. That was borne out by Com- 
‘ssioner Clark’s statement, since made. 

| When once the contingent fund reaches the amount of $750,000,000 
‘which, on the basis of the tabulations made for the transportation 
/nference, may be assumed to take place in less than 15 years), it 
| proposed that contributions to the fund bringing its total above 
jat limit could be used either for providing additional transporta- 
‘m facilities for the benefit of the country (be they equipment. or 


| 


/rmanent improvements) or for amortizine the cost of the rail- 
| jw) 


; 





/ids. The latter process could be carried out by a pro rata purchase 
| obligations of the various railroads and by a corresponding reduc- 
‘Min their property investment accounts. To the extent that in 
|S Manner the property investment accounts would be written 
wn, transportation charges would be correspondingly decreased. 
beral earnings would thus strengthen railroad credit and at the 
ne time redound to the advantage of the whole country. 

|While the contingent funds when completed will thus render an in- 
jluable service in safeguarding railroad credit, the plan would show 
‘atal weakness in that it would not provide against the emergency 
the most critical years, being those immediately ahead of us. 
ving that period the contingent funds would as yet be practically 
jiexistent. For this reason the transportation conference, very re- 
‘tantly, has reached the conclusion that it is imperative to rec- 
mend to Congress the establishment of a railroad reserve fund of 
10,000,000, to be placed in the hands of the transportation board. 
om this fund it is contemplated such sums are to be advanced to 
|) general contingent fund as may be necessary to make un da- 






































216 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


ficiencies in case rates fixed by the Interstate Commerce Commissior 
fail to produce in any one year, during the first 10 years after the 
enactment of the proposed legislation, the statutory minimum yiel 
of 6 per cent on the aggregate valuations of a traffic section and in cas 
the funds in the general contingent fund are insufficient to make ww 
the shortage. Such payments from the Federal reserve fund would 
however, be treated as advances only; they would be paid back witl 
interest from railroad contributions as soon as the general contingent 
fund had accumulated and remained at an amount of $500,000,000 
It is obvious that without such Federal reserve fund railroad cred 
could not be reestablished to a degree sufficient to permit a generow 
development of the railroads as required in the best interest of thi 
country. | 

It is very important to bear in mind that this fund may be draw) 
upon only in case rates determined by the Interstate Commerce Com 
mission should not yield the statutory minimum of 6 per cent 1e 
turn for a traffic section, and that it is, therefore, entirely witht 
the power of the commission, unless some unforeseen events occur 
to protect the situation and to avoid the necessity of payments fron) 
this reserve fund into the general contingent fund. But even i 
such payments should be made, they would be certain to be repai¢ 
because the plan provides that when the railroad. consolidations ar 
completed a minimum of 5 per cent of the annual net earnings 0 
all the railroads (that is, on the contemplated basis of annual ne 
earnings of approximately $1,000,000,000, $50,000,000 per year’ 
shall be paid into the general contingent fund in any year whe 
the carriers receive the statutory minimum of 6 per cent. Ther 
can not, therefore, be any doubt as to the advances being repaid i 
the end. For the period of transition, however, this Federal re 
serve fund would form the keystone, without which the mail) 
strength and benefits of the plan would be lost. | 

An appropriation of $500,000,000, even in the form of an absc 
lutely safe loan to be repaid to the United States with interest, j 
not likely, at first blush, to meet with a very cordial reception 0. 
the part of Congress. But it would appear an almost paltry com 
mitment as against the amounts involved in present guaranties an| 


| 


Perhaps I should say a further word of explanation concernil: 
the stipulation of compulsory contributions pro rata to net earl 
ings on the part of all railroads to the general contingent funt 
This proviso is contemplated to go into effect only after the mergel| 
approved by the transportation board are completed. The unde! 
lying thought is that as long as there are weak and strong rou 
the contributions into the fund may be expected to be fortlioga a 
from the excess earnings of the strong roads. When once ¢ 
mergers are completed and the weak roads are absorbed by th! 
strong roads, there will be a greater equalization of earnings an) 
conceivably at least, if all consolidated railroads earn their 6 pe 


| 





RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. an: 


. cent (and the rate-making body fixed rates providing no more than 
‘the statutory minimum) there would not be any excess earnings 
_from which contributions into the general contingent fund could 
. be made. 
lt is thought that when that time comes it would not be any hard- 
ship for these large consolidated companies to pay into the general 
contingent fund their pro rata share (to the extent that excess earn- 
_ings have not provided it) so as to make the total contribution into 
, the fund 5 per cent of the aggregate net earnings of a section, that 
|is, at present approximately $50,000,000 per annum. 
| Under the conference plan the total increase which would go to 
| the railroads by the adoption of a 6 per cent rate-making basis 
is figured to amount to about $137,000,000, and of this it has been 
|caleulated that about $51,000,000 would go into the contingent 
fund from the excess earnings of the railroads as at present con- 
‘stituted, so that the total increase retained by the railroads would 
only amount to approximately $86,000,000 per annum, on the basis 
of the present standard return. That is, after the company con- 
| tingent funds are full. » 
_ The transportation conference has not left unconsidered the puz- 
zling question of whether or not in the long run a return of 6 per 
cent on the final valuation might prove to be too high or too low. 
It has been suggested that it would be a mistake for Congress to 
determine a fixed basis of return and that it should be left flexible. 
Were the question left open, it is to be feared, however, that the un- 
certainty of the past might continue to prevail and credit-might not 
be reestablished. A definite assurance seems to be necessary so that 
the stockholder and the bondholder will know for a certainty what 
| their position will be in the future. It has been suggested that the 
law might contain a provision whereby within given periods of, 
‘let us say, 10 or 15 years, upon the certification of the Federal Re- 
\serve Board as to the relative changes of values of securities and 
|money, a revision might be made by the transportation board of 
{/what should constitute an adequate return, the decisive element 
| being that no adjustments should be made which would bring the 
javerage of then existing railroad stock so nearly down to par that 
\fnancing through further issues of stocks would thereby become 
jeopardized. 
| While it is possible to insert a clause of this nature, and while 
much is to be said in its favor, it was the feeling of the conference at 
\the time that a provision of this character would be very difficult 
/to formulate and might add to the complexity of the problem; that 
\eredit would be more solidly established by providing a definite basis 
of rate making, leaving it to the future, in case of need, to take care 
of itself. It was thought that any fear that the arrangement might 
turn out to be too favorable for the railroads might be disregarded, 
imasmuch as, after all, it was within the power of the Interstate Com- 
merce Commission ultimately to keep the return pretty close to 6 
per cent on the actual value of the properties less the 5 per cent going 
into the general contingent fund, that is, a net return of 5.70 per cent. 
[f, on the other hand, the return should prove too moderate to at- 
\tract new capital, the Interstate Commerce Commission could meet 
\the situation by greater liberality in rate making, or Congress might 
step in and make the necessary adjustment. 














218 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


We have, since then, discussed this matter further, and I would 
like to read this amendment of the statement, as I prepared it some 
months ago: I may state that: upon further consideration of the 
question of the minimum rate of return, those members of the con- 
ference with whom I have been able to consult since the adjournment 
of the conference have thought that it might be wise to provide for 
a readjustment of the minimum return after a definite period of time 
has elapsed. The members of the conference with whom I have con- 
sulted are agreed that it is necessary to provide liberally for the re- 
establishing of railroad credit as a prerequisite to the successful re- 
sumption of private operation. 

While we believe that railroad credit can not be reestablished and 
stabilized without assuring railroad property as a whole a definite 
annual return on a fair value of the property devoted to the public 
service, we also realize that conditions at the present time are so — 
abnormal as to make it impossible to state what rate of return will 
be adequate and equitable for all time to come. If the value of 
money should again increase, a rate of return that to-day might seem 
fair to the investor might appear to the country as exhorbitant 20 
years hence; and conversely, if the value of money should further 
decline, what may now seem ample to the investor may prove in the 
future to be inadequate. 

In view of these facts it might be wise to authorize the transpor- 
tation board, after consultation with the Federal Reserve Board, 
to consider the rate of return, after 10 years shall have elapsed, and — 
then to determine what, under the conditions existing at that time, — 
constitutes a fair and adequate return upon railroad property as a 
whole, the action of the transportation board being, of course, sub- — 
ject to review by the courts. It is thought that in the long run 
this plan of periodical revision. of the rate of return might afford 
greater protection both to railroad owners and to the public, while 
also assuring for the ensuing 10 years a definite basis that is not to 
be disturbed under the suggested plan. The investor would feel 
reassured because of the knowledge that any readjustment that might _ 
be made in the rate of return would be determined by nonpartisan — 
bodies without the disturbance bound to result if the question were 
from time to time made the subject of political discussion. | 
Mr. Winstow. Do you mind a question at this point? | 
Mr. Warsore. If you please. | 
Mr. Winstow. Did the board at any time consider a possible slid- 
ing scale of return, upward ? | 
Mr. Warsura. Upward or downward? 

Mr. Winstow. As a minimum? 

Mr. Warsure. I do not quite understand the question. Do you 
mean sliding up or sliding down? | 
Mr. Winstow. Sliding up. Let us say that you made the minimum. 

6 per cent, and after three years, under certain conditions, let it be 

7 per cent, and at another future period, 8 per cent, and so on. 

Mr. Warsurc. We have not discussed it just in that form, but we 
have reached the conclusion that it could hardly be less than 6 per 
cent at this time, because it would, to our minds, be plainly confisca- 
tory, and the whole law could then be attacked as being unconstitu- 
tional. If you will consider that our Government bonds, at present, 
















t 
4 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 219 


ell on approximately a 5 per cent basis—indeed on « higher basis, 
f you consider the tax exemption 
_ Mr. Wrnstow (interposing). It has been very clear, I think, from 
he testimony of three witnesses who represented the same interest, 
hat you have had in mind that 6 per cent might be regarded as too 
ow a rate; and I was wondering if at any time you have considered 
he possibility of meeting that from the beginning by a provision 
or a sliding scale upward, over that minimum rate. 
_ Mr. Warsure. No; we have not considered that, because we must 
ear in mind that, on the other hand money conditions at this mo- 
ient are entirely abnormal; and I do not think any one of us could 
are to say whether they are too high or whether they are too low, 
s compared to 10 years hence. To say that they should go up, in 
he law, I think, would be to subject us to the criticism that we 
ranted to foist upon the country for all times the consequences of 
he present abnormal conditions; and that is one of the reasons why 
ve think it shonld possibly be reviewed after 10 years, when prob- 
bly we shall have found our new level. It may be a little bit 
doner or later, but we need five years, approximately, for the con- 
slidations, and in a further five years, we think the railroads, in 
jeir new consoliated form—if in five years they can be consoli- 
‘ated—should have had an opportunity of showing how they are 
‘oing to operate. If after that period it is shown that 6 per cent is 
onfiscatory, or is not enough, and money will not go into private 
ulroads, then the transportation board will have to revise that and 
+) fix it so that it will be fair. If after that time it should be shown 
| tat we have entered upon a period of declining rates—a period 
\£ general stagnation, possibly—I do not anticipate it, but I just 
jeseribe it—in which money rates would decline, then it might be 
eld that either 6 per cent would be enough or in case there should 
,revail a well-grounded feeling that the railroads were receiving an 
chorbitant return, it might be reduced. I do not anticipate that. 
\uite generally speaking I believe that we are not going to see again 
jie low rates that we have seen in the past; but in spite of that it 
| possible that present rates may be somewhat higher than they may 
|2 in the future. We can not foretell, and that is really the reason 
| hy we think it only fair to provide for some machinery to reopen 
jie question at some time in the future. We would feel that without 
‘ich a provision Congress might possibly not be willing, even al- 
j,ough it were necessary in order to meet present conditions to grant 
1 adequate return. 

It was also discussed whether any future saving in interest on the 
‘ded debt should redound to the advantage of the country at large 
+ the owners of the railroads. In other words, if owing to the better 
|edit of the railroads they should be able to place their new bonded 
| debtedness, or to refinance maturing obligations, on a lower interest 
isis than 6 per cent, should the benefit of such saving accrue to the 
ockholder ? 
| While if such a course were desired the statutory rate could be so 
\xed as to yield 6 per cent on the aggregate final valuation of the 
ilroad properties less their funded and floating debts, and the net 
eld available for the railroads in that case would have to provide 
























— 


220 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


only for the dividends and not for the interest charges, such change 
seemed unwise to the conference for the following reasons: 
According to the statement of the Interstate Commerce Commis- 
sion for the year 1916, the interest paid (leaving aside amortization 
or discount written off and charged to profit and loss account), Was 
about $474,000,000 on about $11,000,000,000 of outstanding funded 
debt, that is at the rate of approximately 4.30 per cent, and on this 
present basis the amount available for dividends amounted to only 
$349.000,000 on outstanding stock of $8,250,000,000, or less than 4} 
per cent on the amount outstanding and approximately 63 per cent 
on the dividend-paying stocks, which amount to about 60 per cent 
of all the outstanding stock, according to the statement of the Inter- 
state Commerce Commission. | 
These results were secured in a year when the return on the total 
railroad property investment account was 5.90 per cent, the highest 
on record, which almost equals the proposed future, statutory rate= 
making basis of 6 per cent, and is in excess of this return, if we take 
‘nto account the contribution to the general contingent fund, which 
would reduce the 6 per cent return to 5.70 per cent net. : 
Under present conditions it is doubtful whether a substantial num- 
ber of railroads could sell large amounts of bonds on an interest 
basis netting less than 6 per cent; many, indeed, have recently financed 
on a very much higher basis. It is to be assumed that, if ever, it will 
take many years before maturing railroad bonds. could be renewed 
on a basis better than the present average charge of 4.30 per cent. 
In other words, as bonds mature and as more bonds are issued, the 
position of the stockholder is likely to depreciate rather than im- 
prove. Inasmuch, however, as the present condition of earnings and 
values of stocks and bonds is such as to have brought railroad de 
velopment to a standstill, it is clear that it would be fatal to cut 
down the very limited opportunities that have been preserved for the 
stockholder under the present plan. It is felt that it is the minim 
below which no attempt should be made to cut his chances. indeed 
the plan may already have gone too far in this respect. As has bee 
stated before, if stocks of the consolidated railways do not sell abo 
par railroad development will come to a stop. And hope for success 
in present circumstances is predicated upon the thought that in eac 
section there will be found some companies the final valuations 0 
which will exceed their capitalization, so that the percentage returt 
on their outstanding stock may be in excess of the percentage return? 
on the valuation. Against stocks and bonds of such companies the 
securities of the weak sisters would be exchanged on the basis of their 
respective valuations, and strength accumulated in the past will thus 
be used to benefit and protect the future. ] 
May I state here that this statement of 4.3 per cent as indicating 
the railroads’ interest charge on funded debt, which is given by the 
Interstate Commerce Commission, is not quite correct. The state: 
ment of the Interstate Commerce Commission includes all bondec) 
indebtedness, also those on which no interest is being paid becaust) 
companies are in receivers’ hands; it also includes income bonds 
On the other hand, it does not include the discount which is charge) 
able every year in cases where 4 per cent bonds have been sold 4 
let us say, 80 per cent, or 3 per cent bonds at 70 per cent. I believs, 



















RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 221 


's would be interesting for your committee to have this figure brought 
ip to date and thoroughly analyzed, because I believe it will show 
hat the actual interest cost on the bonded debt as being paid to-day 
's substantially higher than the figure given; it should also include 
he equipment trusts. I do not know whether those are included; 
~ do not believe they are. It seems certain, however, that the ad- 
‘antage which the railroads had in the past through their ability to 
‘ell railroad bonds on a 8 or 34 per cent basis, as they could in 1900, 
vill be lost as these bonds mature, and if they have to be renewed at 
i per cent, instead of running on a 33 per cent basis, you can readily 
ee that that is going to affect very materially the margin which some’ 
if the railroads at present enjoy. It is very important, therefore, to 
tart the railroads, in this period of reestablishment of credit, on not 
00 low a basis, because it is the highest basis that they probably ever 
‘vill have, because every time that new securities are issued and a 
jew dollar is added to investment account it adds money which will 
‘arn no more than approximately a 6 per cent return; the old exist- 
‘ng advantage will therefore be further decreased. Hence whatever 
'dvantage may exist now as an inheritance of the past, under this 
‘lan is Hable to be gradually reduced. It is a plan which is in no 
vay too favorable to the railroads; it has been reached considering 
‘he public interest first, and considering very carefully what would 
ie the minimum that could safely be proposed. 
| Mr. Wrnstow. In going over the relation between the bonds and 
/tocks and their incomes, have you taken into consideration at all 
/he possibility or probability of income taxation for a while? 
|| Mr. Warsure. That is one of the reasons why it is so necessary at 
(his time to be liberal with the railroads, because 6 per cent does not 
‘iy in itself what 6 per cent bought four years ago. It buys only 
‘bout one-half. In addition to that, taxes take a large amount off 
(hat 6 per cent; so that the temptation for the general investor to go 
jnto tax-exempt securities is very great. If he buys railroad securi- 
‘ies he must insist on buying them on an attractive basis. Of course, 
‘he future, we all hope, will bring about a readjustment, but how 
oon that may be we can not tell. You can tell that better than I. 
| Mr. Winstow. Would you feel that a bond would have to carry a 
ec rate than formerly on account of existing taxation laws? 
| Mr. Warsurc. No doubt. 
Mr. Winstow. And it would be very liable to bring them up to a 
tock dividend rate around par? ) 
| Mr. Warsore. I do not wish to be misunderstood. They may have 
jeached their maximum, or, rather, their lowest level. That will 
epend upon when we stop inflating. 
| Mr. Winstow. I had special reference to this bill. 
; er Warsurc. I beg your pardon; I did not catch your question, 
en. : 
' Mr. Winstow. I do not remember myself just how I put it, but 
jhe thought in my mind was that it might be possible that bonds 
‘rould have to carry a higher rate of return than they would have in 
elation to the stock return, say, 5 or 10 years ago? 
| Mr. Warsure. Oh, yes; there is no doubt. Ten years ago a 6 per 
mt stock sold at. 140. and some of the 6 per cent bonds to-day sell 
| elow par, if that is what you have in mind. 








ie 
4 1 
| 





222 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Winstow. I was thinking about the return more particularly— 
financing the road with the same relation of difference between the 
return on the stock and the return on the bonds as you could haye 
10 years ago, or whether you will have to make an allowance for some 
higher rate of bond interest? 

Mr. Warpsure. I think in the past possibly the stockholder was 
satisfied with a smaller return, because he thought he had a specula- 
tive investment. In the future he will compare the stock to the 
bonds, because there will remain very little speculative value in rail- 
road stock, and, therefore, the stock will have to offer him a larger 
return than the bond, the speculative feature having been eliminated. 

If railroad stocks should prove incapable to attract the investor the 
alternative would be a direct Government guarantee of railroad secu- 
rities, which, if extended over $18,000,000,000 of stocks and bonds, 
would tend most dangerously to depreciate our Government credit, 
It is doubted whether under present circumstances a 5 per cent Goy- 
ernment bond offered on so large a scale would sell at better than 
par, particularly if it were subject to full taxation and if every year— 
for additions, betterments and improvements—an additional amount 
approximating $1,000,000,000 were issued. 

The Government could not to-day refund the outstanding obliga- 
tions of the railroads without paying a substantially higher interest 
charge than the carriers pay to-day on the outstanding debt. ' If the 
Government guaranteed a certain minimum return on the stock of the 
new Federal corporations of, let us say, 44 per cent, the rate-making 
body would have to provide an adequate margin above that in order 
to preserve the incentive of competition, and so as to safeguard the 
liability incurred by the Government. In other words, if the Gov- 
ernment guaranteed 44 per cent the Interstate Commerce Commission 
would have to try to establish rates providing 6 per cent in order to 
protect the Government against all hazards. The saving to the 
country would, therefore, be unimportant, while the loss in the Goy- 
ernment’s credit would make itself felt all along the line. | 

It is barely possible that if consolidation should not materialize on 
the basis of voluntary action on the part of the railroads involved, 
it may prove necessary to have the transportation board itself organ- 
ize new holding companies, with power to acquire by condemnation 
proceedings the railroads to be merged into a consolidated concer, 
and that in order to make these mergers possible such new Federal 
holding company would have to issue a stock endowed with a Gov- 
ernment guaranty. Let us hope, however, that such eventuality may 
be avoided. : at 

The plan of the transportation conference has the distinct advan- 
tage that within a reasonable number of years it will free the 
Government from any financial liability and will take it out of actual 
business, while, on the other hand, plans contemplating individual 
railroad guarantees are considered by many as likely to lead the 
Government into direct and permanent railroad operation. 

The next short paragraph deals with the interval during which 
consolidations are being effected and the Interstate Commerce Com- 
mission is completing valuations. f 

It is obvious that ample time must be given to devise and perfect 
the contemplated consolidations and that a modus vivendi must be 
found for the operation of the railroads during the interval. As the 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. pis 


Federal reserve act provided for an organization committee which 
was charged with the duty to divide the country into no less than 
$ and no more than 12 districts, so our plan provides for a trans- 
portation board that shall approve or determine the number of 
consolidated systems and their groupings. 

__it shall give the railroads an opportunity, and all possible as- 
sistance, to carry them into effect. If the mergers can not be per- 
fected by voluntary agreement the board, after five years, shall 
have power to complete them by compulsory proceedings. The 
board shall also have power to sustain railroad credit pending this 
period of consolidation. 

But how are rates to be fixed and profits to be divided during the 
interval when valuations are not yet completed and not available 
to serve as a basis for rate making and division of excess earnings? 
It is conceded that any basis during this period will have to be some- 
what arbitrary and can not be entirely satisfactory. But the report 
appears to have established a method as fair and equitable to all 
as possible in the circumstances, As a general basis for rate making 
it is proposed to use the aggregate property investment accounts of 
the railroad of each traffic section, as at present carried by the Inter- 
state Commerce Commission. While it is admitted that these prop- 
srty accounts, taken individually, in some cases are too high and in 
»thers too low, it is generally assumed that, considered as a unit, 
they may be accepted as furnishing a fairly accurate basis to be used 
us a temporary yardstick. 
| When dealing with individual roads, however, the often highly’ 
arbitrary investment account can not be safely accepted as a basis 
for determining excess profits. The report, therefore, recommends 
shat for the purpose of ascertaining excess income the valuation of 
wy individual railroad system, pending the completion ot the tinas 
valuation, shall be that proportion of the aggregate property invest- 
nent accounts of all the railroads of the traffic section in which 
t is located which its average annual railway operating income 
(computed for the period and in the manner prescribed by the 
federal control act of Mar. 21, 1918) bears to the aggregate annual 
‘ailway operating income of all the railroads of such traffic section, 
omputed in the same manner. 

Toe make this clear, taking entirely arbitrary figures for the pur- 
ose of an illustration, if the aggregate property investment accounts 
nthe plan, its earning valuation would be 10 per cent of $7,000,000,- 
md their total net railway operating income during the test period 
mounted to $350,000,000, if a railroad company’s net operating 
neome (standard return) in that period was $35,000,000, or 10 per 
ent of the total income, then, subject to the adjustment provided 
n the plan, its earning-valuation would be 10 per cent of $7,000,000,- 
00—that is, $700,000,000—and the railroad company would divide 
xcess earnings above 6 per cent on that amount—that is, above $42;- 
00,000. Discretionary power would be vested in the transportation 
joard to make adjustments in particular cases involving undue 
-ardships. It is furthermore provided, first, that if the use of the 
bove-stated method shall produce a valuation of any particular 
ailway system greater than the amount’ of its property investment 
/ccount for the three-year period ended June 30, 1917; the amount 









" 


9294 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


of such property invest 
valuation derived by the 
shall not operate to reduce the railway op 
particular railroad system below 
ing income as computed under t 
1918. This proviso appeared as 


fact that the railroad had demonstrated 


ment accounts shall be used instead of the 
formula; second, that the use of the formula 
erating income of any 


its annual average railroad operat- 
he Federal control act of March 21, 
more than equitable in view of the 


its ability to make these 


earnings upon a basis of rates which have stood the various tests 
and were admittedly not too high, and in some instances have been 
decreed to be too low by the Interstate Commerce Commission; 


third, that to such valuation as shall b 
system in the manner above stated there 
of property investment made by such system 
ndard return was fixed. 

d, if the law as proposed went into effect, that 
ird to the railroads and two-thirds to the gen- 


that is, after the sta 
Tt has been figure 
on a basis of one-th 


e derived for any railroad 
shall be added all increases 
after June 30, 1917— 


eral fund (after the individual contingent fund had been filled), 
the result would be approximately as follows: 


| 








Increase to 
| Present 6 per cent on 
Section. standard aggregate 
| return. investment 
accounts. 
astern ous ce sce | $354,000,000 | $408, 000, 000 
Southern.......... | 139,000,000 156, 000, 000 
Waster. .... 0... 4s 402, 000, 000 468,000, 000 
Total........! 895,000,000} 1,032,000, 000 


| 
| 


Retained by 
railroads 

after turning 
Increase. over two- 
thirds to 

general con- 

tingent fund. 


bee 
Increase to 
y general 
railroads. | eontingent 
fund. 


| » S 





$54,000,000 | $390, 000, 000 
17,000,000 | 149,000, 000 
66,000,000 | 442,000,000 





40,000, 000 
137,000,000 | 981,000,000 


$36, 000, 000 | $18,000, 000 
10,000,000, 7,000,000 

| 267.000, 000 
86,000,000 | 51,000, 000 


- 











So that $86,000,00 


Salmon will 


rather than by the strong ones. 

To these figures there woul 
per cent on additional investments 
pensated for by the present standar 
as the transportation board would make. 

In this manner a capitalization of earnings 
for the highly arbitrary basis o 
accounts. The only use of that accoun 
providing that where th 
than the existing proper 


0 is what the railroads retain, and that, as Mr. 


show, is what will be retained by the weak railroads 


be used as the basis for determining excess income. 
It is believed that the provisions of the plan proposed by the 


transportation conference wi 
years of the interva 
enable most of them 
tions until the mergers are completed. 

Where immediate financial assistance by t 
quired the report recommends that provision 
transportation board, directly or indirectly 
Finance Corporation, to extend temporary s 


systems. 


d have to be added the return of 6 
(since June, 1917) not com- 
d return and such adjustments 


has been substituted 
f individual property investment 
t is made in this plan by 
e temporary earning valuation is higher 
ty investment account that account is to 


ll afford railroads during the ensuing 
1 a sufficient strengthening of their credit to 
to carry on their financial and physical opera 


he Government is Tre 
be made to enable the 
, through the War 
upport to particular 


; 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 225 


I can not help feeling that in the public mind a mistaken em- 
hasis generally is being placed both upon the effect of cost of 
ransportation upon the cost of living, and also upon the part played 
y the cost of capital as a factor contributing to the cost of trans- 
ortation. 
If, quite.arbitrarily, we assume that the cost of things produced 
er year in the United States amounted to something like $60,- 
00,000,000 or $70,000,000,000, the total cost of transportation would 
mount to only 5 per cent of the cost of all things produced. An 
ierease of 20 per cent in the cost of transportation would therefore 
spresent an item of no more than approximately 1 per cent of 
ae cost of things in general, even though in the case of certain 
rticles transportation constitutes a much larger share of the cost 
f production. I can not follow the theory propounded by some 
aat the cost of living would be raised to an extent equaling four 
mes the amount directly involved in the increased cost of trans- 
ortation. If the price of coal rises due to increased wages both 
1 mining and transportation, why should one increase in wages 
ave a different effect than the other? 
It would be well for us, however, to bear in mind that in a period 
uring which the index prices for commodities show an increase of 
J0 per cent, the rates charged for the transportation of passengers, 
scording to recent statements, increased only 40 per cent and of 
‘eight only 20 per cent, or, as it has been cogently expressed, “a ton 
fany given commodity will at present purchase more transportation 
tan it could at any previous time.” 
Finally, when we remember that the annual increase in return con- 
‘mplated in our plan equals about one-tenth of the increase in 
ages authorized by the railroads since the beginning of the war, we 
7 not escape the conclusion that the adequate return to be allowed 
) the investor plays only a comparatively unimportant part in the 
hole situation. ; 
May I venture to remind you, moreover, that it would be a mis- 
wtune if remedial legislation were passed which did not go to the 
ot of the evil—legislation of a palliative character, or that was but 
mporary patchwork, and would leave unsolved a question certain 
' grow increasingly difficult ? 

welve years ago a situation similar to the present railroad prob- 
m existed with respect to banking reform. After the panic of 1907 
ere were numberless suggestions for monetary reform contemplat- 
g nothing but the patching up of the situation by new sorts of note 
sues against Government bonds or asset currency or clearing-house 
rtificates. Successful financial reform, the blessings of which the 
untry has enjoyed during these critical times of war and stress, could 
ly be accomplished after it was clearly recognized that the remedy 
veded was one that would reach the root of the evil, and not deal 
arely with its symptoms. It is sincerely to be hoped that the meas- 
es of reform to be applied by Congress in dealing with railroad 
form will be as thorough and as courageous as was the legislation 
‘th respect to banking. We may then hope for as signal a success 
the momentous task before us at this juncture. 
That is my statement. 
The Crarrman. Are there any question ? 


152894—19—vor 115 








226 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Dentson. Mr. Warburg, does this plan contemplate taking in 
all of the railroads in these systems, or do you know about that? 

Mr. Warzsure. Yes; it contemplates dealing with all railroads. I 
do not see how you can leave out any. May I amend that? Purely 
intrastate railroads would of course be excluded. 

Mr. Denison. I was going to ask you about that. 

Mr. Warsure. Yes. If there were any local railroad that does not 
have any bearing at all on interstate commerce, that would_not be 
affected by it. 

Mr. Denison. So that railroads that do purely an intrastate busi- 
ness would not be affected at all by this proposed plan? 

Mr. Warzura. No. Any railroad that could sustain that claini. 
that it was doing only an intrastate business, would not be affected 
by it. 

Y ask permission to put into the record some figures which it might 
be advisable to bear in mind in this connection. With particular 
reference to the change that has taken place in the security market 
due to war loans and war inflation of prices, British consols since 
1914 went down from 75 to 58; French 3 per cent rentes from 864 to 
524. It is difficult to establish a comparative basis for our own Goy- 
ernment bonds on account of the complex question of tax exemption. 
but I believe it is a fair statement to say that our own Government 
credit for fully taxable bonds has moved from approximately a 3 to 
a basis slightly above 5 per cent. English and French loans maybe 
bought in our market in dollar obligations on a basis in excess of 
6 per cent, while in pound sterling and in frances they may be pw 
chased on a basis of 5 per cent and 54 per cent, respectively. . Owing 
to the discount of the sterling of approximately 10 per cent and oi 
the franc of 40 per cent Gover mninent securities in these countries may 
be bought by the American investor at a corresponding discount 
which increases the return by_10 and 40 per cent, respectively, the 
latter subject to French taxation. Swedish and Swiss Government 
bonds are offered in this market in dollars on a 6 per cent basis) 

If we turn to American railroad bonds, we find New York Central 
convertible 6 per cent bonds selling on a 61 per cent basis; B. & O. 10- 
year 6 per cent bonds ona 61 per cent basis, and B. & O. convertible 
bonds on a basis netting 74 per cent. Pennsylvania general mortgage 
5 per cent, bonds may be had on a 5.27 per. cent basis, and C.,M. & St 
P. 44 per cent convertible bonds may be bought on a 7.20 per cent 
basis. 

In the menthly letter of the Alexander Hamilton Institute we 
find these significant figures: 

Twenty railroad bonds averaged in August, 1914, 943 per cent; they average 
to-day 81.54 per cent. Twenty railroad stocks averaged in 1914, 103 per cent: 
they average to-day 86.76 per cent. While, on the other hand, 20 industria 
stocks in that same period moved up from 81 per cent to 105.82 per cent. 

In other words, railroad stocks lost 17 points and industrial stoel 
gained 24 points, a difference of 41 points. In the same period wi 
index cost of food increased from 145 to 300. | 

It is necessary to fully realize the importance of these conditions 
Offhand, the public at large, unacquainted with actual economi 
conditions, might be apt to say that 1f a 6 per cent on the valuation 
worked out a return in excess of 7 per cent on the stock of some 01 
the strong consolidated companies, that this would constitute an ex 






















ated. 
; 














RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


227 


‘sive burden upon the country. I believe a close analysis of our 
esent conditions would show that such an impression is unwar- 


@ of railroad stocks (common) on New York Stock Exchange year ended 
a. Dec. 81, 1918. 



































Gross earn- 
High- | Low- ahaa Operated! ings, vear 
est. est. 1919.” mileage. | ended lee. 
. : 31, 1917. 

ing 20 per cent dividends: 

Deleware, Lackawanna & Western!............... 370 320 380 980 $57, 437, 388 

ing 12 per cent dividends: 

Central of New Jersey (8 per cent registered, 4 per 

ce eee al ceek 220 202 207 684 37, 096, 739 
ing 10 per cent dividends: 

a ES SE ee ee 1374 | 1093 | 133 | 28,002} 2130, 101,8e4 
; SSSI ae ener 1303 | 1074] 106 1, 449 53, 358, 446 

ing 9 per cent dividends: ; 

(OSS Ss a cr 1193 100 114 909 29, 935, 658 

ing 8 per cent dividends: 

Uhieago, Burlington & Quincy.................... 215 BOO fete oie ae | 9,373 122, 342, 707 
4 EREDAR eran 192 | 1404] 180 21,584! 275,411, 518° 
nN a ti Co one 108 s93 | 101 787 3,331 

MNS PANG eile et 893 4, 44, 063, 33 

(Shieago & North Western......................... 107 go; | 101 8,410 | 109/479) 440 
po SSE eee ere 1064 86 96 8, - 88, 617, 190 

1 Bo y j, 148 5, 296, $ 

ri | ict] ato | xis | Sbee | 102288 008 

Minneapolis, St. Paul & Sault Ste. Marie........-. 973 soz 934 | 24,228 2 34, 540, 491 

Nashville, Chattanooga «& St. Louis................ 1193 117 117 1, 236 15, 194, 755 

vee ener 2. SOME BS) Sass eae ee ee 1123 102 107 2, 086 65, $10, 242 

MMIC... 8... cee ee eee 105 814 97 6, 926 89, 412, 314 

Pittsburgh, Fort Wayne & Chicego (Pennsylvania 

CE ee ae ee 1303 pee! Ga RN De ore Oe, (3) 
|, 0g 6 per cent dividends: aes ob ata” 

\Atehison, Topeka & Santa Fe................2...2 993 81 100 11, 354 165, 887, 583 

EO, ck cle ee ce wee cence 1004 864 92 211,872 |} 2490, 404,127 

I ge ck, 110 804 106 11, 164 193, 498, 458 

we acc ee eee Ia sa Spas ael Peale Ae, 104,319 | 1, 984, 896, 542 
| ng 5 per cent dividends: 

Yhicago, St. Paul, Minneapolis & Omaha.......... 82 69 75 1,749 21,476, 509 

fuera eriral Ry R22. ....--2-.+-----c-.----- 848 674 80 212,045 | 2 399,074,477 
ithe ar Poa. 62 484 43 059 137, 046, 837 

; Amore io kegs 6 a eee D. pH 4 5, 5 31, £0, 37 

3uffalo, Rochester & Pittsburgh................... 80 70 60 585 14, 975, 000 
MeO...) «8. . -..eeceeeneeee 623 493 64 2,378 54, 643, 794: 
PTT oso eee eee eee 95 803 100) Foegeenebe4 (°) 

ees nat Chicago & St. Louis....... 58% 46 TSS Se re (3) 

| og 3 per cent dividends: 
eee ceeee 46 46 CET By Soe ete (5) 

} ag 2 = cent dividends: 

jee Ontario & Western.................... 243 18} 22 568 9,159,175 
| Viseconsin Central7................ pie eer 39% 29% 38... | siecs aber (8), 

yaving dividends: 
tlanta, Birmingham & Atlantic.................. 103 5 14 640 3, 983, 368 
cee 11 7 92 1,052 20, 525, 689 
/hi@age é Great Western... ....5......22...-.-.-- 11 6 103 1, 496 16, 368, 323 
hicago, Rock Island & Pacific.................... 324 183 30 8, 297 89, 608, 722 
) , Milwaukee & St. Paul.................... 54h 374 50 10,561 | 114, 616, 725 
le d, Cincinnati, Chicago & St. Louis........ 40 26 SONG real 5 
Wr OuhioIm -_........:..........:.. 275 18 24 1,841 18, 685, 810 
Mere Gitonde... |... eee cee 7 2t 11 2,790 29, 056, 258 

| uluth, South Shore & Atlantic................... i 2 43 746 5, 501, 145 

Ui... | Sr Deereee htt 238 14 19 2,878 84, 853,778 

ull, Mobile & Northern..........¢2.............. 10 8 10 369 2,322, 650 

eae ae ep oe a lpia 4 = 62 838 12, 410, 965. 

be T1e oo) adh 2 2 Ree 9 eee ae oe ee li LOB aos Sane, ae 5 

| taneapolis & St. Louis (new).................... 154 i 21 1, 647 11, 005, 063 

ise mamsas & Texas......................22 4 43 14 3, 868 43,444,150 
ES eee eee 318 20 36 7,301 78, 320, 313 
ew Orleans, Texas & Mexico..................--- 363 17 37 1, 013 6, 661, 229 





| 2mmings and mileage for the system. 
|.ennsylvania System. 


| 2w York Central System. 
| Mnheapolis, St. Paul & Sault Ste. Marie. 
) st payment 1 per cent Apr. 1, 1918. 


lares $59 par value; quotation doubled to indicate ratio to par. 


jaltimore & Ohi Seu 23 per cent in 1918 and will pay 2 per cent Feb. 


1, 1919, on common stock. 


' 


228 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 





Price of railroad stocks (common) on New York Stock Hachange year ended 
Dec. 31, 1918—Continued. 





5 
i 














: Last Gross earn- _ 
High- | Low- 2 | Operated| ings, year 
est. est. 1919. mileage. | ended Dec. — 
: 31, 1917. 
Not Melee dividends—Continued. : 
ew: York, Chicago.& St. Louis... sac.) s+ weaels- sees 34 133 31 523 | $16,901,206 
New York, New Haven & Hartford..........---.-- 45% 27 39 1, 997 85, 784, 893 
Noriolk cc Southern. ses 02.5 fe evens hems Res ques 214 14 18 908 5, 299, 914 
Peotladcstaston a. oe casae fae ae bee oeee 62 4 17 7 eee (8) 
Pere Marquette... 2... ------2-+-- Seo eben aaenk 182 3, 23 2, 245 23, 507, 856 
Pittsburgh cg: Wiest VAreiwla ce, te eto ete eerie ee 402 228 40 63 1, 289, 883 
St. Louis & San Francisco....... Veccs va tueihs sake 174 93 24 5, 165 59, 684, 642° 
St. Louis & Southwestern ........---------+<+-+-++- 25 19 20 1,817 17, 448, 824 
Sdapoard Ais LANG. Bol, etic. as cube baleen 12 7 11 3, 499 30, 405, 445 
Southern R. Rice... see siett eS eee oe ae ceue nese 34% 208 30 6, 983 135, 560, 166 
Tetad & Pace. oo. f 5 a. ae ee ee ee cae , 14 60 1,995 |° 22, 889, 306 
Toledo, St. Louis & Western certificates..........- 74 4 li 454 7, 041, 663 | 
Wabash. ....-2-----2-eeeeeeee ee eee ee eeee seer en cece 12 7 13 2,492 40, 471,999 
Western Marylandot a. 2 cncsccett sme wletcle iar Mere 173 10 14 708 13, 638, 450 
Western Pacities... oc. Sper n= eae ng ame eee 24% 13 25-1 ‘gua teed 9, 898, 484 
VWiieeling a ‘Lake, Erie. 7 ven cut Cre tame nee 122 8 114 545 11, 028, 904 
Totaly ie. ociss faces yo oelcae oh Ge Shae. Goapele vs tienen oe tae 98,059 | 1,654, 591, 615 
SSS ee 
Grand total.cecoi.t pa ee do eae ds Ts fess Ra ee 202,378 | 3, 639, 483, 157 





1 New York Central System. 


The CuatrMan. The committee will recess now until to-morrow 
at 10 o’clock, and Mr. Salmon, will you be ready in the morning? 

Mr. Sautmon. Yes. ma | 

(Whereupon, at 5.10 o’clock p. m., the committee adjourned until 
Thursday, July 24, 1919, at 10 o’clock a. m.) : 





CoMMITTER ON INTERSTATE AND ForEIGN COMMERCE, 

Hovusre or REPRESENTATIVES, . 

Thursday, July 24, 1919. _ 

The committee met at 10 o’clock a. m., Hon. John J. Esch (chair- 

man) presiding. 4 

The Ciarrman. Mr. Salmon, are you to be heard next? 
Mr. Satmon.. Yes, sir. 


| 
| 


STATEMENT OF MR. W. W. SALMON, OF ROCHESTER, N. Y. q 


The Cuarrman. Mr. Salmon, the committee will be glad to he 
you. Give your name and address. 
Mr. Sauaon. W. W. Salmon, engineer and manufacturer, Roches 
ter, N. Y. 4 
Mr. Sus. Mr. Chairman, the gentleman made a statement of his 
name and business, but none of us could hear it. I would like to 
know the name and business of the gentleman making the state 
ment. : G| 
Mr. Satmon. My name is W. W. Salmon, and I am an engineer 
and manufacturer, of Rochester, N. Y. \ 
Mr. Srms. What kind of manufacturer? ee 
Mr. Saumon. A manufacturer of railway appliances. 7 
Mr. Srmus. Railway supplies, I suppose. . 2% 
Mr. Satmon.. Yes, sir. . | 





= 








<a 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 229 
' Mr. Sms. I notice you are here on rate making and I did not 
‘mow but that you were connected with some traffic bureau or some- 
hing of that sort. 
' Mr. Satmon. No, sir. 
~ Mr. Srus. And an expert on rate making generally? 
' Mr. Satmon. No, sir; I can not claim that distinction. 
- Mr. Srms. You are interested rather in shipping rates than other- 
‘vise; I mean, in rates as a shipper? 
_ Mr. Satmon. Rates, as a shipper, interest me very much. 

Mr. Stms. I say, rather that than otherwise ? 
' Mr. Saumon. Yes, sir. 
Mr. Chairman and gentlemen, the national transportation con- 
erence, the meetings of which I have attended from the beginning, 
requested that I prepare a statement for submission to your body 
‘especting the conference proposed rule of rate making, and that J 
rive illustrations of the operation of the rule, and in accordance with 
hat request I have prepared a statement which, if I may, I will 
yroceed to read. 

The Cuarrman. Very well. 
| Mr, Satmon. The national transportation conference having de- 
lared itself favorable to private ownership and operation of the 
ailroads, consolidated into strong competitive systems, subject to 
federal jurisdiction and to Federal regulation of their rates and 
ecurity issues, was immediately face to face with the perplexing 
sroblem of what can be done, what new element of policy be found 
ind adopted that will so strengthen and sustain their credit as to 
nable them to secure from private investors the moneys without 
rhich it will be impossible for them to realize the above-stated pro- 
ram and thus to satisfy the transportion needs of the country. 
| It was felt that among the things essential to restoration and main- 
enance of railway credit two of the most important are, first, an 
uthoritative governmental declaration as to what shall be deemed 
reasonable minimum rate of net earnings upon the aggregate value 
f railroad properties devoted to public service, and, second, a recog- 
ition and assumption by the Government, which regulates the rates, 
nd in a large degree determines the expenditures of the railroads, of 
$ obligation in fixing rates to so fix them that they will produce 
sventes adequate to yield the declared reasonable minimum rate of 
et earnings upon the aggregate value of the railroad properties 
evoted to public service. 

In discussing what might be regarded as a reasonable minimum, 
\ttention was strongly directed to the facts that in the three years, 
ided June 380, 1917 (hereinafter referred to as the test period), the 
geregate net earnings from operations of all the class 1 railroads 
{ the United States were approximately $895,000,000, or approxi- 
jiately 5.2 per cent upon their aggregate property investment ac- 
Punts amounting to $17,192,000; that during this period of relatively 
\090d average earnings the railroads were unable to secure needed 
jinds on such terms as would warrant the etnission of their securities 
)r equipment, improvements, and extensions required in the public 
iterests, though industrials were at the same time able to sell their 
| curities on favorable terms, by which it is meant that the funds 
jtocured from the sale of such securities would earn in industry 





| 













230 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


a profit over and above the interest charges thereon. The confei 
ence discussion developed the fact that, in its opinion, the net ean) 
ings from railroad operations during the test period were insuflicier 
to attract the capital that must be had if the railroads are to |) 
organized and equipped-to adequately serve the needs of the countr 
and that they would continue insufficient unless increased in 9) 
amount at least equaling the difference between 5.2 per cent and | 
per cent on the aggregate property investment accounts, ‘i 
Out of these and other important considerations grew the folloy| 
ing recommendation of the conference: | 
Sno. 9. The conference recommends that a statutory rule be enacted by Co} 
gress requiring that railroad rates and fares, to be established by public autha 
ity, shall be designed to yield the railroad companies in each traffic section 
the United States (as shall be designated by Federal authority) aggregate re 
enue sufficient to produce, after proper provision has been made for renewé) 
and depreciation, a net return (which shall be available for interest and di) 
dends) of not less than 6 per cent per annum upon the aggregate fair value 
the property of the railroads devoted to the public service in each of the sever 
sections. The items of “renewal and depreciation ” shall also include ump) 
ductive improvements not properly chargeable to investment account 2 
against which no capital or capital obligation shall be issued. 
It should be carefully noted that the conference does not recoi| 
mend that the rates and fares to be authorized shall yield 6 per ce! 
upon the value of the property of each railroad or of any particul 
railroad. ! | 
It is the view of the conference that while the railroads as a whi 
must earn from operations an average aggregate annual net return | 
not less than 6 per cent upon the aggregate fair values of their pre! 
erties devoted to the public service, if they are to be able to co 
mand the capital required for their needed development, there w 
doubtless be in the future, as now, substantial differences between t) 
rates of net return of the several railroads. Therefore, in this reco} 
mendation the railroads of the country are referred to in the agg! 
gate.in each of the traffic sections designated by Federal authori 
and it is the belief of the conference that in this, as in its furtl} 
recommendations, nothing will be found that will cause lessening 
zeal on the part of any railroad officer or employee to so conduct {| 
affairs intrusted to him that his railroad may properly earn 7) 
greatest possible share of the aggregate net return of the group | 
railroads of which his is a part, for the conference recognizes tl) 
any rule which has such an effect inevitably decreases the efficier! 
and increases the cost of service to the public. | 
The conference discussed at length the elements that should py 
erly be considered in arriving at a determination of the fair va. 
of railroad property and, recognizing that a considerable time ny 
of necessity elapse before such value can be ascertained for all of 1 
railroads of the country, sought to find a basis of valuation whi 
pending an authoritative, permanent fair valuation, may serve 2) 
fairly satisfactory temporary basis in establishing rates. It reac 
the conclusion that while doubtless the fair value of the prope 
of certain railroads will be found to be much less than the amo? 
shown by their property investment accounts, the reverse will 
found to be true of many other large systems, which in the 
charged to operating expense large sums which, under the oxi 
accounting rules prescribed by the Interstate Commerce Comn 






it 
4 


Lo 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 231 


sion; would have been charged and are properly chargeable to capli- 
val account. It is the belief of the conference, based upon a com- 
sarison of the book valuation of our railroads as a whole, with that 
of the railroads of other countries where labor was much cheaper 
shat it will be found when the Federal valuations are completed that 
che aggregate property investment accounts of all the railroads 
ft the United States and in each of the existing traffic districts or 
ections amount to less rather than more than the Federal valuations 
will show. The conference therefore adopted the following resolu- 
ion: | $ 

Sec. 10 (in part): The net return to be obtained by the railroads as a result 
f the enforcement of a statutory rule of rate making shall be based upon a fair 
‘alue of the railroad property devoted to the public ‘service, as ascertained by 
he Interstate Commerce Commission, such valuation to include a consideration 
.f physical property, earning power, and such other elements as may be proper 
‘n determining fair value. : 
, Until such valuation shall have been determined, the valuation to be adopted 
‘or the railroads in the United States as a whole and by traffic sections shall, 
or the purpose of making the rates that yield the aggregate net return to be 
rovided by statute, be their aggregate property investment accounts. 
_It is the belief of the conference that, while a great majority of 
he people of the United States should and will approve of a rule 
f rate making designed, in their interest, to yield a minimum aggre- 
rate net return adequate to attract private capital in quantities 
ufficient to enable the railroads of the country to economically fur- 
ish the facilities required to meet the needs of our great and con: 
‘tantly increasing commerce, there should and would be a vigorous 
yrotest against any rule the effect of which is deemed likely to 
duly increase the earnings of railroads whose earnings in the 
last are quite generally believed to have been ample. The confer- 
nee therefore considered most carefully what could be done to sat- 
isfy this most natural and reasonable view, it being quite certain 
‘nat if the average net return of all of the railroads of the United 
itates should, in consequence of the proposed rule of rate making, 
jwerease from the 5.2 per cent of the test period to 6 per cent per 
‘gnum on their aggregate property-investment accounts, certain 
ulroads whose earnings in the test period were greatly in excess of 
per cent would have a substantial increase over their earnings in 
}1e test period, and that, so far as they alone are concerned, neither 
|1e conference nor the country at large would deem it necessary to 
x rates designed to obtain a greater yield than that of the test 
‘erlod. 
With this in mind, the conference sought to find an equitable 
wis for determination of what might properly be regarded as 
|xcess income from railroad operations under the proposed rule of 
ks making, and what disposition might be made of such excess 
‘come which would be-just and useful and would not tend to dis- 
jyurage initiative and efficiency or operate to encourage or reward 
| competent or inefficient management. 
| The conference is of the opinion that all income in excess of 6 
*r cent per annum upon the fair value of the railroad property 
voted to the public service, ascertained as set forth in above- 
1oted extract from section 10 of the conference resolutions, should 
|} regarded as “ excess income;” but, in order to provide a tempo- 
‘ry basis for determining what shall be held to constitute “ excess 













 H 


982 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 
































income ” until the completion of the Federal valuation the conference) 
adopted the following: | 
Src. 10 (in part). For the purpose of ascertaining excess income, the valuation | 
of any individual railroad system, pending the completion of the said Federal) 
valuation, upon which it shall be entitled to retain 6 per cent per annum, shall 
be that proportion of the aggregate property investment accounts of all the 
railroads of the traffic section in which it is located which its average annual 
railway operating income (computed for the period and in the manner pre} 
scribed by the Federal control act of Mar. 21, 1918) bears to the aggregate 
annual railway operating income of all the railroads of such traffic section, 
computed in the same manner: Provided, First, that if the use of the above} 
stated formula shall produce a valuation of any particular railroad system) 
greater than the amount of its average property investment account for the} 
three-year period ending June 30, 1917, the amount of such property investment} 
aceount shall be used instead of the valuation derived by the formula: And) 
provided, Second, that nothing herein contained shall operate to reduce the raik 
way operating income which any particular railroad system shall be permitted) 
to retain below its annual average railway operating income or compensation as) 
computed or allowed to it under the Federal control act of March 21, 1918. To} 
such valuation as shall be derived for any railroad system in the manner above 
stated there shall be added all increases of property investment made by such} 
system after June 380, 1917. 
The Federal Transportation Board shall be vested with the same power to} 
make specific adjustments in particular cases, as is conferred on the Director) 
General of Railroads under the railroad-control act of March 21, 1918. | 
Tt is an exceedingly simple matter to understand how excess income 
will be determined when the Federal valuation of the railroads shall 
have been completed, since any and all earning over 6 per cent on the} 
ascertained valuation of any individual railroad system will consti} 
tute excess income. But the conference formula and provisos, above! 
quoted, for ascertaining excess income pending completion of the) 
Federal valuation are not equally simply, and, for clarification, the’ 
following jllustrations are cited from accompanying table No. 2. — 
Mr. Chairman and gentlemen, I do not think that for the moment! 
it will be necessary for you to refer to the table, because I think the) 
text will sufficiently illustrate what is referred to here. { 
The amount of the average aggregate property investment ac) 
counts of the 82 class 1 railroads of the southern district for the) 
three-year period ending June 30, 1917, was $2,589,615,640; the) 
average aggregate railway operating income of all these railroads) 
for the same period was $138,820,918. For the same period the aver} 
age railway operating income of the Tennessee Central was $168) 
753, equal to 0.11815 per cent of the aggregate like income of all the) 
railroads of the southern district. Under the conference formula,| 
the temporary valuation of the Tennessee Central, for the purpose 
of ascertaining excess income, equals 0.11815 per cent of $2,589,| 
615,640, or equals $3,058,341 instead of the $19,717,592 shown as Wie) 
average amount of its property investment accounts in the perk 
named. All of its net railway operating income over 6 per cent p@ 
annum on this $3,058,341 valuation, or over $183,500, would con} 
stitute excess income, unless in the test period its average annual) 
railway operating income exceeded $183,500, and as such was not) 
the case in the test period, any income in excess of $183,500 would) 
actually constitute excess income. ay 
The CuarrMAn. You might read simply the round figures. — 
Mr. Saumon. These are the actual figures, Mr. Chairman. ] 
The CHarrMan. Yes; but for the purpose of this hearing, 
might be well for you to simply read the round figures. 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. wo 






! Mr. Saumon. Yes; I will do that. 

} Take from the same table another and extremely different illus- 
| ration, that of the Norfolk & Western. Its average net income 
from operations for the test period were $20,893,498, equal to 
/'5.05132 per cent of the aggregate of such earnings for all of the 
‘ailroads of the southern district during that period. Under the 
\-onference formula the temporary valuation derived for that road 
‘yould be 15.05182 per cent of the aggregate property investment 
\.ecounts of all of the railroads of the district, or $389,771,475; but, 
\inder proviso 1, this derived valuation can not be used, since it ex- 
|eeds the amount of the average property investment account of the 
‘allroad, which was $264,792,196. On the other hand, 6 per cent 
\ipon this last-named amount would be only $15,887,532, and as this 
|$ less than its average net railway operating income for the test 
jyeriod, amounting to $20,893,498, only income exceeding this latter 
mount will be regarded as excess income. 

The effect of proviso 2 is thus seen to be that, whereas, pending 
| he completion of the Federal valuation of railroad property, no net 
|ailway operating income not in excess of the average of the test 
jeriod shall be regarded as excess income, all railway operating in- 
‘ome in excess of such average is treated as excess income when 
arned by a railroad that earned 6 per cent or more on its property- 
javestment account during the test period. The purpose of this pro- 
}ision is that no such railway whose earnings during the test period 
|vere 6 per cent or over shall even temporarily unduly profit from its 
jnerease of earning growing out of the operation of the proposed 
‘ule of rate making. 

| Upon a careful review of the various plans suggested as to the dis- 
position to be made of excess income it was the opinion of the con- 
‘erence that it should be used wholly or in major part to establish 
nd maintain certain railroad contingent funds. It is obvious that, 
|o matter how honestly and ably the governmental rate-fixing agency 
hall perform its task, there will inevitably be years when, for one 
Ir another uncontrollable cause, net railway operating income will 
‘all below the desired and requisite percentage. It was therefore 
| eemed wise that out of its excess earnings each railroad should con- 
tribute a part to the establishment of its own individual railroad 
ontingent fund, upon which it may draw in any year when its net 
jailway operating income shall fall below 6 per cent of the fair value 
f its property; and that it shall also contribute a part to a general 
alroad contingent fund which can be drawn upon only when the 
geregate net operating income of all of the railroads of a traffic 
xction falls below 6 per cent upon the aggregate property invest- 
j1ent accounts of the railroads of that traffic section. In this way all 
I iehings from railway operations are available for the maintenance 
/£ the credit of the railways. 

| The conference therefore passed the following resolutions: 

Sec. 11. All railroad companies engaged in interstate commerce shall be 
quired to observe the following regulations under the direction of the Fed- 
y+ al Transportation Board: 

“ (a) Whenever the net railway operating income of a railway company 
vailable for the payment of interest and dividends (after provision has been 
ade for renewals, depreciation, and unproductive improvements as defined in 


ction 9) shall exceed 6 per cent upon the fair value of its property, or 
pon its temporary valuation as determined by section 10 (the ‘fair value of 
















Se owe oD ae 





3 
| 


934 _ RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


‘4 


property ’ being used in this section to include both temporary and permanent 
valuation) one-half of the said excess railway operating income above 6 per. 
cent shall be placed in a contingent fund of the company until such amount 
to 6 per cent of the fair value of the company’s property. The remaining ha 
shall be turned over to a general railroad contingent fund as provided in sec. 
tion 12. ; 

“(b) A railroad company may draw upon its own contingent fund when 
ever, and to the extent that, its said annual railway operating income shall fall 
below 6 per cent of the fair value of the property as determined by section 19, 
but whenever the railroad’s contingent fund is thus drawn upon, the fund 
shall be replenished from the company’s share in subsequent excess earnings 
until the fund is restored to 6 per cent of the fair value of the company’s 
property. 

“(¢) When any individual railroad company earns an annual railway oper 
ating income of 6 per cent upon a fair value of its property and has established: 
and is maintaining a contingent fund of its own, amounting to 6 per cent on the 
fair value of its property, the company shall turn over to a general railroad con- 
tingent fund, two-thirds of the company’s railway operating income in excess 
of 6 per cent, the remaining one-third of said excess to be retained by the 
railroad company for distribution among its stockholders or for such other 
lawful purposes as it may determine.” : 

Src. 12. There shall be established a general railroad contingent fund for 
the purpose of making good any deficiency in any year below 6 per cent upon 
the aggregate fair value of the properties of the railroads of a section. The 
amount of such deficiency shall be drawn from the general railroad contin- 
gent fund for distribution among the railroads in any traffic section, upon the 
basis of the gross earnings from railroad operations of the railroads within 
such section; and if the result of this distribution causes the railway operat 
ing income of any individual railroad to exceed 6 per cent this excess shall be 
applied as provided in section 11. 


In the accompanying Tables Nos. 1, 2, and 3, are shown the esti- 
mated contributions of each of the class 1 railroads in each traffic 
-section to each of the contingent funds in a year when the aggre 
gate net railway operating income of the railroads of each traffic 
section equals 6 per cent upon the average aggregate property 1b 
vestment accounts of the test period. ‘! 

These contributions in such a year, while the individual conti: 
gent funds are in process of creation, and prior to the effecting a 
the proposed consolidation of existing roads into a limited no 
of competing systems, are estimated as follows: i 



























































Individual General 
District. contingent | contingent Total. | 
fund. fund. % 
Hastorniih.. ce Sart - Sepdeec = ne cee heer ewes tp sone pee- fa geen $13,676,562 | $13,676,563 | $27,353,1 
Rit OEL Marc na cies ne One tecans tan ameneel aah ana ee taioe alee 4, 881, 539 4,881, 539 9, 763, 
PWestereesf: ¥ SaLSTECh ge ROR ets tl So den. Meas ERE tende BERD 19,765,944 | 19, 765, 944 39, 531, 88) 
Wotal. Joke cose uk scap sue tlhe bs Dees th ent Rone aa reeeeN | 38,324,045 | 38,324,046 | 76, 648,09) 


we ee we eS 


Upon the completion and maintenance of all the individual oe 
road contingent funds, contributions thereto would cease, ait| 
thereafter, in a year of 6 per cent railway net operating income up0l) 
the aggregate property investment accounts, as shown in accompany) 
ing tables, the aggregate contributions to the general railroad contin) 
gent fund are estimated as follows: eal 
astern district,..6. 6 oosdtG. us beh ee ee $18, ee 


Southern cdistrietl e278 os oe ae ee ee 6, 508, 71!) 
Western’ ‘district 2:02 UU 2 a ee 26, 354, 58’) 





RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 235 


| While the aggregate of contributions to the contingent funds, as 
‘above show, aré substantial and will serve greatly in the needed 
establishment and maintenance of railroad credit, it was realized by 
‘the conference that upon the consolidation of existing railways into 
‘such limited number of competing systems as may be deemed by the 
transportation board to be in the public interest, there will of neces- 
sity be a great reduction in the amount of such contributions for the 
reason that as the railroads will have a large rate of net railway oper- 
ating income and are the chief contributors to the contingent funds, 
are merged with lines of much smaller earnings, there will be greatly 
reduced excess earnings, out of which contributions can be made. 
Realizing the need of creating and maintaining such contingent funds 
the conference adopted the following resolution: 


‘Sec. 18. In any year, following the completion of the mergers hereinafter 
provided for, when the yield from rates established by Federal authority equals 
6 per cent upon the aggregate fair value of the property of the railroads in any 
‘traffic section, and the total contribution made in any such year to the general 
railroad contingent fund amounts to less than 5 per cent of the aggregate net 
earnings from operation in that traffic section, then the railroads in that section 
shall contribute to the general contingent fund the sum necessary to bring the 
contribution for the year up to 5 per cent of the aggregate net earnings from 
‘operation—each company being required to contribute for this purpose pro rata 
to its net earnings from operation for that year. 


The management and amount of the general railroad contingent 
fund are provided for by the conference as follows: 


» Sec. 14. The general railroad contingent fund shall be managed by trustees 
appointed by the Federal Transportation Board from men nominated by the 
‘railroad companies. Moneys turned over to the fund shall be invested by the 
{rustees in United States Government securities, or shall be deposited in the 
‘Federal reserve banks. 

Sec. 15. The general railroad contingent fund shall be accumulated by its 
trustees until it amounts to $750,000,000 and be maintained at that sum for 
the purpose hereinbefore provided, and any excess thereafter acquired shall 
be used when and as directed by the Federal Transportation Board for the 
development of the railroad transportation system of the country or for the 
increase of transportation equipment and facilities, or for the pro rata reduc- 
tion of the capital or capital obligations and property-investment accounts of 
the railroads, or, if so ordered by Congress, the excess shall be turned over 
to the Treasury of the United States. 

If it were certain that for several years following the adoption 
of the national transportation conference plan for the creation of 
the individual and general railroad contingent funds, there would 
be no year in which the aggregate railway operating income of the 
railroads of any traffic district would fall below 6 per cent, these 
funds themselves would amply take care of such a year when it 
comes; but it is impossible to know that such will be the case, and 
for this reason, as well as to facilitate such consolidation of rail- 
‘oads as the Federal Transportation Board shal] deem in the public 
nterest, the conference adopted the following resolution : 
| Sec. 16. To facilitate the prompt stabilization of railroad credit and such 
onsolidation of railroads as the Federal Transportation Board shall decide 
|'0 be in the public interest, it is reeommended that Congress create a railroad 
)’eserve fund and appropriate for this purpose the sum of $500,000,000. This 
}‘und shall be administered by the Federal Transportation Board, which shall 
-Rvest it in United States bonds or notes, the interest accruing from such 
sonds or notes, or the earnings upon the proceeds thereof, to be paid annually 
| nto the United States Treasury. In case at any time during the first 10 years 
\fter the enactment of this legislation the general railroad contingent fund 











936 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


provided by section 12 shall not be sufficient to make good deficiencies ag 
described in that section, then the Federal Transportation Board shall pay | 
into the general railroad contingent fund, as far as the board’s available funds 
permit, the amount necessary to enable the trustees of the general railroad con- | 
tingent fund to make over to the railroads the sums due them for that year | 
under the stipulations of said section 12: Provided, however, That any sums 
so paid by the Federal Transportation Board shall be repaid, with interest, by 
the trustees of the general railroad contingent fund from contributions received 
from the railroads after the general railroad contingent fund shall reach and be 
maintained at the amount of $500,000,000. 


Mr. Sims. You do not mention the rate of interest. 

Mr. Satmon. No, sir. 

Mr. Sims. But you do mention the rate of net railroad earnings 
for the railroad end, but not for the Government end. | 

Mr. Satmon. This is a plan Mr. Sims 

Mr. Srus (interposing). I did not aim to break in, but I just 
wanted to see if I understood it. a 

Mr. Sammon. Do you wish an answer to your statement? 

Mr. Sims. I said it did not provide the rate of interest the rail- 
roads should pay the Government for any money drawn from it, 
but does provide the rate of dividends and interest and earnings, | 
which must not be below 6 per cent. That is the effect of this) 
section. 

Mr. Satmon. That is the effect. If I may comment on that, I 
would say that the purpose of the conference, if I understand the 
purpose, was to suggest to the Congress measures which in its opin: | 
ion would serve to establish railroad credit; and we were therefore | 
naturally very keen, I take it, to suggest what in our opinion would | 
constitute the minimum return necessary for that purpose. | 

Mr. Srus. But money borrowed from the Government is con-| 
tributed by the taxpayers, and it does not provide in this section) 
what return should be received in the way of interest for loans. 

Mr. Satmon. Personally, the Congress, I have no doubt, in its 
wisdom, if it passes the legislation suggested, will state the rate of 
interest necessary in the interest of the people of the United States, | 
I hardly thought it was necessary for us to suggest that. I do not) 
know what the conference generally thought about it. a 

Now, I will continue. I do not think that it is necessary that the) 
committee note any of these tables. | 

In the accompanying tables—Nos. 1, 2, and 3—are shown for each 
class 1 railroad in each of the three traffic districts miles operated; | 
amount of its property investment account and its percentage of 
total property investment account of the district averaged for the} 
test period; the average net railway operating income of each rail’ 
road during that period; the percentage of such earning on its prop- 
erty investment account; and of the aggregate net railway operating 
income of all the railroads of the district. | 

The same tables show temporary property valuation of each rail) 
road for determining excess income as derived by the conference 
formula and provisos for arriving at such valuation; the estimated) 
net railway operating income of each railroad in a year when the’ 
yield equals 6 per cent upon the aggregate property investment of 
all the railroads of the district; the amount of such net operating) 
railway income retained by each railroad for interest and dividends; 














RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 2937 


ind the amount, if any, contributed by it to both or either of the 
sontingent funds. 

_ The purpose of charts Nos. 1, 2, and 8 is to graphically illustrate 
ind compare certain conditions existing in the test period with the 
sonditions that it is estimated would grow out of the application of 
he conference rule of rate making and out of its proposed tempo- 

‘ary method for determination of excess profits and of contributions 
hereof to the contingent funds proposed by it. 

The order in which the various railroads are shown in the tables 
md charts is determined by the percentage of operating income of 
ach on its property investment accounts during the test period, the 
oad showing the smallest percentage of such income heading the 
ist in each district and the road showing the greatest percentage be- 
ng the last shown. 

' Under the method proposed by the conference for arriving at the 
valuation of each railroad, to serve as a basis for determination of 
ts excess profits, pending ascertainment of its true property valua- 
ion by the Interstate Commerce Commission, a minus valuation is 
‘hown for the first-named road of table and chart No. 1. 
| If I may now suggest, Mr. Chairman, I think it would be well 
‘or the members of the committee to turn to table and chart No. 1 
shown on page 77. 

I will state here that a minus valuation is shown for the first- 
tamed road of table and chart No. 1 and for the four roads first 
iamed in table and chart No. 3, this growing out of the fact that 
hese roads showed deficits for the test period. Though certain of 
hese five roads are shown by the tables and charts as making con- 
ributions to the contingent funds (this being the result that would 
btain from an application of the conference formula and provisos), 

t was the idea of the conference that in just suzh special and rare 
ostances the Federal Transportation Board «vould exercise the 
/owers set forth in the last paragraph of section 10 of the confer- 
nee resolutions, to the end that no unmerited hardship should be 
vermitted to result even temporarily from a hard-and-fast appli- 
ation of the proposed conference formula. 

In order that the meaning of charts 1, 2, and 3 may be readily 
nderstood the following examples are cited. 

Take the Erie (chart No. 1, railroad 20)—that is on pages 74 and 
d—the chart is: 

At the left of the name of the railroad are two symbols or 
/raphs, the upper one showing the percentage relation between 
iat railroad’s average property investment account in the test 
,eriod with the average aggregate like accounts of all of the rail- 
oads of the eastern district in the same period, the percentage 
1own being approximately 7 per cent. The unshaded symbol im- 
jtediately thereunder shows the percentage of that railroad’s tem- 
|orary valuation, as derived by the conference formula and proviso 
|, to the ageregate of such valuations for all the railroads of the 
justern district, this percentage being approximately 5.4 per cent. 
| I will turn to that, Mr. Chairman, and will say with respect to the 
umber 20 that we have been talking about, that the heavily shaded 
¢ black symbol at the left of the number 20 indicates the percentage 













238 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


which that railroad’s property investment account forms of the total i 


property investment account of the roads of that district during the ~ 
test period. If we were to add together, by the way, all of the black — 


symbols shown for these eastern district roads, their sum total would 
give you a line of length to represent 100 per cent on the scale shown 


here. The symbol underneath the unshaded symbol to the left of the — 


number 20 indicates a shrinkage in valuation as derived by the con- 
ference formula growing out of the application of the formula. It 
shows that the derived valuation for the Erie forms a lesser per- 
centage of the total derived valuation for the district than its prop- 
erty investment account is to the total property investment account 
of the district. 

Thus the relative length of the upper and lower symbol graphically 
conveys information as to whether, under the conference formula and 
proviso, there is an increase or decrease in the temporary valuation 


of each of the several railroads over or under the value shown by the © 





property investment accounts, and the amount of such increase or ~ 


decrease is indicated at a glance. 
For example, while a glance at the Erie shows a decrease and 
indicates the amount of such decrease, a glance at the Pennsylvania 


Railroad (Chart No. 1, Railroad 44) shows that its derived tem- 
porary valuation forms a larger percentage of the aggregate of such 


valuations of all the railroads of the district than its property in- 


vestment account showed to the aggregate property investment ac- 


counts of all the railroads of the district. 
Taking, now, the symbols to the right of the names of the railroads 
in Charts Nos. 1, 2, and 3: 


The symbols are shown in groups of three, opposite the name of — 


each railway. The top symbol shows the average percentage, during 
the test period, of net railway operating income upon the average 
property investment account of each railroad for the test period. 

The middie symbol, as a whole, shows estimated percentage of net 
railway operating income upon property investment account, in a 
year when the average of such income is 6 per cent, for all the rail- 
roads of the district. The unshaded portion of this middle symbol 
shows the part of such income that may be retained by the railroad | 


for interest and dividends and the shaded part shows the part of 
such income. to be turned over to the two contingent funds in the | 


period while its individual contingent fund is being built up. 

The lowest symbol, as a whole, shows the same that is shown 
by the middle symbol, as a whole; but its unshaded part shows that 
part of its net operating income which it may retain for interest 
and dividends and the shaded part shows the part of such income) 


to be turned over to the general railroad sontingent fund after its) 


individual contingent fund is built up and maintained. 1 
Again taking the Erie (chart 1, railroad 20): The upper sym-_ 


bol to the right of the name of the railroad shows that its averaa | 
y 


railway operating income for the test period was approximate 

3.6 per cent upon its property investment account. The middle’ 
graph, as a whole, shows that in a year when the aggregate net op- 
erating income of all the railroads_of the eastern district equals 
6 per cent upon their aggregate property investment accounts, the’ 


a 





RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 239 


wie would earn approximately 4.2 per cent, an increase of approx- 
nately 0.6 per cent, of which it contributes a small part (indicated 
y the shaded part of this symbol to the two contingent funds, 
uring the period before its own contingent fund is created and 
faintained. The lowest symbol, as a whole, shows the same earn- 
ig as is shown in the middle symbol, and the shaded part of this 
west symbol shows that it would contribute a small part of its 
iereased 0.6 per cent earning to the general railroad contingent 
id in the period after its individual contingent fund is created 
id maintained. The unshaded portion of both the middle and 
wer smybols show that the Erie should have available for interest 
id dividends a substantial increase of earnings over those of the 
st period, as a result of the realization of an increase of yield 
x the roads of the eastern district from the 5.21 per cent average 
- the test period to 6 per cent—and that, at the same time, it would 
mtribute a substantial sum to the contingent funds, thus tending 
strengthen its own and the general railroad situation. 

As the Erie is a railroad whose net railway operating income was 
low the 5.21 per cent average of the railroads of the eastern dis- 
ict, it may be well to refer to a road whose earnings are well above 
Is average. Taking the D., L. & W. (chart 1, railroad 59) as an 
ample, the upper symbol to the right shows a test period percent- 
f@ of approximately 7.5 per cent on its property investment ac- 
unt; the middle symbol shows that in a year when the yield for the 
ilroads of the eastern district averages 6 per cent, the D., L. & W. 
eld would be approximately 8.4 per cent, an increase of 0.9 per 
at over the yield of the test period. It would, under the conference 
rmula and provisos, be permitted to retain for interest and divi- 
nds, as shown by the unshaded portion of the middle symbol, 
actly the same percentage that it earned in the test period (as 
own by the upper symbol); but, until its individual contingent 
nd is fully created and maintained, it would turn over to such fund 
e-half of the 0.9 per cent increased earning and would turn over 
> other half to the general railroad contingent fund, the sum of 
2se two contributions being represented by the shaded portion of 
‘s middle symbol. 

The charts show that the part of the net railway operating in- 
ne retained by each railroad is in no instance less than the average 
lount of such income earned in the test period; but it will be noted 
vt all of the increased earning of the D., L. & W. growing out of 
. Operation of the statutory rule of rate making proposed by the 
wlerence is shown by the chart as being turned over to the two 
itingent funds, whereas only a small part of such increased earn- 
, of the Erie is so shown and this may, upon a casual review, seem 
quitable. But it is the opinion of the conference that this is equit- 
e and as it should be,’ because it is certain that the people of the 
ited States would not consent to the enactment of the rule of rate 
kine proposed by the conference if all of the railroads were 
mally in the enjoyment of such railway operating income as is 
wn for the D., L. & W. The object sought by the conference on 
proposed rule of rate making is to aid in the creation of a situa- 
1 which will enable the railroads to meet the reasonable trans- 










wus wal 
————— 


\ 


240 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


portation requirements of the people of the United States—and this 
does not call for largely increased net earnings for roads now having 
the largest net earnings. The conference believes that any increase 
accruing to such a railroad as a result of its proposed rule of rate 
making should therefore go wholly into the creation of the two con- 
tingent funds until its individual contingent fund is created and 
maintained—and that thereafter two-thirds of such increase should 
go into the general contingent fund, as indicated by the shaded por- 
tion of the lowest symbol, the railroad retaining the remaining one- 
third as an incentive to efficient economical operation. | 

In looking at the large percentages shown by the middle symbol 
as being contributed by the most prosperous railroads to the two 
contingent funds it should be remembered that one-half of the 
percentages so shown goes into the railroad’s own contingent fund. 
and is available for its own individual use at any time when its own 
earnings from railway operations fall below 6 per cent upon the 
value of its property. Therefore contributions to this fund should 
not be regarded as being actually taken away from the railroad 
making them. They are, in fact, just as much the property of the 
individual railroad as any other part of its earnings, but they are 
required to be set aside for a rainy day, and the conference believes 
the provision to be a wise and equitable one, which will meet with 
general approval when understood. 

Having shown how contributions are made to the general rail. 
road contingent fund, and the estimated amount of contribution by 
each class one railroad in a year when the aggregate net railway 
operating income equals 6 per cent upon the aggregate property 
investment accounts of all the railroads of each district, t will now 
be interesting to illustrate the mode of distribution from such fund 
in a year when the aggregate net operating income is less than 6 
per cent. For the purpose of illustration the southern district 1s 
chosen, and it is assumed that in a certain year the aggregate net 
railway operating income of the district falls below the 6 per cent 
in an amount equaling $6,508,719 (which is exactly equal to the 
estimated excess income of all of the railroads of this district in a 
6 per cent year). 

That table, Mr. Chairman and gentlemen of the committee, 1s 
the last table shown, Table and Chart No. 4. 

It is also assumed that in this year, when the lessened earning 
is had, the operating revenues of each class 1 railroad of the district 
are in exactly the same relation to each other as they were for the 
year ending December 31, 1917. | 

In the accompanying table No. 4 are shown the amount and per- 
centage of such operating revenue for each railroad of the southert 
district. The percentage thus shown establishes for each railroad the 
percentage to which it is entitled, under the national transportation 
conference rule, to receive of the $6,508,719 to be drawn from the 
general railroad contingent fund, and the amount so to be received 
is shown in the table. It is, however, provided in the conference 
rule that “if the result of this distribution causes the railway operat- 
ing income of any individual railroad to exceed 6 per cent, this 
excess shall be applied as provided in section 11.” In consequence 

¥ 


> 
4 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 24] 


‘of this provision certain of the railroads are obliged to return a 
part of the moneys received from the fund—and this is shown in 
‘the table (as would occur at a time after each individual contingent 
fund is fully created), as is also the net amount remaining in the 
(hands of each railroad out of the distribution. 

As broadly illustrating the operations of the conference plan of 
‘contribution to and distribution of the general railroad contingent 
/fund, the following facts are enumerated: 

| In a year of 6 per cent average net railway operating earnings, 
the first-named 15 of the 32 class 1 railroads of the southern district, 
‘each of which 15 earns less than 6 per cent on its property-invested 
jaccount, would contribute an aggregate of $166,966 to the general 
railroad contingent fund, whereas they would receive from it in the 
year of lessened earnings $1,931,271, and of this would retain $1,786,- 
| 388, returning the remaining $144,938 to the fund. 

| The other 17 class 1 railroads, each of which earns 6 per cent or 
}more on its property-investment account in a year of 6 per cent 
‘average earnings, would contribute an aggregate of $6,341,753 to the 
‘general railroad contingent fund, whereas while in the year of less 
| than 6 per cent earnings they would receive from it $4,577,418, they 
) 








‘would retain of this amount only $1,572,795, returning the other 
/ $3,004,653 to the fund from which it was drawn, together with 
.$3,037,099 of other excess profits of the year, leaving the fund larger 
than at the beginning of such a year of less than 6 per cent average 
jnet railway operating income. 

| The facts set forth in table 4 are graphically illustrated in the 
;accompanying chart, in which the upper symbol shows each rail- 
road’s contribution to the general railroad contingent fund in the 
/average 6 per cent year, and the lower symbol, as a whole, what is 


7 


,received by such railroad in the year of less than 6 per cent earnings. 
‘The shaded portion of this lower symbol shows the part retained by 
‘he railroad and the unshaded part the part returned by it to the 
|Zeneral contingent fund. 

| Having shown in the tables and charts the results of the con- 
‘ference rule of rate making, as applied to the class 1 railroads in a 
jfear of 6 per cent yield on the aggregate property-investment ac- 
vounts, the amounts retained by the railroads, the amounts con- 
| vibuted by them to create needed contingent funds and the mode 
f distribution of such funds, it is believed that a way is indicated 
|vhereby, with fairness to the people of the United States and with- 
ut burdening them, they may have reasonable railroad facilities 
vhich they can not have unless this or some equally comprehensive 
‘md equitable plan be adopted. 

| (The tables and charts to which Mr. Salmon referred are as 
/ollows:) 

152894—19—vor 1—_—16 


















RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


242 


‘ 


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954 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


The Cuarrman. Have you finished your statement, Mr. Salmon? 

Mr. Satmon. Yes, sir. 

Mr. Srus. What you call here a statutory rule of rate making you 
must mean a law, an absolute unvarying law and this board, what do 
you call it, not the Interstate Commerce Commission, but your com- 
mission—the transportation board, if the transportation board fixes 
the rule as to rates that must be charged in order to make the 6 per 
cent on the property investment account, is it not absolute upon the 
rate-making body to provide rates that will not fall below that for 
the traffic district ? 

Mr. Satmon. Answering your question, the conference resolution 
asks that the Congress pass a law making it obligatory upon the rate 
determining body that it shall establish rates designed to yield aggre- 
gate revenue suflicient to produce a net return to the carriers of eac 
traffic district amounting to not less than 6 per cent upon the fair 
value of the properties of the carriers devoted to the public service. 

Mr. Sims. The minimum is not less than 6 per cent? 

Mr. Satmon. A minimum of 6 per cent. 

Mr. Sims. You call it a rule, let us get away from rule and call it 
a statute, which it really is. If that body should not fix a rate equal 
to 6 per cent upon the property investment account for that district, 
what would be the result 

Mr. Saumon. We anticipate that the result might be variable. It 
is my own personal opinion that I am giving you now. I should say 
if, having fixed the rate designed to yield 6 per cent, it was found at 
the end of a given time that it had not yielded 6 per cent, the proper 
course of procedure would be to ascertain why it had not; whether 
it was due to a crop failure or to a panic, or to manufactures falling 
off, resulting in diminished transportation requirements, and if it 
was found to be due to some such cause as I have indicated and that 
there was reasonable prospect that during the next year the yield 
might equal or exceed 6 per cent, I should imagine that the existing 
rates would not be disturbed; but, upon the other hand, if it was 
found that the rates were entirely too low to produce the 6 per cent 
under normal traflic conditions then, I imagine the rate-making body 
arpa! this law would feel that it was obliged to make some revision 
or rates. 

Mr. Srus. And in making a new rate would the rate-making body 
feel it necessary to include what they should have earned in the cur- 
rent year? 

Mr. Saumon. I should say yes. My thought about the 6 pe 
cent, and I think it is the conference thought also, is that the rate- 
making body not being endowed with omniscience is not going to be 
able to prescribe rates that will yield exactly 6 per cent. In some 
years they may yield more and in some years less. In my opinion 
the intent of the conference was to convey the idea that there should 
be an effort to have an average yield of not less than 6 per cent. 

Mr. Sus. I want to get at the legal form of this. Is is not the idea 
that this Government board will make a rate that will yield not less 
than 6 per cent net revenue, subject to depreciation, dividends, and 
interest, and that if it does make less than 6 per cent it is violating 
the law? 7 

Mr. Satmon. No, sir. 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 955 


Mr. Srus. In other words, the right of the property holders is a, 
vested right to the extent of not less than 6 per cent, and they would 
have the right to enforce that vested right, as Congress, the repre- 
Bezitves of the people, have made such a contract with them by 
law ? | | 
Mr. Saumon. Mr. Sims, if you will refer to section 9 you will find 
that the wording is: 


The conference recommends that a statutory rule—— 


Mr. Sims (interposing). Call it a law 

Mr. Saumon (reading) : . 
be enacted by Congress requiring that railroad rates and fares, to be estab- 
lished by public authority, shall be designed to yield the railroad companies in 
each traffic section of the United States (as shall be designed by Federal au- 
thority) aggregate revenue sufficient to produce, after proper provision has been 
made for renewals and depreciation, a net return (which shall be available for 
interest and dividends) of not less than 6 per cent per annum upon the agegre- 
gate fair value of the property of the railroads devoted to the public service in 
each of the several sections. 

All we ask is that the law prescribe that the rate-making body 
shall establish rates designed to yield 6 per cent. 

Mr, Sims. But you do provide a means by which they may receive 
that, whether they have earned it or not, based upon the average of 6 
per cent on the property investment account of the traffic section, and 
if not earned it will be made up from the contingent fund, but in 
order to have any contingent fund there must be an excess of 6 per 
cent some time or other? 

Mr. Saumon. No; that is not true. 

Mr. Sims. How do you get at that? 

Mr. Saumon. As a matter of fact, in a year when the yield may 
fall considerably below 6 per cent on the aggregate property invest- 
ment account of the region there may be a number of the larger 
earners of that region that would contribute to the contingent fund. 
For example, during the test period the average earning of the roads 
in the eastern district was 5.21 per cent. Now, we will all admit that 
9 per cent is a good deal more than 5.2 per cent. Under the confer- 
‘nee rule, if the average yield in that district should be increased to 
).0 per cent, not 6 per cent, there would be contributions made to the 
eneral contingent fund and to the individual contingent funds by 
“he more prosperous roads which earn more than their average 
varnings in the test period. 7 
_ Mr. Stms. The 6 per cent, you mean? 
| Mr. Satmon. No; the more prosperous roads which earn more 
_han their average earnings during the test period. 

_ Mr. Sims. Do I understand you to mean more than their average 
uring the current year or some previous years? 

_ Mr. Satmon. What I mean is precisely this: That if in the test 
erlod a certain railroad 
Mr, Sims (interposing). Well, call it 6 per cent; that will do. 
Mr. Saumon. No. - 

_ Mr. Sms. That will illustrate what I have in mind. 

, Mr. Satmon. No; let us consider a concrete case. Turn to the 
yuthern district and take as an example the Queen & Crescent. The 
ueen & Crescent earned in the test period 9.13 per cent on its 
|Toperty investment account. 











256 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Smuts. What years are you intending to cover by the tes 
eriod ¢ 
? Mr. Satmon. The three years ending June 30, 1917. 

Mr. Stus. That is the period on which the Government has basec 
its standard return. 

Mr. Satmon. Yes. 

Mr. Sims. Two of those years were war years. 

Mr. Satmon. I am only seeking to illustrate the conference rule 
and I am trying to tell you what the result of the conference rule is 

Mr. Stms. There has been reference to war years, and I did no 
know whether it referred to the period of the war in which the Unite 
States was engaged, or whether it referred to the general Europea 
War. 

Mr Sautmon. It refers to the three-year period ending June 30 
1917. 

Mr. Srus. I understand it to mean the same years included by th 
Government in its standard return. 

Mr. Satmon. Yes. 

Mr. Stus. That is different. 

Mr. Saumon. In that test period the average earning of the Quee! 
& Crescent was 9.13 per cent on its property investment account 
That was in a period when the average earning on property invest 
ment account of the 32 class 1 roads of the southern district was 9.3! 
per cent. Now, my point is this, that even though the rule of rat 
making should fail of its intended result ima given year, fail, we wil 
say, by one-half of 1 per cent, and amount to only 53 per cent instea 
of 6 per cent for the southern district, on the assumption that th 
Queen & Crescent would come in for its part of the 0.14 per cen 
increased yield for the district, the Queen & Crescent would hav 
to make contributions to the contingent fund because under ou 
conference rule it would have to contribute, initially, one-half of al 
of its earnings in excess of the earnings of the test period to th 
individual contingent fund, and the other half to the general con 
tingent fund. | 

Mr. Sims. The general contingent fund for the district or th 
whole United States? 

Mr. Satmon. It practically amounts to the whole United States 

Mr. Sims. That is the way I understood it. 

Mr. Saumon. The result would be the same if it were for a distric 
but we want it handled by one board, and therefore it would go int 
into a general fund. There is only one general contingent fun 
provided for. . 

Mr. Sims. And that is the $750,000,000 fund. 

Mr. Saumon. Yes; that is the $750,000,000 fund. . 

Mr. Stu. All right; I have that correctly in my mind. Go ahead 
Have you finished ? 

Mr. Saumon. I have answered your question, as I understand it 

Mr. Sims. But my question was intended to make it clear that 1 
the earning of all roads in the district in the aggregate did no 
equal 6 per cent upon the value of all the roads within that paz 
ticular district, then with a law requiring a rate to be made tha 
would equal such amount, and if it does not equal that amount 
taken in the aggregate, is the rate-making body then bound to pro 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 257 


‘vide a rate which for the future will be sufficient to cover decreases 
in the future contingent fund and make up what the district as a 
whole failed to get in the way of a 6 per cent return ? 

Mr. Saumon. I should think that as a matter of fairness: it would 
attempt to do so. 
ae. Sms. Then your answer is that it is a matter of discretion 
only. 
Mr. Satmon. No; my answer is that it would be under obligation 
to try to do it. I do not know enough about these legal matters to 
say that it would be a legal obligat:on, but it would seem to me, in 
ai] fairness, that if the Congress enacts a law which provides that the 
rate-making body shall do a certain thing, designed to yield a cer- 
tain result year after year, and if that rate-making body finds that 
its rate schedules do not work out as intended, it would, in fairness, 
try to compensate for that later on. 
' Mr. Srms. There is a Government moral obligation, then. 

Mr. Satmon. I would say that in effect there would be a moral 
Sere on the Government to seek to achieve the result prescribed 

the law. 

f Tir. Sims. Then there would be a moral right in favor of the se- 
‘curity holders, the stockholders, and bondholders, and if they earned 
in one year or in any series of years less than this rate which was 
authorized by law to be earned, they would have a moral right to 
be on the responsible party, which would be the Government of the 
United States, to make up what it failed to make, would it not? 
| Mr. Saumon. What do you mean by “ make up ”? 
' Mr. Sms. I mean in the nature of a moral guaranty that if each and 
svery year of the railroad’s life after this law was passed it shall have 
sxarnings of not less than 6 per cent upon the property investment 
account or the fair valuation when ascertained—I am trying to find 
yut whether that deficit can be made up from any source for which 
he Government would be responsible. 

Mr. Sartmon. If you mean legally responsible and that the road 

Mr. Sims (interposing). Governments have no enforceable legal 
esponsibilities. A nation’s sovereignty is not bound by enforceable 
egal limitations. 

Mr. Saumon. Or if you mean a responsibility which would enable 
| he stockholders of a railroad to go tothe Court of Claims and make a 
\:laim, I would say no. 

Mr. Sims. Oh, anybody can go into the Court of Claims based on 
rovernment moral responsibility, but they do not often get favorable 
| onsideration. 

)} The Cuatrman. Judge Sims, would you allow me to ask a question 
\ight there? Itisalong the line of your inquiry. Would you believe 
hat it would be an obligation of the Government through the Inter- 
‘tate Commerce Commission to so readjust rates in any one year as to 
ke good a deficit in the rates fer the preceding year, based upon a 
| per cent basis, where that deficit was due to flood or drought in a 
iven traffic area and make it good because of an act of God? 

| My. Sauyon. I would imagine that for such a temporary dis*urb- 
ynee as might be brought about by such an occurrence the rate-making 
ody weuld very probably feel that no change in rates would be 
ecessary, and I doubt whether the public would much challenge that. 


152894—19—-vo. 117 


















258 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


If the cause is of that temporary nature, something that has happened, 
and is not likely to happen again for a good many years, and if it 
has been found that the rate structure has yielded and would have 
yielded except for that special occurrence ample returns, I hardly 
imagine there would be any feeling of obligation to change the rate 
structure to cure the ills arising from such a temporary condition; 
that there would rather be the hope that, maintaining the rate strue- 
ture, the road would work out its own salvation. 

Mr. Monracur. For the reason that the rate structure was in nowise 
responsible for that loss. 

Mr. Satmon. The rate structure was in nowise responsible for the 
loss, and the contingent fund would assist in taking care of the im- 
mediate trouble, and in the course of time it might be expected that 
the losses would be further offset through more than a 6 per cent yield 
in some years. 

Mr. Srms. Now, Mr. Chairman, I would like to proceed, as I had a 
connected line of inquiry. wa 

Now, this general contingent fund of $750,000,000, I believe it is. 
nominated, in case of the returns being less for the entire rate or 
traffic district, and not being made up by one road having an excess 
to contribute to another road; in other words, not made up within the 
operations of the traffic district, then it would have the right, under 
your plan, to have it made up from the general contingent fund; is 
not that correct, in whole or in part? 

Mr. Satmon. If the earnings of the traffic section for any reason 
whatever fall below 6 per cent on the value of the property in any 
vear, then under the rule suggested by the conference, the general 
contingent fund may be drawn upon in an amount equal to that 
by which the earnings of that year fall below the 6 per cent, and 
that amount be divided amongst the roads pro rata to their gross in- 
come from operations during that year. 

Mr. Sims. I think I now understand you. I understood you that 
way before, but your explanation shows that I do understand you 
correctly. Now, this general fund is to be made up by contributions 
from all the traffic sections of the United States, is it not? 

Mr. Satmon. Yes. | 

Mr. Sus. Furthermore, your bill provides that the Government 
shall start out by lending to this general fund $500,000,000; is not 
that correct ? 

Mr. Satmon. Yes, sir. 

Mr. Stus. Not waiting for the railroads to make it up by a con- 
tribution. 

Mr. Satmon. That is right. 

Mr. Stus. Now, suppose—and no body of men can possibly forecast 
the future absolutely in these matters—you have an arbitrary re- 
quirement here of 6 per cent on the property value, and suppose for 
a number of years, one or more years, the call upon that contingent 
fund should absolutely wipe it out under this statutory and manda- 
tory requirement of 6 per cent, what would then be the result as to 
the successful operation of your plan? 

Mr. Satmon. Well, the result would show that our plan had not 
been effectively adovted. . | 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 259 


Mr. Sims. In other words, that it had failed to produce the results 
intended ; is not that true? 

Mr. Satmon,. It would not show that to my mind. It would simply 
show to my mind that the plan had not been effectively adopted. 

Mr. Stus. Had not been adopted ? 

Mr. Satmon. No. | 

Mr. Sims. I am assuming that it was adopted and that it was in 
operation. | 

Mr. Saumon. Then not successfully carried out. 

Mr. Sims. I am assuming that these contingencies arise, expenses in- 
crease, or earnings are reduced, or the traffic is reduced until not only 
the local contingent funds are wiped out, but the general contingent: 
fund is wiped out, and there is nothing left. Then has not the plan 
failed to do, in all respects, what was intended ? 

Mr. Satmon. There has been a failure to obtain the desired re- 
sults. I do not like the words “plan failed,” because it does not 
sound to me as though that describes a failure under the plan. It 
sounds to me like a failure of the Government agency to effectively 
earry out the plan. 

Mr. Sims. In advocating the plan, I suppose it would be a little 
embarrassing perhaps to say that it could fail, but all human plans 
in the past have failed in many respects, and here is the thing, it 
seems to me, it inevitably leads to in case of failure; I mean failure: 
in detail, failure in full, failure of your 6 per cent, and the $750,- 
900,000 wiped out, and that would also wipe out the debt to the- 
Government, morally speaking, then what would be more natural 
than to come to Congress and say, just as is being done now, that 
conditions over which we had no control and results which no man 
sould foresee, without any fault of the railroads, or their managers, 
i deficit has been produced, and therefore we call on the United 
States Government, out of its Treasury, to replenish this fund; or 
f the fund is not large enough to double it. What would be more 
latural, and what would be more equitable and just, if by law we pro- 
ide a thing and it does not happen by the method we provide to do 
rhat we planned, than that we shall supplement the failure by making 
Mappropriation out of the Treasury of the United States? Does not 
his plan further provide that in some contingencies some of the earn- 
ngs pe these railroads shall go into the. Treasury of the United 
tates ¢ 
Mr. Satmon. The plan provides that after this fund equals and is 
laintained at $750,000,000, the additional contributions may go into. 
1e Treasury of the United States, if the Congress so prescribes. 

_ Mr. Sus. Would not that be a sequestration and would it not be 
confiscation of this fund for Congress to require such a thing as 
jat, not having given any value to the railroad company in the way 
f investment or property or incurred any obligation by which the 
| Overnment might lose? 

| Mr. Satmon. I am not qualified to testify as to any of the legal 
spects of the case. 

‘Mr. Sims. That is not a legal question, but a moral question, and 
le that appeals to the whole people and to the Government of the 
hited States. If the Government benefits under a proposed: proposi- 











- — 


260  RETURN.OF THE RAILROADS TO PRIVATE OWNERSHIP. 


tion to which it is a party. which it makes by its own rate-making 
body, and gets a Roti, or gets an earning or a tax or an income. 
then if a loss should result, the Government would make good that 
loss; I mean, in the way of this contingent fund. 

Mr. Saumon. I have not thought out what the result would be in 
the event of what you call a “failure of the plan,” and of what J 
would call a “ failure of the Government.” I feel that if the Govern. 
ment fails to do something constructive and helpful we are going to 
have a very bad railroad situation. 

Mr. Stus. I am assuming that it does what you recommend. 

Mr. Satmon. We think that if this is carried out, it will be help- 
ful. It would be my opinion, that if the thing you mention came 
about, it would be due to Government failure. It is not that which 
we have been talking about. 

Mr. Sims. But let us talk about everything that might arise. If 
it is a Government failure, then the results are Government liabili- 
ties. I mean moral liabilities, because ] am not talking now about 
rights to enforce such liabilities in the courts. These plans, when 
talked over and described by those who favor them, all of them, by 
those who do not look to anything beyond what they say, look fine 
in theory, but how does anybody know how the theory will work out? 
Those who advocated the Government taking over the railroads dur- 
ing the war and unifying the operation of them, and reducing the 
number of highly paid men, said that that would result in an in- 
crease of net earnings. They were honest about it and thought the 
net return required would be easy to make, but notwithstanding the 
wisdom of all of them there was a failure by reason of conditions 
arising over which they had no control. Now, suppose the people 
make an outcry in a traffic district that the general rates in the dis- 
trict are such as to depress industry and prevent progress, will they 
not come to Congress to repeal or to modify or to amend the law so 
that this guaranty of 6 per cent shall no longer exist? 

_ Mr. Satmon. That is possible. 
Mr. Dewatr. Will you let me interrupt you, Judge Sims, for a 
moment? Is not your argument just as broad as it is long? You are 
proceeding upon the assumption that there is going to be a failure 
and he is proceeding upon the assumption there is not going to he 
a failure. | | 
Mr. Sus. I am saying that a failure is possible. 
Mr. Dewatr. If there is failure, then there has got to be legisla- 
tion, but if there is not, it will be a success; is not that the length 
and breadth of it? 
Mr. Satmon. That describes, sir, my view of it. 
Mr. Sims. You have had nothing at all to say about equitable 

rates. Your whole purpose seems to be to secure rates sufficient 10 
bring a certain income. Why should such an arbitrary percentage 
income per annum on the property investment be named ?. 

Mr. Saraon. My thought about that, sir, is this: The yield of the 
test period did not attract investments in the amount required Jn 
the public interest. Perhaps one man’s guess is as good as another 
but when you have a body made up of various people, representa 
tives of varying interests, and with differing views as our conier 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 261 


“ence was, and those people, shippers and economists and all the rest 


of them, say, “ We believe that no increase less than an increase 
represented by a raise from 5.2 per cent to 6 per cent will do the 
trick,’ I am very much impressed by it. That is the way it im- 
_ pressed me, and the reason for that has been that no one of us holds 
_any brief for the railroad investors, but that we are earnestly seek- 


ing to benefit the public of the United States who need transporta- 


‘tion and are not, in our opinion, going to get the transportation 


service that the country’s interests absolutely require unless we can 
attract capital, private capital; take it away from municipals, and 
take it away. from Government bonds and that sort of thing, or take 


it away from some source or other that it is now going to; and we 
ean not do that unless we make the thing more attractive than it 


| 


has been, and it is that which has led these people to state than an 


-inereased yield should be had not for the sake of the increased 


ji 


yield but for the sake of getting money that is needed in the public 
interest for the development of the railroad properties. 





Mr. Sims. You want to produce a condition whereby those pri- 


_yate investors who are now investing their surplus in other forms of 
‘i 
roads? 


securities will cease to invest in those securities and invest in rail- 


Mr. Saumon. A condition that will give a share of it to the 


railroads. 





Mr. Sims. That is ceasing to that extent? 


Mr. Satmon. Yes; that 1s right. 


Mr. Srms. Whenever you make the earnings of railroad stocks 


‘and bonds so secure and so large as to actually prevent money 


from going into other industries that are essentially necessary for 


‘the country, while developing the railroad industry and improving 
that, are you not, to that extent, depressing all other industries from 
which you take this money ? 


Mr. Saumon. I do not think that would necessarily follow. 

Mr. Srtms. How can you get it unless you take it from them by 
offering more interest or more dividends? 

‘Mr. Saumon. What we are seeking to do is to establish some parity 
en the credit of the railways and the credit of other users of 
capital. | | 

Ir. Stms. In other words, your bill shows—I do not know what 
your bill shows, because we have not the bill itself before us—but 
your plan proposes that we shall provide interest on bonds and divi- 


+ dends on stocks so large and so remunerative as to absorb in exceed- 
‘ingly large volume all money offered for investment or so much of 
it as is necessary to meet the demands of the railroads, and not only 
| the existing demands but demands for future construction and opera- 
\tion. Now, is not thatinevitably true? 


‘Mr. Saumon. That does not sound to me like anything in our plan. 
Mr. Sims. Then, your plan will not attract capital from other in- 


| vestments. Is not that true? We have not any money lying around 
| not invested in anything. 


Mr. Satmon. Yes; a great deal of it. 
_Mr. Srus. No idle money not invested in anything or not even get- 
ting interest on deposit. 


262 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Saumon. There is a good deal of money that is not. 

Mr. Sims. Do you not think it is a very stubborn and contrary 
nature that will let money le idle and make nothing year after year 
because it can not get a Government guaranty of 6 per cent interest? 

Mr. Satmon. I did not hear the “ year after year ” in your former 
statement. 

Mr. Sims. You said there was idle money—in other words, money 
that was not earning anything in the way of income, just being de- 
posited, and out of which nothing is being drawn by the owner of 
that money—and I say are those men so stubborn and contrary that 
they will not accept 5 per cent or 4 per cent on their idle money, but 
must have 6 per cent before they will invest in anything, and those 
men will not invest in railroads unless they are guaranteed by the 
Government that rate of interest? Have we got that kind of capi- 
talists in this country to any great extent ? 

Mr. Saumon. I do not know how to answer your question, Mr. 
Sims. | 

Mr. Srus. I mean are there many men with capital that have that 
view ? | 

Mr. Satmon. What I do feel we know is that railway investment 
has not been as attractive as it is in the interest of the public that it 
should be. That is the one thing I think this conference feels it 
knows. Now, about all these other general propositions that you 
mention, I do not know. I have no knowledge, and I do not think 
the conference claims to have a very great deal of knowledge, about 
everything; and it seems to me we would have to have a very great 
deal of knowledge to answer your questions. 

Mr. Sims. The logic, and, it seems to me, the inevitable conclusion 
from the argument in support of this and some of the other plans 
is to provide means by which when railroad stocks and bonds are 
offered for sale in the open market they will be in a measure more 
attractive than other investments offered at the time, to such an extent 
as to attract from all other investments the volume of money which is 
needed, according to these plans, for the railroads. How are you go- 
ing to get it in any other way? 

Mr. Saumon. Our project is designed to bring about a situation 
where railway investment will be sufficiently attractive to serve the 
public interest. 

Mr. Sims. I know that; but it must get its money in order to do it. 
must it not? 

Mr. Satmon. We assume so; ves, sir. . 

Mr. Sims. And it gets that money or takes it from some other 
source of investment, does it not? 

Mr. Satmon. Well, I should suppose it would; yes. 

Mr. Sims. Now, you are a manufacturer and an expert, and is i 
not a logical conclusion that whenever you make a certain form 0 
investment so attractive as to generally cause people to invest in it. 
then will not the interest paid on all other investments rise at once 
to the 6 per cent level in order for them to get capital and have 
chance at future idle money? Will they not have to give as much 
and provide earnings equal to the railroads? In my opinion, tha 
would apply to every street car company, every gas company, an 
everybody else. I do not see why a State bond subject to taxatio 





RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 263 


would sell any higher than your bonds when you have an absolute 
‘Government guaranty behind it. Why will it not affect adversely 
‘the credit of all others depending upon a supply of idle money by 
‘sale of securities and result in bringing all such securities up to or 
above 6 per cent? 
_ Mr. Saumon. Why, Mr. Sims, I have observed railroads paying 8 
per cent for money, and I do not note that these other interests you 
‘mention have all had to pay 8 per cent. I do not see that there is 
any necessarily controlling argument growing out of your point. 
Mr. Srus. Well, was that 8 per cent which they were paying due 
to unjust or unreasonable Government regulation of rates as com- 
ared 
te SALMON (interposing). It was due to lack of credit. It was 
‘due to the fact, as I understand it, that railway investment was not 
attractive and that there had to be some special attraction created, 
‘and this was represented by the demand for and the receipt of an 
unusually high rate of interest. 
Mr. Sims. Do you mean 8 per cent for a long period of time or 
for a short loan? | 
_ Mr. Satmon. Oh, two years or three years. 
Mr. Sus. To tide over some immediate situation 2 
_ Mr. Saumon. Yes, sir; to tide over the situation, because the road’s 
eredit was not good enough to enable it to fund its obligations at 
a satisfactory rate of interest over a long period. 
_ Mr. Sms. In other words, it was to borrow more money? 
| Mr. Sauwon. Yes; they are always borrowing more money. 
| Mr. Sims. Now, if you go on with this 6 per cent and the cost of 
labor and the cost of material continues to advance, will not that 
make short shift of your plan; in other words, the plan will not 
Work in securing money as against other purchasers of money at 
i higher rate, and you will have to come back and have Congress 
order this rate-making body to go still higher, will you not? 
| Mr. Saumoy, I do not think so, under our rule. 
' Mr. Sims. Under private management, without Government con- 
rol, the railroads found themselves in the position where they had 
0 pay 8 per cent for three years, according to your own statement? 
Mr. Sautmon. Yes. 
_ Mr. Sims. With all the expert rate-making machinery which they 
lad at their disposal, and when they initiated all the rates and 
ould collect the money on them unless they were suspended by the 
ody having the power to do so. Now, do you believe that it is in 
he interest of the public for Congress to step in by law, as to some 
Wivate investments, even though used for what we may call serving 
he public, and guarantee their success? Why not guarantee the 
older of bank stock that he shall have a certain dividend paid on 
'Is stock? They are both necessary to the country. 
, Mr. Satmon,. I would say, Mr. Sims, that it would be very desir- 
| ble, indeed, that the Government should undertake to see to it that 
‘lof these public-service corporations that are regulated, as the 
fovernment regulates the railways, get a square deal. If the Gov- 
}tmment is to determine the kind of service that these public-service 
Orporations shall render and in very large measure determine what 
Weir expenditures are to be, it should, in determining what the 












264 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


income is to be, treat them fairly, and it has not done it. That is my | 
opinion, and it is the opinion of a great many men in this country; 
and I say that if you are going to fix permanently what the expendi- | 
tures of the farmer are to be, and if you are going to regulate him, 
regulate him at every turn. It is the business of the Government, | 
which does that regulating and determines these expenses, to see to | 
it that the men who put their money into farming are fairly treated. | 
When you say, “ Why should you not fix this or fix that or fix the | 
other thing?” it is well to know whether those other things are | 
regulated as the railroads are regulated. If they are, then give them 
some kind of an assurance. That is my view of it. | 

Mr. Stms. Then, by the operation of the legislation which you pro- 
pose an absolute minimum guaranty in the way of rates is made, and | 
whenever you do that you make the investment of idle money, money | 
not otherwise invested, so attractive to the railroads that you have} 
absolutely treated all other forms of investment without any Goverp- | 
ment guaranty in the sale of their products in a way that it becomes 
unfair to all other investors. 

Mr. Sautmon. I do not think so. , 

Mr. Sims (continuing). And thereby create a condition by which | 
a single source of investment, which comprises, perhaps, as much as 
all other sources of investment in the United States, is so remunera- | 
tive that it depresses and destroys the market for all other purposes. | 
In other words, many industries could not secure money at all as} 
against the railroads, and if the railroad has a guaranty of 6 per! 
cent upon property invested, then all other business, private or] 
public, seeking money will be treated unfairly by the action of the} 
Government. | 

Mr. Satmon. May I say, Mr. Sims, with respect to the word “ guar- | 
anty ’ which you have used, that I believe that, generally speaking, | 
when we talk of a guaranty of a return to the railroads the thought 
that is suggested to the mind of the hearer is that it means that rail- | 
road A, railroad B, or railroad C is to get a certain guaranteed return | 
upon its securities. Now, we do not call this conference plan a guar-| 
anty; but even if you call it a guaranty, it should be noted that it is| 
not a guaranty of return upon the securities of any individual railroad | 
company. The richest road of the whole group, through dishonesty | 
or incompetent management, if this rule were in effect, could easily 
enough cease to earn anything; it might even have a deficit. There | 
is a striking and, to my mind, vital difference between the kind of) 
guaranty that people ordinarily think about and the kind of a thing) 
that this conference is recommending, where it is still incumbent 
upon every road, no matter how prosperous now, to do its best to earn} 
its share of the aggregate, and the strongest one of them, badly man- 
aged, may run behind the average; it may show nothing, or it may 
have a deficit. 

Mr. Sims. Of course, I do not mean that your bill provides that 
there will be a certain dividend paid on the outstanding stocks andy 
bonds of any company, but when you provide that a certain rér| 
turn must be made upon the property investment account, then, «s 
-a matter of fact, the bill guarantees a dividend to the extent that) 
such a return will provide, although bad management and high} 
executive salaries or something of that sort might cut down the) 


























t 
f 


| 
| 


5 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 260 





dividend, but you are providing the means by which to increase the 
dividend paid and therefore increase the market value of at least 
‘future stocks and all other stocks, dependent upon the increased 
‘net earnings. Why is it that the investor is to take absolutely no 
chance whatever ? 
| Mr. Saumon. I do not see that the investor is getting rid of taking 
a reasonable business chance. There is one thing to which I should 
‘like to call your attention. Apparently there might grow out of 
this line of questioning the idea that the transportation conference 
jis recommending some great added burden:on the public. I want 
to call your attention to the fact that the total mcrease in net 
revenues that the transportation conference is recommending over 
the return of the test period would be entirely taken care of 1f every 
citizen of the country should contribute about two and one-half cents 
a week. 
_ Mr. Stus. That is getting down to the meat-packing proposition. 

Mr. Satmon. That is so. 

Mr. Srms. That may be your idea. 
| Mr. Saumon. That is the magnitude of the increase that we are 
‘talking about, a little more than two cents, the value of postage 
upon one letter mailed, at the present postage rates, by every citizen 
of continental United States once a week. 

Mr. Sms. But all citizens do not patronize the railroads? 
~ Mr. Satmon. But they all benefit from them or suffer from them. 
Mr. Sims. Section 10 of your bill provides: 
| 









The net return to be obtained by the railroads as a result of the enforce- 
‘ment of a statutory rule of rate making shall be based upon a fair value of 
the railroad property devoted to the public service, as ascertained by the 
Interstate Commerce Commission, such valuation to include a consideration of 
physical property, earning power, and such other elements as may be proper 
in determining fair value. 


What I want to ask you is this, as I understand, the Interstate 
‘Commerce Commissicn is to determine the fair value, and is that 
‘the basis upon which the Interstate Commerce Commission is now 
fixing values ? 

Mr. Saumon. I can not answer that question. 

Mr. Stus. Have you anybody here who can? 

Mr. Satmon. My impression is that the Interstate Commerce Com- 
mission under the law is directed to obtain a physical valuation. 

Mr. Sims. That is an amendment to the law. Section 10 provides 
,that the valuation shall include earning power. Is that a part of the 
‘present law in determining the value of the railroads? ~ 

_Mr. Satmon. I think possibly the Interstate Commerce Commis- 
sion under the law may have the power to ascertain values of differ- 
‘ent characters. I base that simply upon the requests that I have 
had for information which would seem designed to enable the com- 
‘mission to determine valuations of more than one kind but I do not 
know, however, what the law is as to valuation. 
Mr. Sims. This amends the law, as I recall it, and will require the 
‘Interstate Commerce Commission to really go over its work again, if 
At has not already done it, and to include in its final finding the earn- 
ing power as well as valuation of physical properties. Is not that the 
plan of this section ? | 


~— 

































266 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Satmon. If it means that they would have to do that, it should 
be done if we are to arrive at a true value of the property. 
The Cuarrman. The physical valuation act does not include the 
element of earning power, but it does include physical valuation and 
the cost of production, etc., less depreciation and a complete financial) 
history of each road. That is the scope of the Federal valuation act) 
which is now enacted. ; 
Mr. Stms. This looks like a little joker and I just wanted to see 
‘whether this gentleman who was put on as an expert witness on rate 
making understood that section 10 was recognized and intended tc 
impair | 
Mr. Saumon (interposing). Mr. Sims, I should like to correct that 
statement. I was not put on here as an expert witness on rate mak 
ing. I was put on here to seek to show certain of the effects growing 
out of the conference rule of rate making. | 
Mr. Srus. Let me ask you what you mean in section 10, the lasi 
part of the first paragraph: | 
To such valuation as shall be derived for any railroad system in the man} 
ner above stated, there shall be udded all increases of property investment madi 
by such system after June 30, 1917. 
Must there be added all increased property investment at the cost 
whatever it was, made after June 30, 1917? ! 
Mr. Satmon. The formula here provides that a certain valuatioi| 
as of June 30, 1917, shall be the starting point. It was the view 0 
the conference that it would be only right and proper that ther 
should be added any increased property investment charge madi 
after June 30, 1917, in accordance with the rules prescribed by th 
Interstate Commerce Commission. 

Mr. Srus. Although it was made on a war-cost basis? 

Mr. Saumon. I do not know how to figure it any other way. 
should say, if I were doing it, that it should be made on the basis 0) 
whatever the cost was of the thing acquired. | 

Mr. Suns. If a farmer built a barn or a fence on his property wit} 
the price of labor and material 100 per cent above what it was before 
he should be permitted to collect a rental the balance of his life oj 
the tenant to include the war cost of this improvement? 

Mr. Saumon. I should think he would have to. 

Mr. Dewar. Mr. Sims, is that quite a fair statement of this cor 
ditions? Under the railroad-control act the betterments and ir 
provements made to the various railroads by the Government mut 
be repaid -to the Government when private control is resumed } 
the railroads, wear and tear excepted. Therefore, is not this a ver 
reasonable provision that the betterments and improvements mad 
since 1917, possibly by the compulsion of the Government unde 
Government railroad administration, shall be taken into this caleulé 
tion, because they will have to repay the Government when the tit 
comes ? | 

Mr. Sims. The reimbursement ought to be made. 

Mr. Drewatr. I am simply stating it as a fair practice of businé 
methods. 

Mr. Sims. The farm matter was not absolutely in point, but illa 
trative of the idea. When a man improves his property during ten) 
porary or abnormal conditions and has to pay. very high prices ! 





~ 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 267 


is not entitled by law or equity to collect a rent or an income or a 
return upon that valuation for 40 years following the war. He is 
sound to lose part like everybody else. It seems to me that instead 
of fixing this as a permanent standard for future rate making for 
ul time to come we better rest on the ground we have heretofore 
saken that all rates should be reasonable, just, and fair, and not 
jiscriminatory as provided in the present law and as provided for in 
she bill of our chairman. 

_ J made a mistake in assuming that you were an expert on rates, 
yecause this refers to the rule of rate making. I suppose that in- 
‘sIudes all features‘of rate making. I did want to ask you another 
juestion, but I will not do it if you are not prepared to answer along 
shat line. 

| The fundamental of rate making should not only be a fair return 
ym the property investment devoted to the public use but should it 
‘0t also be fair to all persons who have to pay the rates, regardless 
»f location ? 

_ Mr. Satmon. I should say that fairness should be considered with 
“espect to every interest involved. 

_ Mr. Srus. It may be that it is inherently fair to charge the same 
vate for 1,000 miles on the same class of property going in the same 
rection and over the same railroad that is charged for 3,000 miles 
ft the same kind of a haul and the same kind of property by the 
‘ame railroad. It may be that is inherently fair? 

_ Mr. Satmon. I think there may be a very good reason, under cer- 
‘ain conditions, for charging the same for the longer and for the 
shorter haul and that with no injustice to anyone great benefit may 
ise to the country at large from making the same rate for the 
/onger and for the shorter haul. I not only think that is so but I 
| aie very positive it is so. 

Mr. Sims. I am not trying to direct your mind to the fourth section, 
yecause there are always exceptions, but is it not fair that all rates 
hould be based in the main on the dominating reasons of the cost 
yf service and the benefits received? For instance, a ton of cotton 
hould certainly pay a higher rate than a ton of coal going the same 
listance over the same railroad, because it is inherently more valu- 
‘ble and there is a greater benefit received by a shipper by moving 
, ton of cotton from a given place to another than by moving a ton 
4 coal. Therefore, the benefit received by the rate payer should be 
onsidered. Why should not the rate structure for freight be based 
}omewhat, at least not without exceptions to the rule, on the cost 
if the service, and I include the earnings on capital? Why should 
ve give one man the benefit of a rate for 3,000 miles and .charge 
nother man the same rate for only 1,000 miles? 
| Mr. Satmon. I do net think, Mr. Sims, that my opinion on that 
ivould really be of any value to the committee. 

Mr. Sirus. This bill proposes operating districts. The railroads 
j!ave always had districts with flat zone rates charged in such dis- 
ricts, regardless of costs. Does your system contemplate a continua- 
ton of rates that apply to large areas of the country in the way of 
lat or zone rates? 

_ Mr. Satmon. We have not taken up the matter in that detail. 

_ Mr. Sts. You have not considered it? 









268 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 
























Mr. Sautmon. No, sir. 

The CratrMan. The committee will now take a recess until § 
o’clock this afternoon. 

(Thereupon the committee took a recess until 2 o’clock p. m.) 


AFTER RECESS. 
The committee reassembled at 2 o’clock p. m., pursuant to recess. 
STATEMENT OF W. W. SALMON (Resumed). 


The Cuatrman. Mr. Salmon, vou may proceed. 

Mr. Watson of Pennsylvania would like to ask you some question: 

Mr. Watson. Of course, the object of your testimony was to formy 
late a plan upon which railroads could be operated on a credit basi 
after their return to private control? : 

Mr. Saumon. Yes, sir. 

Mr. Watson. I notice, on page 58, you have made a statement the 
railroads are to be organized and equipped to adequately serve th 
needs of the country. I will not ask you a definition of “ adequate’ 
probably no two persons would give the same meaning. In yot 
opinion, I want to know if the public had been reasonable regardin 
the service of railroads, and had not demanded palaces for termina! 
and if commuters of suburban districts would have been satisfie 
with plain and substantial stations, and if the passengers had m 
demanded luxuries on the trains—de luxe diners, barber shops, ete= 
would not the credit basis of railroads be higher than it is to-day! 

I will ask if you will answer that question. =) 

Mr. Saumon. I think, sir, that has had some effect; perhaps a sw 
stantial effect. 

Mr. Warson. In order that railroads may earn 6 per cent of d 
value of their property, and with the public continuing to demar 
expensive terminals, etc., would not the rates have to be increast 
nearly double in order to obtain the 6 per cent earnings? You spo 
of 2 per cent for renewals. That would be something like $10 
000,000? 

Mr. Saumon. Yes. 

Mr. Warson. Or $100,000,000. Do you think that amount wou 
be sufficient to put all the railroads upon a credit basis? 

Mr. Satmon. I think, sir, that the 6 per cent yield, if reasonab 
assured, would very greatly strengthen the credit of the compan) 
and with respect to one phase of your question, the conference pl 
contemplates the creation of a Federal transportation board; t 
functions of that board Dr. Johnson will explain, but I wish to m 
tion this phase. That board would be expected, amongst oth 
things, to pass upon many matters which would probably result 
substantial economies. The Government, working through so 
agency, will pass upon the necessity for expenditures, for capr 
issues, and this Government agency might, and, I should thi 
would properly refuse authorization for the issuance of securiti 
the proceeds of which are designed to be invested in things 
needed in the public interest. Personally, I believe that in ti 
past, and without sufficient régulation of this matter, perhaps tl 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 269 


ave been some expenditures made that under the plan which we 
ropose would not be made in the future. 

‘Mr. Warson. Now, the Interstate Commerce Commission is not in 
ivor of one line paralleling another, therefore there could not be 
ympeting lines; hence a main line must increase the weight of the 
ils, build heavier engines, have cars of larger capacity, enormous 
igines in order to meet the growing traffic. At the present time the 
\wenues are not sufficient evidently to meet the operating expenses and 
1e interest on the bonds and stock, therefore, do you not think it is 
tir to increase the rates sufficiently to meet those expenses which the 
tilroads had to meet in order to give adequate service to cope with 
rowing traffic ? 

Mr. Satmon. It would seem to me, sir, not only fair that expenses 
‘ieurred to meet the needs of commerce should have an adequate and 
‘oper return, but that it will be necessary that they have that return 
‘those steps are to be taken which will meet the needs of our con- 
antly growing commerce. 

‘Mr. Watson. Are you in favor of competing lines? 

Mr. Satmon. Decidedly so, sir. 
| Mr. Watson. And a system of competing lines would no doubt 
ywer the rates? 

‘Mr. Satmon. From my observations, especially in certain foreign 
yuntries—as, for example, France, where a definite and substantial. 
turn is guaranteed to the roads, though privately operated—there 
ems to me ample evidence that a guaranty of a return to the in- 
‘ividual road, together with the grant of a substantial monopoly of 
‘\e traffic of a region, as is true with the French roads, produces stag- 
ation, high cost, poor service, and altogether undesirable results ; 
‘ad that, on the other hand, competition, such as is contemplated 


‘onder our conference plan, would result in improved service at. what 


ill tend in the future, as in the past, to be lower cost. 

| Is that responsive to your question, sir? 

| Mr. Watson. Yes. You think the public is rather unfair in de- 
‘anding all these luxuries, roomy stations, and so forth, and not 
| illing to pay the higher rates and higher fares? 

| Mr. Satmon. I think the public, sir, should be willing to pay for 





| hat it practically compels the carriers to furnish. 

| Mr. Watson. That is all. . 

' The Cuarruan. Mr. Denison, of Illinois. 

Mr. Denison. I want to ask you some questions which may appear 
ither elementary, but I am interested in your plan and I am asking 
wr information. 

Will you refer to section 9, page 58? 

“Mr. Saumon. Yes, sir. 

} Mr. Denison. First. let me ask vou what is understood in railroad 
‘counting os the “ property investment account”? What does that 
mprehend ? | 

‘Mr. Ssrmon. That is question that can bo rather easily answered 
‘ith respect to the charges to that account, since the Interstate Com- 
ieree Commission in 1907, I think, prescribed uniform rules of a°- 
Mintine. What got into that account before that time it would bs 
‘ther difficult to say. Personally. I imagire that there may be in 
hie account some things entered before 1907 that should not be there, 





270 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 
but since that time those items are there which are prescribed as being” 
properly there under the Interstate Commerce Commission rules 
governing such accounting. 

Mr. Denison. Will you state briefly for the record what that com- 
prehends? 

Mr. Saumon. I am afraid that it would be unsafe for me to make 
that statement without having the Interstate Commerce Commis- 
sion’s requirements or rules before me. I should prefer, sir, not to 
attempt it. It is easily procurable. I would be glad to furnish that: 
information later, if desired. 

Mr. Denison. Can you tell me briefly what is meant by “ operating: 
income ” of a railroad ? 7 

Mr. Satmon. The operating income, referred to in the statements, 
and which were presented in my treatment of this rule of rate mak- 
ing, covers item 33, such as appears in the statistics of common car~ 
riers for the year 1917 issued by the Interstate Commerce Commis- 
sion under the, heading “ Income account for the year.” 

Mr. Denison. Perhaps you misunderstood what I am trying to 
get at. I am asking what the ordinary person may understand to be 
included in the term “ operating income” of any railroad. 

Mr. Sauaon. It would include the revenues less the operating 
expenses derived from freight, from passenger service, excess 
baggage service, sleeping cars, parlor and chair car service, freight, 
express, and other passenger train service, milk-train service, mail | 
service, switching service, and all other rail-line revenue. Those are 
the items, 21 to 31, shown on the report: to which I have referred 
under the caption “ Railway operating revenue,” and are, strictly 
speaking, operating revenues. , | 

Mr. Denison. Strictly operating revenues? 

Mr. Saumon. Yes, sir. 

Mr. Denison. Then, it does not take into consideration any of the} 
expenditures? The word “income” | 
Mr. Saumon. It is income derived from operating revenues froni | 
which, of course, must be deducted the cost of operation. : 
Mr. Dentson. That is what I want to know. Then, when you speak | 
of operating income of a railroad, do you mean the net income 4 
Mr. Saumon. The net income derived from operation, deducting | 
from the operating revenues | 

Mr. Denison (interposing). The operating expenses ? 

Mr. Saumon. The operating expenses. 

Mr. Dentson. The purpose, then, of the plan of statutory rate | 
making in this proposal of the transportation committee is that the | 
rate-making body shall institute fair rates in each traffic section that 
will be designed to yield to the railroad companies in that section | 
aggregate revenues sufficient to produce, after certain deductions, «1 | 
net return of not less than 6 per cent per annum upon the aggregate. 
fair value of the property of the railroads devoted to public service 
in that section ? 

Mr. Satmon. Yes, sir. 

Mr. Dentson. I assume, then, that the rate-making body would | 
undertake to fix rates for that traffic section such as would, on the} 
average, yield 6 per cent? acl 

Mr. Saumon. Yes, sir. 














\ 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. OT 


‘Mr. Denison. Is that right? 
‘Mr. Saumon. On an average. 

“Mx. Denison. Well, that would mean that there would be as many 
vads in that section that would return less than 6 per cent as there 
ould be that would return more than 6 per cent, and by that I do not 
ean less in number, but I mean less in earning power? 

Mr. Savon. Yes, if I understand you rightly. There were in the 
istern district 50 class 1 roads in the test period whose operating 
ome averaged less than 6 per cent on their respective property in- 
stinent accounts. Our Table No. 1 shows that should our rule work 
it as we estimate there would be 40 roads in that district in a 6 per 
mt year whose earnings would be less than 6 per cent. 

Mr. Denison. I thought you said 50. 
‘Mr. Satmon. There were 50 whose earnnigs were less in the test 
riod. There would be 40 whose earnings would be less in an aver- 
te 6 per cent year. 

Mr. Denison. In a given year, if the aggregate earnings of the 
ads in a particular traflic district averaged 6 per cent for that 
strict, would the income on the individual roads that yielded less 
‘an 6 per cent be made up to 6 per cent ? 

Mr. Satmon. Oh, no; not at all. That is not a purpose of the plan. 
‘Mr. Denison. Then if, under this plan, the aggregate income or 
't income, after making proper deductions, of all the roads in any 
affic district should average 6 per cent on the aggregate fair value 
_the property in that district, the income of those roads in the 
strict that fell down as low as 2 per cent or 3 per cent would not 
/made up from any fund? 
‘Mr. Satmon. No. Our plan has not contemplated any such treat- 
ent of the weaker roads. 
Mr. Denison. I see. 
“Mr. Saumon. To make this entirely clear it may be well to refer 
‘ain to class 1 railroads of the eastern district. I said there were 
of them earning less than’6 per cent on their respective property . 
vestment accounts in the test period. The average earnings of 
ose 90 roads during the test period was 4.42 per cent. In a year 
6 per cent average yield for the roads of this district there would 
available for interest and dividends an increase of 0.56 per cent 
the aggregate property investment accounts of these 50 roads, 
uch would bring the earnings available for interest and dividends 
r those roads from 4.42 per cent up to 4.98 per cent, really very 
eatly aiding them. Taking all of the class 1 roads of the three dis- 
ts we find that there were 120 out of a total of 162 whose earn- 
gs in the test period were under 6 per cent on their property invest- 
ent accounts, and that their average earnings were 4.42 per cent. 
We estimate that the-effect of the application of the conference 
le in a 6 per cent year would be to raise their average earning 
ailable for interest and dividends from 4.42 to 4.85 per cent; this 
‘thout giving consideration at all to the individual contingent 
nd, to which there would be an average contribution by these roads 
0.1 per cent, bringing the average of those roads whose earnings 
re only 4.3 in the test period up to 4.95 per cent, a very sub- 
intial strengthening of their situation. In such a year these roads 
wuld also contribute an average of 0.10 per cent to the general con- 













279, RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


tingent fund, to which the other 42 class 1 roads would also con- 
tribute 0.45 per cent. But there is nothing in our conference plan 
-which would contemplate bringing these weaker roads up to ( 
per cent. . 

Mr. Denison. That is what I wanted to ask you. 

Mr. Saumon. Yes, sir. 

Mr. Denison. It is not contemplated by this plan, then, to bring 
the incomes of all the roads up to a 6 per cent level, 1 mean 01 
each of the roads? 

Mr. Satmon. Not of each. It is to bring the aggregate up to { 
per cent in order that there shall be a strengthening of the credit 
not only of the weak lines but of the strong ones as well. : 

Mr. Denison. If in a given year the aggregate net income of the 
roads of a district should yield, or should prove to be, 6 per cent oi 
the aggregate fair value of the property in_ that district, and ¢ 
certain road should earn, say, 12 per cent in that year, what woul 
be done with its earnings under the plan proposed ¢ 

The Carman. In answering that question it should be borne 11 
mind that our conference rule has to do with two periods, one being 
that period prior to the ascertainment of a fair property value, an¢ 
the other the period following the ascertainment of such a value 
Perhaps it would be well to start with the latter period first, because 
after all, that is what would come to be the permanent thing. One 
a fair valuation of the properties devoted to the public service shal 
have been established by public authority, then, in accordance wit] 
the conference plan, all net earnings from railroad operations u 
excess of 6 per cent on that valuation would constitute excess income 
Of that excess income, one half would go into the road’s individua 
contingent fund until such time as that fund should come to amoun 
to 6 per cent upon its ascertained fair value, and the other half dur 
ing that period would go into the general contingent fund. 

Mr. Denison. You mean 

Mr. Saumon. The other half of the net earning over 6 per cen 
would go into the general contingent fund. In the specific ea 
which you mentioned—a 12 per cent earning on fair property value 
it would mean that 3 per cent would go into the individual contin 
gent fund, and 3 per cent into the general contingent fund, and i 
would only take two years on such a basis for the individual contir 
gent fund to equal the maximum 6 per cent provided for under ou 
plan. When the individual contingent fund shall have amounte 
to 6 per cent on the ascertained true value of the property devote. 
to public service, thereafter two-thirds of the excess earning, or 1 
other words 4 per cent, following your illustration, would go to th 
general contingent fund; and contributions to that. fund by tha 
road would continue until the fund amounts to $750,000,000. There 
after contributions would continue but under our plan could » 
longer @o into that fund, which has. reached and 1s maintained @ 
¢:750,000,000, but would then be used as directed by the Fedeve 
{transportation board for the development of the railroad transport 
tion system of the country. or for the increase of transportatio 
equipment and facilities, or for the pro rata reduction of the capt 
cr capital obligations and property investment accounts of the ru. 
roads. or it might go if so directed by Congress, dircetly into th 
Treasury of the United States. 































RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 273 


-Mr. Drentson. Then, in such cases as you have just been speaking 
bout, there would not, within the time be available more than 6 
er cent to be distributed in the form of dividends? 

Mr. Satmon. Not in the first period. In the latter period there 
ight be. For that 12 per cent road there might be 8 per cent, 
r if it could increase its earnings to 15 per cent 1t would mean still 
n additional per cent, because it would retain one-third of the 
xeess in the latter period named or described by me. 

Mr. Dentson. There could be in no case a distribution of more 
aan 6 per cent in the form of dividends until the two reserve funds 
re completed, or at least until its own individual reserve fund were 
ympleted ? : 

r. SALMON. There could be no distribution out of the operating 
acome of a given year of more than 6 per cent. Of course, there 
ught be surplus, there might be earnings from other than opera- 
‘ions—from investments, for example—which might be so distributed, 
ut, sticking strictly to the thing that we are speaking of, income from 
peration of a given year, there could be no distribution of more than 
‘per cent. — 

Mr. Denison. Under the proposed plan, would the railroads have 
ie right at any time to make extensive improvements or additions 
> their properties out of their incomes? 

Mr. Satmon. I do not recall at this moment whether our plan would 
equire that a carrier procure from some Government body authoriza- 
ion to expend moneys out of its own treasury, moneys which it does 
ot have to go out into the market and borrow, or whether such au- 
aority is not necessary. 

Mr. Dentson. The thought occurred to me, from what I have 
tudied of the plan, that if this plan were adopted there could be no 
xtensions to railroad property from earnings or income, but all such 
aos and extensions would have to be made by increases of capital 
r by loans. 

r. Satmon. I do not think that would follow from our plan, sir. 
he only question I had in my mind was whether authorization would 
ave to be obtained from some Government agency to make such ex- 
‘enditure. There certainly would be nothing to prevent the car- 
ter 

Mr. Dentson (interposing). I was going to say, in determining the 
uestion of operating income, you are not allowed to deduct moneys 
‘xpended for additions and extensions? 

; Mr. Satmon. Oh, certainly not. 

' Mr. Denison. I do not think this plan has any provision, at least 
> far as I have seen, whereby under any circumstances you could de- 
‘uct from the revenues of a company expenditures for improvements 
t additions. ate 

| Mr. Satmon. Oh, no. 

Mr. Denison. Then that could only be done, so far as I have ob- 
orved ‘from the pJan, by loans or by increasing the capital stock? 

' Mr. Satmon. But, sir, there is nothing in the plan which would 
‘ompel the carrier to pay dividends or which would prevent the 
/sé of all or any part of its income from all sources for improve- 
lents, extensions, and that sort of thing. 


152894—19—-vor 1 18 











\ 









274 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Denison. Then, if a certain carrier should decide to use it 
income for improvements and extensions, would that be taken int 
consideration in determining the aggregate, etc. ? | 

Mr. Satmon. I do not see that that would come into or be affecte 
by our rule of rate making at all. A charge for an expenditure ¢ 
the sort that you name, if I understand you aright, would be a cap) 
tal charge for a productive improvement. Any such capital ey 
penditure would, in the very nature of things, not be an expend 
ture which could be treated as an operating expense, 

Mr. Denison. But I have not seen any plan by which that coul| 
be deducted; I mean I have not seen any provision here by whie¢| 
that could be deducted. Let me state this proposition to you, an 
get your opinion on that: | i 

Suppose in a certain traffic district the aggregate net incon 
amounted to 6 per cent, as designed under the plan, and the roa) 
we have been speaking about earned 12 per cent on the fair value ¢ 
its property, as finally ascertained. Now, that company could nq 
spend any of that 12 per cent for extensions or additions withot, 
taking it out of its own dividend. Is that not true? 

Mr. Satmon. I do not see that that would follow. : 

Mr. Dentson. Then explain to the committee, if you please, ho 
else it could be done. I understood you to say it could make thes 
additions or extensions by taking it out of its dividends. It seeir| 
to me that this plan would require a railroad company who desire} 
to make extensions or improvements to deprive its stockholders ¢ 
dividends to that extent. 

Mr. Saumon. I do not understand, sir, that under our plan the 
situation would differ in any degree from the existing situation, @ 
cept as to this, that as to certain capital expenditures and as to tf 
right to issue securities to cover such expenditures some Feder 
body would have to pass upon the matter. That, as I understand i 
is the essential, and perhaps the only, difference is respect to th 
thing which you are now speaking of. | 

Mr. Merritt. Perhaps I might make a suggestion upon the poi 
in question. I take it the’ fair value of property—as, for instan¢| 
in the case of the Lackawanna road—might be many times 1] 
capital stock ? 

Mr. Sautmon. Yes. | | 

Mr. Merritt. So when they get 6 per cent on the fair value of tl) 
property they would be getting 25 or 30 per cent on the capit 
stock, which is very small; therefore they could continue payir 
dividends on their stock at the same rate they had before and sti 
have a surplus out of that fair return, which they could keep { 
extending their property. That is what the Lackawanna road li 
done in the past and could do under this plan. . 

Mr. Denison. I think they could do it in that case, but that is & 
exceptional case. 

Mr. Merrirr. Yes; it is an exceptional case for any road to mul 
improvements out of its earnings ever. 

Mr. Denison. I was assuming that sometimes a railroad compar 
could or would make additions and extensions out of its earning! 
. That may be a violent assumption. | 





RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 275 


Mr. Saumon. I think, Mr. Denison, if I understand your inquiry 

aright, you will get my idea if I state that under our plan it is con- 
templated that until a fair property valuation is determined not a 
dollar of earnings of any railroad will be regarded as excess income 
unless it exceeds its earning in the test period. I think it is also the 
spinion of the members of our conference—it certainly is my own 
opinion—that if the valuation finally established for the railway 
properties gives proper consideration to earning power, the valuation 
30 established as a fair valuation will be such that it will show a great 
Merease in many instances over the property investment account, 
30 that 6 per cent on such fair, ascertained valuations will in some 
sases exceed the income of the test period. I certainly hope that this 
nay prove true, because if I did not believe it would result that way 
f : 
n quite a number of cases I should feel much doubt as to our plan 
droving as beneficial as we desire to have it. That for this reason: 
first of all, I believe that certain consolidations should take place; 
hat it is greatly in the public interest that they should take place. 
We must have some sort of a nucleus about which to make these 
sonsolidations. If there shall have been stored up certain potential 
ourchasing power in these very strong companies, that will be 
‘ecognized when the valuations for those companies shall be estab- 
ished; they would then be in a situation to furnish the credit re- 
juired for bringing about these desired consolidations. I think it 
vould prove very helpful indeed to the general railroad situation 
f such proves to be the case. I believe it will prove to be the case, 
ind that instead of these stronger roads, being valued at such a 
igure that 6 per cent thereon would be less than their earnings of the 
est period. It would be found, in many cases, that their valuation 
vould be such that 6 per cent thereon will very considerably 
xceed the earnings of the test period, 

Have I made that point clear? 

_ Mr. Denison. Yes; I think so. The proposition that was both- 
ring me, or, rather, that suggested itself to my mind was, assuming 
hat this plan is put into operation and that the ageregate net re- 
urns in the traffic will average 6 per cent, and here is a road, or 
Wo roads, that earn 15 or 16 per cent at that time—now 6 per cent 
F would retain for dividends; the surplus or excess would go to the 
wo funds, at least until the funds were completed, and if it wanted 
9) make any extensions or additions it would either have to take 
+ out of the 6 per cent or issue bonds or increase its capital. Is my 
eduction correct ? 

Mr. Saumon. I think your deduction is correct, but I think your 
‘Yemise is very unlikely to be realized. For example, if you are talk- 
ig about 15 per cent on present property investment accounts and 
Topose to take away from the roads two-thirds of all over 6 per cent 
‘A such property investment accounts, I think that would be very 
Adindeed. But, as a matter of fact, I do not think any of the roads 
‘ve likely on a proper valuation and on a proper carrying out of 
‘ur proposed rule of rate making to earn 15 per cent on such proper 
aluation. TI think that would be quite unlikely. 

Mr. Denison. Suppose, after this plan goes into operation the ag- 
tegate earnings of all the roads for a proposed traffic district should 











276 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


average 8 per cent on the aggregate fair vailue of the property, what 
would be the result ? 

Mr. Sautmon. Well, it would mean a very large increase in the con- 
tingent fund contributions. 

: at Denison. All above 6 per cent would go to the contingent 
und ¢ 

Mr. Saumon. All earned by any individual carrier over 6 per cent 
on a fair Federal valuation, until its own individual contingent fund 
is created and maintained, would go to these two funds. After 
that, two-thirds would go to the general contingent funds. 

Mr. Denison. And if the average income in a certain year shoulé 
fall below the 6 per cent, then the surplus fund, as I understand it 
would be drawn upon to bring the average up to 6 per cent, an 
not the individuals up to 6 per cent? 

Mr. Satmon. It would bring up the average; yes, sir. Illustrating 
concretely—if in a given district, we will say one with a true prop. 
erty valuation of $5,000,000,000, the earnings in a certain year wert 
$275,000,000, instead of the $300,000,000, which would represent f 
per cent on the $5,000,000,000, there would be withdrawn, or coule 
be withdrawn, from the general contingent fund, $25,000,000, thi 
exact amount of the deficit. That $25,000,000 would then be dis 
tributed amongst the several carriers, pro rata to their gross revenu 
for operation. 

Mr. Denison. Under this plan a railroad will no longer initiat 
rates, will it? 

Mr. Saumon. The matter is left open, so far as we are concerned 
I think that our plan would not prevent, and does not seek to pre 
vent, the initiation of rates by the railroads, nor does it prescribe 
who shall initiate them. The rates shall be determined finally by 
the Interstate Commerce Commission. | 

Mr. Denison. But it does not prescribe who shall initiate it. Tha 
is all, Mr. Chairman. 

The Cuairman. Mr. Sweet of Iowa. 

Mr. Sweer. The basis of your whole rate structure is founded, a: 
I understand you, upon the aggregate fair value of the property? 

Mr. Saumon. Yes, sir. q) 

Mr. Swrer. When the plan that you have devised is fully worker 


out. un 
Now, in section 10, you have in here a proviso which is as follows 


Until such valuation shall have been determined, the valuation to be adopte 
for the railroads in the United States as a whole, and by traffic sections, shal 
for the purpose of making the rates that yield the aggregate net return to b 


provided by statute, be their aggregate property inve:tment account. | 

What investigations have you made that would indicate that th 
aggregate property investment accounts of the railroads in ay 
traffic section would approximately be equal to the aggregate fal 
value of the property of the railroads in that section ? { 

Mr. Satmon. We have not made what would be worthy to b 
termed an investigation, for this reason: As a conference, we do no 
feel that we are capable of determining, or have the means for de 
termining; what would be a fair valuation of these various prope 
ties, but what we have done is this: We have taken the mileage ane 
the traffic in these various sections, arrived at the amount of th 








RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 277 


jroperty investment accounts, and, comparing the per-mile charge 
‘epresented by these property investment accounts in each of these 
listricts with the per-mile charge against the railways in other 
ountries, where roads have been built with cheaper labor and largely 
vith very much cheaper material, which_roads are hauling no more 
reight per mile than the roads here, we find that the valuation per 
nile is substantially less here than in other countries; and it seemed 
o us that for the intended purpose it would fairly serve as a tem- 
yorary basis upon which to figure the increase in aggregate yield. 
Wy own theught about it was this: That, regardless of whether it 
hall be ascertained that the true property value of the roads in a 
fiven rate district is that which their property investment accounts 
show, or whether it is not, a greater yield is needed by the roads in 
hat district to attract investment required in the public interest; 
t did not seem to me to be of any very great importance whether 
he aggregate property investment account shown, for example, as 
35,000,000,000 is correct, or whether it should be shown as $4,000,- 
00,000. The outstanding fact is that the roads in that district 
vere not in the enjoyment of that credit which has permitted them 
0 go out and get the moneys on terms as favorable as industrials 
iave been able to get the money required by them, and therefore I 
lid not bother a very great deal about trying to determine abso- 
ute values. Our conference thought that there needs be an increase 
of net earning for the railroads and that we could use the property 
nvestment account temporarily as a yardstick just as well as some- 
hing else that might be more correct. It was our thought as to all 
the roads that the 5.2 per cent average yield of the test period upon 
he aggregate property investment accounts did not create the credit 
situation which was needed, and that anything less than would be 
*epresented by an aggregate yield equaling 6 per cent upon that val- 
tation, whether it is right or wrong, would be insufficient. 

_ Mr. Sweer. Not for the purpose of criticising the plan, but for the 
purpose of ascertaining the method you pursued in taking care of 
the property investment account, there was a period when the fair 
valuation of the aggregate property was not ascertainable ? 

Mr. Saumon. Yes, sir. 

Mr. Sweer. In the testimony that was given by Judge Prouty, 
who was director of valuations, when the Federal contro] act was 
seing considered by this committee, he made the statement that it 
vould be about three years from February, 1918, before they would 
de in position to have the work completed with regard to physical 
xXamination, so then of necessity, there must be about two years 
aere in which your rate structure would be based upon aggregate 
property investment account ? 

, Mr. Saumon. Yes, sir. 

_ Mr. Sweer. My thought was this: That unless your basis was about 
che same during the period of two years that it would be necessary 
for you to have a marked rearrangement of your plan at the end of 
‘the two years when the fair property valuation has been ascertained. 

Mr. Satmon. Possibly it would create unfortunate disturbances 
if it were found, upon ascertainment of the aggregate true property 
valuation, that it amounts to much less than the aggregate of the 
property investment accounts used temporarily as the basis of rate 









278 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


determination for the districts. That would be very unfortunate, it 
seems to me. 

Mr. Sweer. That was my thought. If it was very much lower, it 
would be necessary to have a substantial rearr angement of your 
whole plan? 

Mr. Saumon. Yes, sir. 

Mr. Sanpers of Indiana. This general rate-making plan is divised 
for the purpose of giving a standard to the rate- fixing bodies, some 
definite standard beforehand as to what would be a reasonable re- 
turn for their labor? : 

Mr. Satmon. Yes, sir. 

Mr. Sanpvers of Indiana. Under the Constitution of the United 
States a regulatory body is required to fix such a rate as would yield 
a reasonable return on the value of the property. Is not that true? 

Mr. Saumon. Yes, sir. 

Mr. Sanners of Indiana. This pga proposes to fix a definite mink 
mum to guide the regulatory body ? 

Mr. Saumon. Yes, sir. 

Mr. Sanvers of Indiana. In your opinion what are the elements 
that enter into the distrust of railroad securities? 

Mr. Satmon. That is a very big question. 

Mr. Sanvers of Indiana. Yes: and I do not care to make its scope 
that wide. I only want to deal with the rate situation. Is it a fact 
that we have 48 States which more or less regulate the rates of rail- 
roads ¢ 

Mr. Saumon. I think that is an element. 

Mr. Sanpers of Indiana. And in addition to that we have the In- 
terstate Commerce Commission that deals with those rates? 

Ra SALMON. Yes, sir. 

-, Sanvers of Indiana. You think if a definite standard can be 
fixed by statute, below which the Interstate Commerce Commission 
shall not go, that that would give confidence in railroad securities? 

Mr, Sanmon. I think it would greatly aid, sir. 

Mr. Sanpers of Indiana. And that is the real purpose of this plan 
a than to undertake to level rates between the weak and strong 
roads % 

Mr. Sautmon. That is the real purpose. 

Mr. Sanpers of Indiana. And your plan involves the idea of put- 
tne ihe rate regulation all in the hands of one ee 

», SALMON. Yes, sir. 

Me. Sanpers of Indiana. Since the railroads are subject to goy- 
ernmental regulation, by which the Government can fix the amount 
of the profit, the element of speculation in the securities is almost 
entirely gone, 1s it not? 

Mr. Satmon. It would be greatly reduced, certainly, under the 
operation of our proposed plan. 

Mr. Sanpers of Indiana. That would be the relative effect, in your 
opinion, upon the value of the stock in the weak roads and in the 
strong roads, of this plan? 

Mr. Satmon. I think that the effect, if the full plan were adopted, 
would be first of all to considerably strengthen the securities of some 
of the lines and of the weaker lines especially. 

Then I think that there would come about a willingness on the. 
part of some of the so-called strong lines to take over certain 0 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 279 


‘e weaker feeder lines, and that these weaker lines would have a 
‘sposition to be taken over because this could then be effected upon 
‘uch more favorable auspices under our plan than under existing 
nditions. One of the principal objects sought by this plan 
to facilitate consolidations deemed by the transportation board 
“pe in the public interest. Under our proposed rule a major part 
' the excess earnings will be taken away from the larger earners— 
‘rmanently taken away from them. If these larger earners merge 
‘ith some of the small earners, the average earnings of the combined 
‘operties will be lowered. That would mean that there could and 
suld be a larger port of the net earnings detained by the combined 
‘operties than would be retained by the companies operating sepa- 
ay and independently. In fact, it is possible to conceive of the 
ouping of the roads of a certain district in such a way that each 
ch group would earn almost exactly 6 per cent on their ascertained 
ue property value, in which case there would be substantially no 
cess income. The roads in that case would be able to retain a 
uch larger share of the earning than they would be able to retain 
_the case where the earning ranges from a very low to a very high 





| 
“reentage of the property valuation. It is my idea that the results 
_ our proposed rule would thus be favorable to consolidation and 
aay be very useful to the people of the country because it would 
‘ad to solve the serious problem of the very rich and the very poor 
‘ad operating in the same territory and obliged to furnish trans- 
ortation at the same rates. 
Mr. Sanvers of Indiana. Of course, the plan itself is not intended 
/imarily to level the rates. As a matter of fact, the intended effect 
the plan, in the absence of consolidation and merger, would be to 
|ve relatively greater value to the stock of the weaker roads! 
Mr. Saumon. It would. 
Mr. Sanvers of Indiana. Is not that true? 
!Mr. Satmon. Yes, sir; because they would retain a larger percent- 
e of their increased earning, at least temporarily. 
‘Mr. Sanpers of Indiana. Yes; and it arises out of the fact that 
ur plan takes from the earnings of the stronger company and 
weer it to the earning fund of the weaker company ? 
Mr. Satmon. I hardly think, sir, that that is an exact statement. 
atil there shall have been an ascertainment of true property valua- 
jm there will be no earnings going into either of these contingent 
(nds until an earning is made by some railroad which exceeds the 
erage earning of the test period. That safeguards, as I see it, the 
/*ge earner from having taken away from it any value growing out 
| its own efficient operation. During the test period the roads had 
fairly good opportunity to show what could be done by them, and 
'} stronger roads were making a very fair earning. 
If only these larger earners had to be considered our conference 
yuld not deem it necessary or right to ask Congress to legislate to 
> end that the net earnings of the railroads shall be greater than in 
test period. If, then, solely as the result of such legislation as we 
ommend, the rich roads obtain substantially larger profits and are 
/tmitted to retain a part thereof, it is not taking from such road 
\ything actually earned by it when it is required to contribute the 
\ler part thereof to the general contingent fund. | 










280 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Therefore, I do not believe there would be any real taking awa) 
of anything earned, actually earned, by the rich to give to the poor 
What would happen would be this: That part of the earnings, grow 
ing out of a general increased earning level, would go into a genera 
contingent fund, and that fund, when distributed, would, I think 
more greatly profit, on the average, the smaller earner, but woul 
also protect the credit of the larger earner. 

Mr. Sanvers of Indiana. I understand that, but under the pro 
posed plan the weaker railroad will have given to it, from the genera 
contingent fund, a certain amount which it will have the right 
retain. 

Mr. SAumon. Yes, sir. | 
Mr. Sanpers of Indiana. The strong road will be given out of th 
contingent fund a certain amount, but it will not have the right 
retain it if this contingent fund has reached the point of 6 per cent, be 
cause, under section 11, it will have to be redistributed as profit. Th 
other words, this weak road does get some additional earnings, doe 
it not? Some additional money not earned by it under the rate 

xed ? 

Mr. Satmon. Will you turn, sir, to the last chart, if you have it? 

Mr. Sanvers of Indiana. Yes; I have it; but what about that? I 
not that true? te W | 

Mr. SAumon. I want to point out this fact: That somé of the weal 
roads, as well as all of the strong roads, will be able to retain only ‘ 
part of the moneys received by them from the general contingen 
fund. If you will look at the second symbol you will find that th: 
weakest road, the Tennessee Central, only retains a part of the contri 
bution received from the general contingent fund, and that the othe 
roads retain only a part of it 

Mr. Sanpers of Indiana. Why is that, that they do not retain i 
all—because of another check on it? a 

Mr. Satmon. It is because of the valuation which we give thos 
roads. If, in any year in which the aggregate earnings of all thi 
railroads of a district fall below 6 per cent on their aggregate tru 
property valuations, any road of that district earns more than 6 pe 
cent, or if its earnings in such a year plus its receipt from the genera 
contingent fund exceeds 6 per cent, it must turn back to such fu 
two-thirds of such excess. 

Mr. Sanpers of Indiana. Yes; I understand. 

Mr. Satmon. It affects the weak road just as it does the strong one 
in principle. 

Mr. Sanvers of Indiana. Let us get at it in another way. Thes 
railroads do not retain all of their earnings, do they? . 

Mr. Sautmon. No. 

Mr. Sanpers of Indiana. They are redistributed by a system of in 
dividual contingent funds and a general contingent fund. Now 
under this redistribution there are cases in which the weak road wil 
have more than it earned on the rate fixed. 

Mr. Satmon. That is true. : 

Mr. Sanpers of Indiana. And that amount comes from where? 

Mr. Satmon. It comes out of the fund created by the contribution 
of all the carriers that had excess income. 

Mr. Sanvers of Indiana. Then some other carrier, by the rat 
fixed, earned the amount that was thus turned over? 





RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 281 


Mr. Sautmon. Yes; that is true. 

_ Mr. Sanvers of Indiana. Is it the plan to fix maximum and mini- 
aum rates ? 

_ Mr. Satawon. The conference has not dealt with that, sir. We have 
wrescribed or suggested that a rate designed to yield not less than 6 
ser cent be established, but we have not taken up the matter which 
‘ou mentioned. 

Mr. Merrirr. I see it strongly stated in some of the briefs pre- 
ented by your committeé, that you feel sure that your plan does not 
ake away from each individual road the incentive to competition and 
fliciency ? 

Mr. Satmon. We feel that it will not take away incentive. 

‘ Mr. Mererrr. It is true, is it not, that the inducement to make 
arge net earnings at the beginning, at least, when the roads differ .as 
‘) property valuation, is removed, that the reward for efficiency and 
ood competition is greater to the weaker road than it is to the 
‘ronger road ? 
| Mr. Satmon. No; I would not say that that is so. 
| Mr. Merrrrr. Well, in one example in which you set forth in your 
‘rief it shows that the Lackawanna Road—and I refer to that be- 
ause it is a great example of a prosperous road 
Mr. Saumon. Yes; it is. 
| Mr. Merrirr. The Lackawanna Road has to give up all that it 
iakes over the standard return ? 
, Mr. Saumon. Well, it puts into the two funds initially all that it 
takes over the standard return, but half of that is its property. 
/ Mr. Merrrrrr. It is? 
Mr. Saumon. Yes; and it is a half which it would not get if this 
ale did not go into effect. 
» Mr. Merrirr. It would not be allowed, however, to use that half 
wr extensions on its own property ? 
Mr. Satmon. No. Under our plan it would have to be a reserve 
‘id to be used for certain specific purposes, and that would not 
2 one of the purposes. 
Mr. Merrirr. And then, after its individual reserve fund was 
iade up to the limit, it would not be able to retain one-half. 
) Mr. Saumon. It would retain only one-third then. 

Mr. Merrirr. So that the larger roads, at best or worst, would 
| ave to have a certain amount of altruism in their constitutions, 
ould they. not? 
| Mr. Satmon. I do not know, sir, just how it would affect every 
ie of them, but it would seem to me that they would all have a 
rge incentive. 

Mr. Merrirr. Of course, I can see the better they do and the more 
oney they make the more they will keep in the aggregate, but not 
scessarily in proportion. Then you gentlemen have shown in your 
ble, giving average returns and so on, the large majority of the 
‘ads appear to have earned the average return at that time. Of 
yurse, under the present situation they are not beginning to do 
iat ? 

Mr. Satmon. No. The figures in the first half of this table and in 
‘ese tables numbered 1, 2, and 8 are for the test period. 

Mr. Merrirr. Yes. 














: 


282 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Satmon. They are not, I take it, earning the net to-day they 
were then. 

Mr. Merrrrr. No; and that was one reason why this fund of 
$500,000,000 was necessary to tide over the test period. 

Mr. Saumon. Yes, sir. 

Mr. Merrit. In his testimony, Mr. Commissioner Clark stated he 
did not think it was possible for some of the roads ever to get on a 
self-supporting basis. Those are the roads which are technically 
called the “ weak sisters” in railroad parlarfte, are they not? 

Mr. Satmon. I believe so. 

Mr. Merrirt. It isa part of your plan to have these “ weak sisters” 
consolidated with the stronger roads in time? 

Mr. Satmon. Yes. 

Mr. Merrirr. Mr. Commissioner Clark intimated that in order to 
get some of those roads onto any sort of a paying basis many of 
them might have to go through receivership. There is nothing in 
your plan to enable that to be done or to prevent it, is there? 

Mr. Saumon. No; not a thing. 

Mr. Mererrr. I had that in mind when you spoke of the consolida- 
tion of the strong roads and the weak roads bringing about a lower 
average return of any particular railroad? » 

Mr. Sautmon. Yes, sir. 

Mr. Merritt. Now the query arises under your plan, which sim- 
ply means taking out a United States charter for a State charter, 
if it would not be still possible for consolidation without actual in- 
corporation into the large corporation—that is to say, in the taking 
over by a strong road of a weaker road in consolidation—could not 
the earning be kept separate while the management would be the 
same ¢ | 

Mr. Satmon. That is a question with regard to the legal phases of 
which I would not feel competent to answer. 

Mr. Merrirr. The reason I asked that is I would like to have that 
matter cleared up by someone because it is hard for me to under: 
stand how a strong, prosperous road could deliberately wish to take 
into its system a weaker road that would necessarily cut the returns 
to its stockholders. I can not see where the inducement would be 
for that? 

Aas Satmon. I do not think there would be an inducement to do 
that. 

Mr. Merrirr. That is a point that I would like to have touched 
upon by some gentleman who is familiar with that phase of the 
situation. I personally believe that your plan for consolidation 1s a 
good one, but in order to make the consolidation good and get the 
efficiency to larger communities, which will come therefrom, I think 
you have to get the finances onto some basis which will not be too 
much of a sacrifice for a large road. Don’t you think that is true? — 

Mr. Satmon. I should imagine that if the larger earner took over 
the smaller earner it would see to it that that smaller earner was 
taken over at a value which could certainly earn its keep. 

Mr. Merritt. Yes; that is it. 

Mr. Saumon. It would mean a very decided scaling down of prop- 
erty valuations as they now stand or of capital issues of some of these 
weaker carriers. 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 283 


‘Mr. Mererrr. That part of your plan has not been produced, but 
y understanding was from something said yesterday, that a part of 
e@ plan was that after five years,.if voluntary consolidations were 
it made, they might be made compulsory consolidations. 
Mr. Satmon. Dr. Johnson, a witness who will appear for us, is 
ry well posted on that phase of the question. 
‘Mr. Merrirr. Very well. That is all, Mr. Chairman. 
‘Mr. Winstow. Are there any superflous roads in the country ? 
Mr. Saumon. I have been told that there are, but I never saw one 
ere the people along the line thought so. 
Mr. Winstow. I wasn’t thinking of the question just in that as- 
et; but for the purposes of your plan would there appear to be 
perfluous roads? 
‘Mr. Satmon. I do not know, sir. I do not know of any roads 
uch could be turned into junk and abandoned. 
Mr. Wrnstow. Does your plan comprehend the inclusion of roads 
uch, although publicly owned, are virtually for specific benefit; 
¢ instance, roads that run out from the main line 20, 30, or 40 miles 
|some industry, which really do not contribute much to the com- 
mity, except through that industry ? 
Mr. Satmon. Well, sir, we did not get to a point where we con- 
lered a detail of that character. We did not have time or oppor- 
aity to do so. It was assumed that the Federal transportation 
ard, if formed, would go into problems of that nature and settle 
2m. 
Mr. Sims. In section 9, page 58, what is meant by the following 
iguage: “All items of renewal and depreciation shall also include 
productive improvements not properly chargeable to investment 
‘ounts or against which no capital or capital obligation shall be 
aed” @ 
Mr. Satmon. You do not ask that question with reference to re- 
wals or depreciation ? 
Mr. Srmus. I just want to know what that language means which 
ave read, the practical application of it. 
Mr. Satmon. Personally I think the language is unnecessary as to 
mewals and depreciation ” since we do not arrive at net earning 
al these items have been taken care of. As to “unproductive im- 
»vements not properly chargeable to investment accounts,” I think 
|vas in the minds of certain members of the conference that there 
charges, heretofore made to capital account, for expenditures 
/tare absolutely unproductive. Let me illustrate: 
| do not know what the Washington Terminal Station cost, but for 
sake of the illustration let us assume that the station, under the 
joss of public demand,,..cost $10,000,000, in order to get a station 
jethy of the city of Washington, whereas had it not been the city 
|Washineton a station serving every commercial need of the com- 
jnity might have been put up for $5,000,000. - I think the idea of 
| conference is that $5,000,000 of this expenditure should be re- 
ded and treated as an unproductive improvement not properly 
rgeable to investment account, and against which no capital 
igations should be issued. 
he Cuarrman. How about track elevations in large cities? 














284 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Satmon. I think there are track elevations that pay the 
board and there are others that do not. Take a very small tow! 
which may require a track elevation on the part of some road whic 
has comparatively small traffic and would have only a few crossing 
to slow up for, and it might prove largely and chiefly unproductive 
but, on the other hand, in a city like Chicago, where a great deal « 
that has been done, to some extent at least, the expenditure has bee 
productive, because it eliminated a great many day and night cros 
ing watchmen, it reduced accident costs, it permitted a higher rat 
of speed through the town, and altogether has resulted in lessenin 
the cost of operation. I am not myself responsible for this pai 
ticular phrase, but I interpret it to mean the sort of thing I hay 
stated. ! 

Mr. Sros. Does it mean, then, that in ascertaining the fair valu 
of the property devoted to public use that it shall include also th 
unproductive improvements not properly chargeable to investmer 
accounts, and against which no capital or capital obligations shall } 
issued?) Does it mean, in making 6 per cent upon the fair value ¢ 
this property that this unproductive property shall be a part of th 
value upon which the 6 per cent must be earned ? | | 

Mr. Satmon. I believe, sir, in a year when a railroad is required t 
make an unproductive expenditure not chargeable and not permitte 
to be charged to capital account, that the cost should be considered i 
determining its net earnings, because if it is not chargeable to capits 
account it has got to be charged to some expense account. 

Mr. Sims. Unproductive improvements do not necessarily mea 
temporary improvements. They may be permanent. 

Mr. Satmon. They may be permanent; yes. 

Mr. Sirus. Therefore it means that where you have 6 per cent earl 
ings per annum on your investment, whether this property product 
any revenue to the railroad or not, that in determining the amot 
upon which the 6 per cent is made that investment shall be a part t 
be included in the investment property account upon which the rat 
is based ? 

Mr. Saumon. No. If it is charged as operating expense it does 1 
go into capital account, and it could not be considered as a part ¢ 
the true property valuation to be arrived at by public authority ¢ 
as part of the property investment account temporarily used for d 
determination of these matters; it would not enter at all. - 

Mr. Srrs. But this language says it shall be included. What do 
that mean ? 

Mr. Saumon. It means this: If in any year expenditures are mitt 
for unproductive improvements which can not properly be charge 
to capital account, such expenditures shall be taken into consideratic 
in determining what constitutes net operating income. 

Mr. Stms. Then, if a railroad had to make quite a lot of such im 
provements during a. year they would be charged in effect to cost 
operation and not to capital account; in other words, if it made - 
per cent, and 6 per cent of it was devoted to this kind of nay 
ductive improvements, the income would be figured at 6 per cent 

Mr. Saumon. In such a case that would be the result, as I unde 
stand it. 
















I RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 285 
_ My. Sts. That is the purpose of it, then? What you have in 
und is that the nonproductive investment shall be deducted from 
je current operating charges? Is that it? 

“Mr. Satmon. I believe that is the effect of this clause; yes, sir. 
Mr. Srus. I suppose, Mr. Salmon, using nontechnical and every- 
ay language, that one of the objects of the plan is that the strong 
dads shall not make as much as they have made or can make under 
‘isting law and conditions, and the weak roads shall make more 
od can make more than they have been making under existing con- 
itions; if we are to take from those who make more and give it to 
jose who make less in order that the average shall be large on the 
roperty valuation. 

Mr. Saumon. I do not believe that is the purpose of the plan. 
| Mr. Sims. But that is the effect of it, is it not? 
. Mr. Satmon. I do not think so. | 
My. Stus. That the weak road would never put anycoing into 
ie general fund, part of which goes to the Government, and it would 
‘ave to be bought by the strong road, and the strong road would re- 
un all the benefits received from investment of capital. and labor, 
hanagement, and everything else in connection with service. Is not 
iat the fact ? 
“Mr. Satmon. I do not so understand it. 
Mr. Sms. I understood you to say it would benefit the weak 
yads; that one of the inducements to the strong roads to retain all 
aat they make would be to buy out the weak roads and then get 6 
ler cent on a fair value of all of the property, and that the value 
{the weak roads should be ascertained not upon their present in- 
estment account but upon their actual property value. In other 
-ords, you propose, in effect and in fact, that all the roads within 
n operating district shall belong to one owner, one corporation ; 
at is, it would result that way, that one owner would own all of the 
rier property within a traffic district? 

Mr. Satmon. No, sir; I do not think so. 
Mr. Sms. Then, what is the use of discussing this question of the 
rong road buying out the weak road, which you discussed a few 
loments ago ? 
- Mr. Saumon. I can not help feeling, sir, that you are finding in 
ur plan some thing that I have not discovered. I do not follow you. 
Mr. Srus. I understood you to say, in all seriousness, that the 
rong roads—that the thought was that the strong roads would buy 
ut the weaker roads—a fair valuation placed upon all the property 
wned in the traffic district upon which the 6 per cent would be 
arned, and there would therefore be less excess earnings, and less 
jerefore to be paid into the general fund. I got that impression 
rom what you said a moment ago. I thought your thought was that 
dey would buy them out. , 
» Mr. Saumon. I think this plan will aid the stronger road, and will 
Trove an incentive to the stronger roads to merge. 
Mr. Srus. To merge? 
- Mr. Satmon. Yes. 
_ Mr. Srus. And does not “merge” simply mean buying out the 
eaker roads by the stronger ones? I am simply using one language 
nd you are using another, but do we not mean just the same thing? 








286 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Does it not mean merger of ownership; in other words, a holding 
company to hold all the property in a traffic district ? 

Mr. Sautmon. No; I do not think there is anything in our plan tha 
contemplates that. - In fact, our plan, while in favor of reducing thy 
number of railways, is strongly in favor of competitive systems. 

Mr. Srus. Does not merger reduce the competition between thi 
properties merged ? 3 

Mr. Saumon. I think go. | 

Mr. Sims. Now, if there is to be a merger of all the railroad com 
panies within a traffic district, what is that but single ownership 4 

Mr. Satmon. There can be no merger, under our plan, except one 
approved by the Federal Transportation Board, and if our idea was 
carried out the Federal Transportation Board would not approve 
of the merging of all of the roads in any district, or in any community 
now served by two or more.roads, into one. Qur plan is very specifi 
on that point. 

Mr. Sims. If merging is a good thing in traffic districts, and the 
etic result would be reduction of expense, what wrong is there 
in it? | ) | 

Mr. Satmon. I am not prepared to speculate on that point. 

Mr. Srms. All such mergers that would take place, as I understan¢ 
it, under the approval of this operating commission to which yor 
have referred would be in the public interests. Do you contemplaté 
competition per se between traffic districts with rates in traffic dis) 
tricts one, two, three, etc, we will say, being made different, if con’ 
ditions required or that in each of the traffic districts the roads ir 
that district shall charge a rate common to it? Will there be com) 
petition as between the different traffic districts? 

Mr. Saumon. I should suppose so. | 

Mr. Sims. I mean competition only with regard to service, 0) 
course ? 

Mr. Saumon. Yes, sir. 

The CHatrMANn. Mr. Salmon, that concludes your participations 
in the hearing. Nil 




















STATEMENT OF MR. EMORY R. JOHNSON, PROFESSOR OF TRAN S 
PORTATION AND COMMERCE, UNIVERSITY OF PENNSYLVANIA, | 


Mr. Jounson. Mr. Chairman, do you wish me to qualify in any) 
way ? P | 
The Cuarrman. No; I think this committee has known you for ¢ 
great many years, Mr. Johnson. . | 

-Mr. Sims. All the members on the committee have not known him 
for so long a time, Mr. Chairman, and perhaps, for the benefit 0 
those members who have not known him, he might say a few word 
as to his qualifications. 

Mr. Jounson. I am professor of transportation and commerce a 
the University of Pennsylvania; president of the National Institut* 
of Social Sciences, and former member of the Publi¢ Service Com) 
mission of Pennsylvania. | 

Mr. Sims. And were you not also connected with the Panata: 
Canal ? 

Mr. Jonson. Yes; but that was some time ago, Judge Sims. | 
was special commissioner on Panama Canal traffic and tolls. 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 287 


' The task that has been assigned me, gentlemen of the committee, 
is to discuss the administrative agency by which the plan that has 
deen submitted to you can be carried out. In discussing the execu- 
aye side of the plan I must necessarily, and perhaps it is fortunately 
30, sum up the whole plan, and that may prove helpful to the mem- 
vers of the committee because it will be my duty, when I come to 
mumerating the powers and duties of the proposed transportation 
yoard to relate that board to the different parts of the plan as a 
whole. 

I want to say, before I begin reading the statement which has 
deen prepared in advance, that the transportation conference is in 
10 sense in a critical attitude toward the Interstate Commerce Com- 
nission. We have, on the other hand, speaking now of the confer- 
ee as a whole, a very high opinion of the work of the commission, 
We do not propose that the function of rate making shall be taken 
way from the commission, but rather that its rate-making functions 
hall be enlarged. The major part of the Esch-Pomerene bill, which 
you have under consideration, deals with the enlargement and spe- 
jalization of the powers of the commission as regards rate making, 
ind, as I understand the plan of the conference, there is no conflict 
detween its plan and that part, and it is a major part, of the bilt 
vhich you have specifically under consideration. 
| It is not proposed by the National Transportation Conference tc 
ake from the Interstate Commerce Commission’ powers which. it 
tow has, but rather to give to the commission larger powers. 
| The regulation of. railroads by the Federal Government will be 
fore comprehensive and detailed in the future than it has been in 
he past. Prior to the period of Government operation, the chief 
oncern of the Government was to protect the public against unjust 
ates and fares and to correct the abuses that had developed during 
‘he period of intense railway competition; but when private oper- 
tion is resumed the Government’s relation to the railroads will be 
auch more than corrective in aim—it will be cooperative. Regula- 
ion must become increasingly constructive—positive rather than 
egative in purpose and method. 

The people of the United States are looking forward to an even 
etter railroad service than they have enjoyed in the past. They 
elieve it will be possible for all railroads to render a service as ex- 
allent as that which has been performed by the strongest and most 
ficient systems. To make this possible, however, the number of 
ulroad systems must be reduced by the grouping and consolida- 
on of existing roads in accordance with plans approved by public 
\uthority. Competition is not to be abandoned, but it is no longer 
|) be a struggle of weak roads to maintain themselves alongside their 
rong and jealous neighbors; it is to become the service rivalry of a 
;mited number of vigorous systems of approximately equal strength. 
| The strong railroad systems formed by the grouping of existing 
julroads ought not to be owned and operated by corporations sub- 
ject to the authority of the several States. These powerful cor- 
/orations must in the public interest be brought under the jurisdic- 
on of the United States. It is believed by the transportation con- 
jrence that this seemingly difficult task can readily be accomplished 
)y the enactment and enforcement of a Federal railroad incorpora- 











288 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


tion act similar in principle to the national bank act, by means of; 
which State banks are converted into Federal institutions. 

The capital expenditures and the security issues of the consoli-| 
dated railroad companies of the future are certain to be regulated by} 
the United States Government. The agency that performs this task 
will render the country a great service. In passing upon capital ex- 
penditures of the railroads, public authority will sit in judgment) 
upon the wisdom or unwisdom of proposed railroad improvements 
or extensions and will in effect determine the lines of development of 
the American railway system as a whole. Through the exercise of) 
this authority it will be possible for the Government to bring about; 
gradually the unification and the economic development of railroad 
terminal facilities and services, to prevent the unnecessary construc: 
tion of new lines, to require the physical connection of railroads and} 
if Congress so wills, the connection and joint use of railroads and) 
waterways. | 

Through its regulation of rates and fares the Government has) 
already come to determine the revenues of the railroads. In the) 
future, in larger measure than in the past, the expenses of the rail- 
roads will depend upon the requirements made by the regulatory 
authorities of the Government. It is obvious that Congress and the 
administrative agencies it creates must assume responsibility for the 
adoption and enforcement of measures that will not only assure the 
financial stability of the railroads, but will also enable the companies 
to acquire and maintain such credit as will enable them to secure from| 
the investing public the funds required for the adequate develop- 
ment of the country’s railroad transportation system. Unless the 
private railroads under Government regulation can thus secure capl- 
tal from private investors, Government ownership must necessarily 
follow. | 

Broadly speaking, ‘there are three tasks of major importance thaw 
must be accomplished to bring about, the permanent solution of the 
railroad problem and to insure the success of Government regulation) 
of railroads. The existing railway systems, many in number, and of 
varying degrees of weakness and strength, must be brought togethe 
into an appropriate number of vigorous competing systems; the cor 
porations which control these large systems must owe their allegiance 
to the Federal Government and observe its requirements as to expendi 
tures, capitalization, and corporate practices; and laws must be en 
acted and enforced that will assure to the railroads adequate revenue) 
financial strength, and harmonius relations with their employees anc 
with the public. 

These tasks can not be accomplished unless Congress provides aj) 
propriate and effective machinery for giving effect to legislative 
policy. Railroad regulation is an executive problem. Its succesi 
depends upon the creation of-an administrative agency with respon 
sibilities and powers commensurate with the magnitude of the wor! 
to be done and vested with that freedom of initiative and action tha 
nee cause it to organize and to function as an effective executly: 

ody. | 

The plan of railroad legislation, that has been developed by th: 
national transportation conference with the hope that tle delibera: 
tions and conclusions of the conference may be helpful to Congres’ 





RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 289 


im its search for a permanent solution of the railroal question, calls 
for the establishment of an administrative agency of large powers 
ind heavy responsibilities. The conference does not favor placing 
those powers and responsibilities in the hands of a Cabinet officer. 
Phe members of the President’s Cabinet hold office for a compara- 
ively few years. They are inevitably selected in large part because 
yf the prominent place they occupy in the counsels and activities of 
he political party in power. They are political appointees, and 
heir administration of the railroads would almost certainly be politi- 
ial, The adequate development and the technical efficiency of the 
‘ailroads and other agencies of transportation are of such vital con- 
equence to the people of the United States that it would be a public 
aisfortune to allow political methods and party politics to control 
ir even largely to influence the regulation of transportation agencies. 
The transportation conference has, moreover, after very careful 
omsideration of the subject, reached the conclusion that it would be 
mwise to require the Interstate Commerce Commission to exercise 
he administrative functions that must’ be performed to insure the 
uccess of railroad regulations. As Mr. Harry A. Wheeler says in 
4s explanatory statement regarding the conference plan of railroad 
sgislation : 

It is believed that the Interstate Commerce Commission ought not to be 
urdened by the addition to the tasks it now performs of a large number of 
dministrative duties. Should the commission, as is contemplated become the 
uthority for the sole regulation of all railroad rates, rules, and regulations 
ffecting interstate commerce, its duties will necessarily be enlarged. To re- 
uire the commission to exercise the administrative functions contemplated in 
‘1eé proposed plan of remedial railroad legislation would be to the detriment 
{ the public interest, because it would seriously interfere with the prompt 
ction of the commission as a body for the regulation of rates, the task for 
hich it was especially created and for the performance of which it is peculiarly 
lapted. 
The conference recommends that a Federal transportation board 
established. It should be an executive board, of at least five mem- 
2s, and should be charged with the responsibility both of admin- 
‘tering the act which Congress shall adopt for the regulation of rail- 
lads and of bringing about the coordinated development of a national 
‘stem of rail, water, and highway transportation. The proposed 
ard should not be intrusted with the regulation of rates—that 
iould be left with the Interstate Commerce Commission; nor should 
(@ proposed board be concerned with the construction of waterways 
id highways, which work should be done by appropriate agencies 
pecially created by Congress. The following specific duties should 
» performed by the Federal transportation board: 
1. The board should determine and announce the grouping or consolidation 
railroads deemed to be in. the public interest. An opportunity and incentive 
Ould be given existing railroad companies to effect the desired consolidations 
|, 0n their own initiative; but, if the desired mergers are not thus accomplished 
; the railroads within a reasonable time the transportation board should have 
|2 power to carry out the plans authorized by Congress for merging all rail- 
) ds engaged in interstate commerce into a limited number of strong systems 
| located that each important traffic district of the United States shall be 
ved by more than one system. 
t The board should have the authority to require, if compulsion is found 
| ‘be necessary, the railroad companies as a condition precedent to the forma- 


of consolidated railroad systems to become Federal corporations, either . 
| the organization of new companies under Federal charters, or by changing 


152894—19—-vvor, 1——_19 







290 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


from State to Federal corporations in the manner suggested by the transporta- 
tion conference. 

3. The transportation board should be given authority to pass upon the 
public necessity for the expenditure of capital (in excess of a minimum amount 
stipulated by statute) by all earriers by rail engaged in interstate commerce, 
This power should be so exercised as to prevent unnecessary duplication of 
line or terminal railroad facilities, and as gradually to bring about the unifica- 
tion of railroad terminal facilities and to accomplish that degree of coordina- 
tion of rail, highway, and water terminal facilities that may be found to be 
in the public interest. 

4. The board should administer the general railroad contingent fund or 
funds which, as the conference has pointed out, must be built up and main- 
tained as a means of strengthening and stabilizing railroad credit. ‘The con- 
ference does not favor a Government guaranty of a fixed return upon the 
property of individual railroad companies. Instead of the fixed guaranty by 
the Government, the conference favors a statutory rule of rate makng that will 
yield the railroads as a whole a fair return upon the value of their property 
devoted to the public service; and in order that railroad credit may really 
be put upon a sound basis without imposing unreasonably high rates upon 
the public, the conference recommends that railroads be required to turn over 
the larger part of their excess profits into contingent funds which shall act 
as financial shock absorbers. These funds should be administered by the 
Federal transportation board; and of the many duties to be performed by the 
board none will be of greater immediate value both to the carriers and to the 
public. : 

5. The transportation bourd should act as a referee in cases of disagreement 
resulting in a deadlock of any of the boards which it is proposed by the trans- 
portation conference shall be intrusted with the adjustment of wages, hours, 
of employment, and other conditions of the service of railroad employees. It 
is the hope of the transportation conference that the disputes between the rail- 
road companies and their employees, which have in the past on more than one 
occasion threatened to paralyze the industries of the country, may be avoided 
in the future by continuing the method of adjusting wages, hours of labor, 
and conditions of service that was adopted in 1917 and has been continued and 
developed by the Railroad Administration. These boards which have to do 
with the adjustment of wages, hours of labor, and conditions of service are 
made up of equal numbers of representatives of the carriers and their em- 
ployees. It is proposed that the transportation board act as referee in case of 
a disagreement amounting to a deadlock in any of these boards. | 

6. The transportation conference recommends that each of the corporations | 
owning and operating the proposed consolidated railroad systems shall organize 
with directorates of 12 members, “ one of whom shall be a representative of the 
employees of the system and nominated for that position by such employees, 
and three of whom shall be selected by the Federal transportation board to repr 
resent the principal interests involved in the territory served by such system.” 
The directors thus selected are to make regular and special reports to the 
transportation board in accordance with the rules laid down by that board. 

7. The transportation board should be authorized and required to inquire 
into the practices of railroad management and to propose measures for pre 
venting abuses therein. Because of the incompleteness of past regulation of 
railroads, the financial and other practices of those irresponsible and ut 
scrupulous men who unfortunately are to be found in limited number iD 
practically every line of business have brought ruin upon some American rail- 
road systems and have injured the security of all railroad companies in te 
mind of the investing public. It should be the aim of the transportation board 
to promote the legal and moral responsibility of railroad directorates and 
railroad executive officers with a view to protecting the funds that have been: 
invested by the public and to make railroad securities safe and attractive in- 
vestments for the accumulating wealth of the Nation. 

8. The plan adopted by the transportation conference provides that “It shall 
be the general duty of the (transportation) board to promote the development 
a national system of rail, water, and highway transportation.” The United 
States, as a result of the initiative of its business men, has an excellent system 
of railroads. Highway development, although long neglected, is now procecd- 
ing rapidly, and motor transportation is being organized on a large scale. Ti 
country is supplied with numerous waterways capable of large traffic uses whet 
aystematically developed and properly coordinated with the railroads. What 18 


| 
















RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 297 







‘now needed is a transportation board vested with the power and charged with 
the duty of bringing the railroads, the waterways, and the highways together’ 
into a national transportation system. The railroads and waterwys must be 
‘connected at river, lake, and ocean, terminals; through routes must be estab- 
lished, through rates provided, and opportunities afforded shippers to dispatch 
their goods on through bills of lading by such a combination of rail, water, and 
highway carriers as will be most efficient and economical. This integration of 
the different parts of the national transportation system can be brought about’ 
only by creating some single agency with authority over the use of railroads, 
waterways, and highways. 

In creating the Federal transportation board it will be desirable to 
provide against conflict of jurisdiction between that board, the Inter- 
‘state Commerce Commission, and the Shipping Board. It would not 
‘be desirable to create a board that will encroach upon the work now 
performed by the Interstate Commerce Commission or that will in-- 
terfere with the activites of the United States Shipping Board. 
\What is needed is a board that will supplement and coordinate the 
activities of the Interstate Commerce Commission, the Shipping 
Board, and certain other agencies of the Government. The mind of 
the Interstate Commerce Commission is now, and should continue to 
jbe, upon the regulation of railroad rates and the determination of 
the value of railroad property. The Shipping Board is temporarily 
devoting itself mainly to the construction of vessels, but when war 
conditions end it will seek to apply to the business of ocean transpor- 
tation the general principles of regulation that have been applied to» 
railroads with such modifications as are made necessary by the differ 
ences between ocean and rail transportation. 

_ The necessity for a Federal Transportation Board may be clearly 
mdicated by a reference to the present regulation of terminal facili-- 
des and services. The Interstate Commerce Commission has cer- 
ain authority over railroad terminals and the Shipping Board has: 
amited powers over persons engaged in the performance of terminal 
services at ocean ports; but neither body has adequate power at the 
yerminals where water and rail carriers come together. There is no 
thority that can unify terminal operations, that cau bring about 
ihe physical connection and the traffic articulation of rail and water: 
‘arriers. 

There is no authority having the responsibility of formulating 
dlans for the systematic development of transportation facilities by 
‘ail and by water. We shall always have a disconnected and uneco- 
1omical system of transportation in the United States until we cre- 
ite a board whose mind shall be upon the whole transportation prob- 
em. : 

, The board intrusted with the duties that have been briefly enu- 
‘fterated should be composed of men of the highest character and 

ttaimments. Their responsibilities will equal, if not exceed, those: 
if the Federal Reserve Board, whose creation at a critical period in. 
he history of the United States has proven to have been of incal- 

wlable benefit. The proposed transportation board will have an 

‘pportunity to perform an even greater service. Its duty will be 
0 guide and facilitate the development of a truly national system of 
,tansportation. 

The Cuarrman. I just wish to ask you a few questions, Mr. John- 

om. Before I submitted this pending bill in this Congress, and 
| fter I had submitted one in the last Congress, I seriously consid- 









292 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


ered the matter of including in it motor-truck transportation, giving 
the commission the same powers over motor-truck routes that they 
now have over rail lines. The proposition met with a good deal of 
opposition from motor-truck companfes, motor manufacturers, traffic | 
men, and others, on the ground that the state of the art was as yet 
so undeveloped that it should not be handicapped by making motor-_ 
truck routes common carriers; that it doubtless would come that 
they would be made common carriers, and placed under the juris-— 
diction of some Federal authority, but that that time was not now. 
I was somewhat persuaded that that argument was good, and so 
there is nothing in the pending bill that covers motor-truck service. 
Do you believe that there should be? 

Mr. Jonnson. The question when it would be wise to make the 
motor truck common carriers subject to regulation by law would 
necessarily be a question of judgment. My own conviction is that 
those carriers by highways that have organized interstate services 
probably ought at the present time to be declared to be such common 
carriers. Congress might think it wise to make that feature of the 
law effective two years hence, or at a specified later date; but I think 
if the time has not now come for the interstate carriers by public 
highway to be under Federal jurisdiction, the time will inevitably 
come in the not distant future when they should be treated as other 
organized carriers—that is, made common carriers under the law. 

The Cuatrman. Do you realize that there is a deep-seated prejudice | 
against the creation of further boards and commissions? | 

Mr. Jounson. Yes; I know there is a very definite prejudice of| 
that kind. | 

The CuarrMan. Your plan would add another, and divide juris- 
diction between it and an existing commission. | 

Mr. Jonnson. It would. 

The Cuatrman. And you believe that that would be necessary to 
the carrying out of your plan. Do you believe that there should be. 
a division of the quasi-judicial powers of the Interstate Commerce’ 
Commission and the powers of an administrative character that it} 
now exercises ? 4 

Mr. Jonson. The thought of the conference was that the Interstate) 
Commerce Commission, in the regulation of rates, the determination| 
of value of the railroad property, which, under the law, is a continu-| 
ing duty, and the various other obligations it has under the inter-| 
state commerce act as it hds developed in the last 32 years, has as 
much as it can adequately and promptly perform. There is another 
aspect of the situation: The Interstate Commerce Commission is &| 
body of nine men. Their main problem is a semijudicial problem ;) 
it is that of investigation, hearing, and weighing evidence, and| 
determining cases brought before it or cases instituted upon its) 
own motion. It is not organized, and can hardly be organized, as 
the most efficient executive body, and if you were to make it primarily} 
an executive body you would probably interfere with its best func} 
tioning as a rate-regulating commission. Let me observe, further, 
that it is not so much proposed to divide the functions of the Inter-) 
state Commerce Commission as it is proposed that numerous new) 
duties shall not be imposed upon the commission, but shall he} 
required of a new body organized especially for the performance 01) 
these added duties. | 


































RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 293 


The Cuarrman. In any event, would it be wise to take from the 
Interstate Commerce Commission its duties with reference to in- 
yestigating violations of the various acts, the enforcement of which 
has been intrusted to it? 

_ Mr. Jounson. The conference gave careful consideration to that 
question 

The Cuatrman. With what conclusion ? 

Mr. Jounson. And it had the benefit of the advice of a member of 
the Interstate Commerce Commission, who participated in the discus’ 

sion, and at the conclusion we decided that we would not advise 
disturbing the present duties of the Interstate Commerce Com- 
mission. | 

The Cuarrman. These boards.of directors that are to be estab- 
lished over the various systems are boards for operation and would 
nave nothing to do with the labor situation; am I correct ? 

Mr. Jounson. They are to be the directorates of the consolidated 
railroad companies which we are looking forward to when the per- 
nanent solution of the railroad problem shall have been worked out. 
[hey would have all the duties which a board of directors of a rail- 
oad company would be required to perform. I may not have under- 
stood your question, Mr. Chairman. | 

The Cuarrman. You talked about wage committees under the ex- 

sting Federal control. Is it your idea, under your plan, that those 
vage committees or like committees should be continued ? 
_ Mr. Jonnson. That is the recommendation of the conference; that 
8, that the adjustment boards which originated early in 1917, as you 
ire aware—the first one of them originated early in 1917—should be 
ontinued and their duties and functions adapted to the changed 
ituation that will result from the return of the railroads to their 
orporate owners. 

The Cuarrman. What change would that involve? 

Mr. Jounson. I am willing to testify on that, Mr. Chairman, al- 
hough Mr. Doak, who has dived with those boards from the very 
lay of their inception, can speak with much more authority and 
auch more intimate knowledge than I could. 

' The Cuatrman. Will he be here to-morrow ? 
| Mr. Jounson. I understand he will be here at your call. 

The CuarrMan. Then I will not pursue that line of inquiry fur- 
her now. Are there any inquiries by the members of the committee ? 

Mr. Sms. I would like to ask a few questions. The Chairman has 

suched upon a very interesting subject, which had not been brought 
p before, regarding interstate motor carriers. I suppose you are 
ware that bills have been introduced in Congress by which the Gov- 
tament would be authorized to construct transcontinental highways 
t public expense ? 

:. JOHNSON. You refer to the Newberry-Townsend bill, I have no 
oubt. 

| Mr. Srts. I do not know what bill it is. I think Mr. Osborne in- 
soduced one. In any event, it is the theory of some people that the 
‘nited States should be gridironed from ocean to ocean and from the 
Teat Lakes to the Gulf with great public highways, and that that 
ould make for the greatest possible development of the whole 
yuntry. Now, what is your thought with reference to the proba- 
lity of such a proposition being carried out ? 








294 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Jounson. As to the probability, did you say ‘ 

Mr. Stmus. Yes; as to the probability. . 

Mr. Jounson. It involves legislation, and you would be a much 
‘better prophet on that than I would be, because you are a Member of 
‘Congress. 

Mr. Stars. Well, the people generally get what they want, if they 
want it long enough and try hard enough. 

Mr. Jounson. Then I think it will come ultimately. 

* Mr. Sts. That is exactly what I think, too—that there will be 
hundreds of millions of dollars invested by the United States Gov- 
ernment in highways that will be used to a great extent in the trans 
porting of persons and property from one State to another. Now, 
will not such a system of highway carriers necessarily compete with : 
the railroads? : 

Mr. Jounson. No; I think not. I think they will primarily serve 
as a feeder to or complement of the railroad system. There will be 
a certain amount of competition; that is, a man may ship his furnt- 
ture or certain other goods from New York to Philadelphia by motor 
truck instead of by rail. With the development of hard-surfaced 
highways and with the organization and economical operation of 
motor transportation, the shipper will probably make his short ship- 
ments—up to, say, 25 miles—preferably by motor truck. I refer to 
package freight. JI think that is coming. That would be welcomed, 
as I understand it, by the railroads themselves, because they would 
be able to handle their traftic, as a whole, better if their larger termi- 
nals could be relieved of a considerable part of this short-haul busi- 
ness, that is adapted to motor transportation. But we are now gét- 
ting into the theory of transportation, and I fear we will go too far. 

Mr. Sus. But these great transcontinental highways, from ocean 
+o ocean and from Lake to Gulf, certainly would not be used entirely 
for short hauls? 

Mr. Jounson. I do not imagine that you or I would ship our goods 
across country by motor. ¢ 

Mr. Sirus. I do not mean necessarily shipments from coast to coast 
or from the Lake to the Gulf, but it would not be confined to ship- 
ments of only’20 or even 50 miles in length? t 

- Mr. Jonson. I would say they would be used, with decreasmg 
frequency, under special conditions, up to several hundred miles. 
There might be occasions when you would prefer to send your things 
to Tennessee by two or three motor vans instead of getting a rail- 
ae car, but I imagine those occasions would be very exceptional, 
Judge. 

Mr. Situs. When it comes to the Government furnishing all tie 
capital for the purpose of building the highway and then maintayl- 
ing it at public expense, and the only expense to be incurred by the 
carrier being the transportation expenses—that is, the truck and 1s 
operation—it seems to me that so far as high-class traffic is con- 
cerned it would be a serious source of competition with the railroad. 

Mr. Jounson. It is not, fortunately, my responsibility to legislate 
on that question, but I suggest the possibility of securing by licenses 
and other appropriate taxes upon the vehicles of motor-transporta- 
tion companies a revenue that may appropriately be devoted to the 
maintenance of these highwaws of which you speak. That is a policy 


| 


{ 





























RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 295 


‘which has already been adopted in several States, and, so far as I can 
see offhand, the same principle might be applied on interstate high- 
ways. 

Mr. Sims. Do you regard it as any violation of the basic principles 
of government or sound economics that transportation should take 
place at the cost of producing it? 

Mr. Jounson. I think it is well to get the cast of service back 
whenever you can, Judge. 

Mr. Sims. Then you would be opposed to the building of high- 
ways by the United States or State governments or municipalities? 

Mr. Jounson. No; I did not say that. 

Mr. Sims: If it is contrary to principle and to sound economics 
that transportation should be performed at the cost of performing 
it, there can possibly be no profit in these highways that are Gov- 
ernment owned and Government built, and maintained by the Gov- 
‘ernment; it does not matter whether it be National, State, or munici- 
pal Government. 

_ Mr. Jonnson. My own State is at the present time collecting, I 
think, between $4,000,000 and $5,000,000 from the owners and users 
‘of automobiles and auto trucks per annum. 

_ Mr. Sis. Is that sufficient to make a profitable return to the State 
upon what it cost to build those roads? 

Mr. Jonnson. No; the State needs to spend a great deal more than 
‘that, and, wisely, is doing it. 

Mr. Srus. Now, if a State government or the National Govern- 

ment should furnish the capital to construct the transportation fa- 
‘cilities for one method of transportation, and that a competing one, 
why is it that the State or the Nation should not do something for the 
railway companies that have to do the same sort of business in the 
same way? 
Mr. Jomnson. I personally would let the railroads look out for 
themselves as to that. To be serious. I do not think that the Gov- 
ernment’s money need be put into the railroads if the Government 
will adopt a policy whereby the railroads can secure their capital 
from private investors. Capital can be secured from private in- 
vestors for railroad development, and it obvionsly can not be secured 
for the development of highways. Public funds must be used for 
the development of highways. ‘They need not be used for the devel- 
opment of railroads. 

Mr. Sims. Why does it have to be provided by private investors ? 

Mr. Jounson. You can not get it any other way. 

Mr. Sims. Why? 

Mr. Jounson. It is an ultimate fact. 

Mr. Sims. Because the public highways are not profitable, the 
money for them has to-be provided by the Government ? 

Mr. Jounson. You and I would not put our money into highways. 
| Mr. Sms. No; and we would not put it into a railroad if we did 
| not expect to get something more than the operating cost out of it. 
LI would not. 

, Mr. Jounson. That is true, too. 

Mr. Srus. When it is recognized as a Government function and 
| obligation to provide facilities of transportation that will be best 
| calculated to develop the resources of the country and to maintain 








> 


296 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


them, why should it be dependent upon profits of any kind or any 
percentage of return upon the investment—private investment—-to 
make it attractive, to make it profitable ? 

Mr, Jounson. If the Congress does not adopt a policy that will 
enable the private owners of the railroads to secure the funds which 
they need to develop the transportation system required by the 

country, the Government must put up the money for the railroads. 
You raise the fundamental question whether it is wiser to develop 
railroads from public funds or_from private funds. I recognize 
that is a fundamental question, Mr. Chairman, but it is a question 
which, so far as the transportation conference is concerned, was 
decided in favor of corporate ownership, and the reasons for it might 
be recited, but I think we hardly need to go into that unless you 

want me to. 

Mr. Sims. Let me ask you this: I do not know that I could ask 
anyone better qualified to make fundamental answers to fundamental 
questions than yourself. Suppose the Government of the United 
States should acquire all the fixed property of the railroads—the 
terminals, the roadways, the permanent structures, the real estate, 
but not touch the transportation facilities—that is, the equipment or 
anything of that sort—and lease the property to the existing corpora- 
tions or any other corporations that might be organized for the pur- 
pose of operation. The Government could acquire this property 
and then pay no taxes on it. That would be the result; and then 
provide that the bonds issued for this purpose should not pay any 
taxes. Would not the expense of operation of the railroads—that is, 
the difference between paying what would be a reasonable interest 
and what they now must pay in the way of a 6 per cent return 
under your plan—could not the actual operation of the railroads 
be much more profitably conducted, so far as that is concerned—the 
amount of money invested in the operating property—than they can. 
ever be if they have the roadbed and structures and roadways pri- 
vately owned, on which they are taxed, maybe by the Nation, the 
State, and the municipalities in various ways? : 

Mr. Jounson. Probably the most complete and shortest answer J 
could make to your question is that it has been tried in several coun— 
tries, and those countries have not found that it worked out satis- | 
factorily. Italy, for instance, tried that very thing and gave it up. 

Mr. Srus. I know all those things. I am talking about the United 
States. 

_ Mr. Jounson. If the United States were to try it I suppose our 
experience would be similar to that of other countries. 

Mr. Srus. They are operating as well as owning. | 
Mr. Jounson. I beg your pardon. Italy did not operate for 20° 

ears. 

Y Mr. Sts. She is operating now. 

Mr. Jounson. She leased the State railroads to three big compa- 
nies, and the service and the system went from bad to worse; and, 
at the end of 18 years the Government said, “At the end of the first 
20 years, as we may under the contract, we will take back the proper- 
ties and operate them as a Gover nment function.” | 

Mr. Sus. I want to ask you this, if you know: For instance, say 
that the railroads are worth $16,000 ,000 000. I do not ea but 








RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 297 


iy that they are worth $16,000,000,000. About what is the value 
f{ the fixed property, not devoted to operation, not including en- 
ines, and things of that sort? I do not mean property owned that 
‘not used for carrier purposes, but the permanent fixed carrier 
roperty. About what per cent of it is fixed as to the value of all 
1e property ? 

Mr. Jonnson. I have never seen any figures that segregated the 
alue of movable property from fixed property of the railroads. 
Mr. Sims. Well, I have, but I do not know whether they were 
yrrect or not. 

Mr. Jounson. I doubt it. 

Mr. Sims. I got them from a statement given out by some en- 
neers. , 

Mr. Jounson. I am very certain there are no official figures— 
gures that one would accept as correct. | 

‘Mr. Stus. Their estimate was that it was 75 per cent. I mean, 
iat it was $16,000,000,000 altogether, and that the fixed property 
ypresented $12,000,000,000, and all the rest of the property repre- 
mted $4,000,000,000. The standard return paid all the railroads 
wing the war, based upon prewar earnings, including the two 
ars in which war existed in Europe, and during which the returns 
1 the carriers from operation were very great, amounts to $940,- 
10,000. Now, 3 per cent untaxed bonds on untaxed roads, on $12,- 
)0,000,000, would only be $360,000,000 a year, and the other $4,000,- 
0,000, at 6 per cent—the two together—would be much less than 
140,000,000—decidedly less, and that is the total net operating in- 
me of the railroads. Now, if the railroads were relieved of State 
xation, and if the Government would always own the fixed prop- 
ty—the 75 per cent or 80 per cent, or whatever it may be—and 
ey would only have to earn a proper return, say 6 per cent, upon 
e rest of the investment, and operate just as they do now, under the 
iterstate Commerce Commission and under the State commis- 
oms—any way you please—the question of railroad credit would 
«solved; and let the Government have its return in the way of a 
rtain per cent of the gross earnings of each road—a small per cent. 
% the bonds be made without a maturity date, and subject to call on 
mand at the option of the Government, with no taxes on the rail- 
ad property itself and no taxes on the bonds. Then the question 





railroad credit would be settled, and you would have all the private 
itiative for operation that we now have, and Wall Street would no 
ager be burdened with the devising of schemes to increase the 
rings of railroads to be divided among the stockholders and the 
ndholders. 

Mr. Jonnson. I am afraid, Judge, if I should discuss that ques- 
on I would violate the rules laid down by the Chairman when he 
| ened these hearings. 
Mr. Sms. We all do that. 
\Mr. Jomnson. You will recall that he said we would not take 
_the discussion of Government ownership. 
‘Mr. Sims. What I mean is that none of these temporary expe- 
}mts will indure. The entire fabric of the railroad system—in- 
iding the financial fabric—has been built up as a kind of patch- 
prk, and now it has failed of its purpose, and my honest opinion 









298 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 

































is that the day will never come when ¢onditions will not be unsatis! 
factory, and that this plan proposed by the executives, by you 
committee, and the so-called Warfield plan, all of them are merely 
temporary palliatives, and the time will never come, under th 
present system, when you will have a permanently settled conditior 
that will last with any reasonable assurance for the future. 

The Cuairman. Are there any further questions? 

Mr. Watson. Mr. Johnson, in considering the grouping of rail 
roads, have you taken into consideration the independent shor 
lines—lines that probably hardly meet their operating expenses # 

Mr. Jounson. That question has not been overlooked, Mr. Watson} 
and it is one of the difficult questions which the Interstate Com 
merce Commission must deal with. It is primarily the question 0 
what is the appropriate distribution of the through rate betwee) 
the short line and the trunk line; and I think it is obvious that thy 
short line should be protected and its development assured. Iti 
hoped that by the grouping of the railroads during the next fiy) 
years those lines may become parts of the systems of which the) 
are really feeders. 

Mr. Watson. There are a great many short lines, between 20 an 
100 miles in length, which no doubt would be very glad to get int 
this group. 

Mr. Jounson. Yes. In regard to that matter of grouping, Mi 
Watson—and Mr. Merritt also has asked a question which I ma 
answer in this connection, in part at least—the transportation con 
ference looks forward to a period a few years hence when the value 
of all the railroad properties and of each railroad property sha! 
have been officially ascertained, so that the large road and the sma 
road will have had its value officially determined. From that tim 
on these railroads will stand in -elation to each other as their value 
are related financially. The conference looks forward to a minimul 
of 6 per cent per annum, from the rates, for the aggregate propert 
of the railroads. Now, if road A—a large road—has in its neighbot| 
hood road B—a small and perhaps weaker road—road A will be, firs 
of all, allowed to take over road B at the valuation fixed by the Gov 
ernment, if road B is willing to sell; but road A shall not be allowe 
to do that unless road A becomes subject: to Federal jurisdictioy) 
Federal incorporation is a prerequisite. Road B, the weaker roa 
will probably decide to accept the offer of the stronger road wlie 
it is made, because the value of road B has been officially determines 
There are no possibilities of speculative increase in the value 
that property. It is now upon an established relationship with ¥ 
neighbor. | 

Mr. Merritt. May I interrupt for a moment? | 

Mr. Jonnson. Yes; Mr. Merritt. | 

Mr. Merrirr. It is conceivable, of course, that road A and road - 
would have an identical fair valuation, while perhaps road A he 
very few bonds, or no bonds, while road B is loaded up to & 
‘muzzle. Now, then, of course, what road A is taking over in & 
purchase is the equity of road B, is it not? | 

Mr. Jonnson. Yes. 

Mr. Merrirr. Now, as a matter of law, can you compel the st 
holders or those who own the equity in road B to consolidate if t 
do not wish to? 


Cond 








he 








RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 299 


Mr. Jounson. Very good lawyers have said that the Federal Gov- 
‘ment could give road A the right to condemn road B and take 
/over. I am not a lawyer, and so I can ask to be excused. 

“Mr. Merrirr. I was wondering how you were going to accomplish 
iat. That is somewhat technical. 

‘Mr. Warson. Suppose the transportation board is established, 
ad the groupings are all made, will not the railroads lose their 
dividuality? That is, would a strong road be willing to invest its 
‘oney in terminals and extensions when it finds it is going to be 
the benefit of the other roads in that same group ? 
~Mr. Jounson. The conference hopes that the principle of compe- 
‘tion can be maintained along with the working out of these con- 
lidated systems; that is, it looks forward to the continued com- 
tition of the New York Central System, the Pennsylvania Sys- 
m, and the Baltimore & Ohio System, for instance. I do not mean 
say that those will necessarily be the only ultimate systems in 
e territory they serve, but I think it is safe to predict that they 
ould be systems that would be perpetuated and would be the 
nters of the group of roads in their respective territories. The 
‘mference looks forward to future rivalry between those strong 
‘stems, in service, under conditions and limitations set forth in 
ypropriate legislation. 

Mr. Watson. You think there is enough competition to develop 
eat railroad men, the same as they have been developed in the 
‘ist, under this grouping system ? 
| Mr. Jonnson. I think so, if Congress and the regulatory agencies 
| not place too serious limitations upon the results of individual 
tort. 3 
| Mr. Watson. That is the point. Are you in favor of a tribunal 
| ith power to regulate the wages for railroad men in order that the 
jiterstate Commerce Commission may regulate rates for railroads? 
Mr. Jounson. I agree with the testimony of Commissioner Clark 
at it would not be well to require of the Interstate Commerce 
}ommission the fixing of railroad wages and conditions of service. 
| Mr. Warson. You would favor a separate tribunal for that pur- 
se then, would you? 

‘Mr. Jounson. The plan of the conference, which meets with my 
} sonal approvel, is that dual boards of equal representatives of the 
/ilroads and their employees should first attempt to reach har- 
oOniously an agreement as to wages and conditions of labor. If 
ey are unable to agree, then the conference plan provides that 
e Federal Transportation Board shall determine the question when 
ere is a deadlock. 

Mr. Watson. You mentioned that probably the Shipping Board 
ight have control of ocean travel in the future. Would you extend 
/@ authority to fix rates to the ocean carriers as well as to, the 
{ilroads? 

Mr. Jounson. If I understand your question, Mr. Watson, I 
ould not at present recommend that the Shipping Board’s power 
der the act of September 7, 1916, be increased. I would prefer 
see the Shipping Board function for a period under the act. It 
‘Snot really done so as yet, because the war came on so soon. 

Mr. Watson. You intimated that some day it might have control 
the ocean carriers? 












300 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Jounson. I would prefer to meet that question when it arises, 

Mr. Watson. I thought you made the suggestion. 

Mr. Jounson. I had in mind a saving clause 

Mr. Watson. I thought probably you alluded to the fact that the 
Shipping Board in the future may go into the business of ocean 
transportation ? 7 : 

Mr. Jonnson. With such modifications as are made necessary by 
the differences between ocean and rail transportation : 

Mr. Warson. You anticipate that ? : 

Mr. Jounson. Frankly, I expect. that the rates of carriers by water 
will ultimately come under the control of the regulatory power of 
the Government. 

-The Cuarrman. Even as to tramps? 

Mr. Jounson. I do not think that is practicable. For the most 
part, as you are aware, Mr. Chairman, the tramp is not a.common 
carrier for the larger part of its traffic. It carries by contract’ with 
the shipper. | 

The CHarrMAn. It has no stated route or schedule, and yet it per- 
forms a very valuable function in the commerce of the world. 

Mr. Denison. Did the conference consider, Mr. Johnson, that the 
Interstate Commerce Commission should initiate all freight rates on 
the railroads? . 

Mr. Jounson. The transportation conference leaves rate regulation 
with the Interstate Commerce Commission, and the plan recommends 
that Congress give the commission certain guidance by statute as tc 
a minimum amount of revenue to be produced by the rates. The 
conference has not expressed itself upon whether rates shall initiate 
with the carriers or with the commission. My personal view on that 
is very definite. I believe the rates ought to begin with the carriers 
and be reviewed and corrected and adapted by public authority. 

Mr. Denison. Did the conference have any recommendation as t€ 
the tenure of office of the members of the transportation board ? 

Mr. Jonnson. The conference did not. A tentative draft of a bil! 
was prepared by Mr. Smith, who testified here. As I remember, he 
had a six-year term, but Iam not certain about that. +] 

Mr. Posr. Ten years. 

Mr. Jounson. Ten years. | 

Mr. Denison. To be appointed by the President and confirmed |y 
the Senate, I presume? 

Mr. JouHnson. Yes. | 

Mr. Dentson. Now, of course, I understand you are committet 
to this plan that has been submitted, but I would like to get your 1m) 
dividual opinion as to whether or not it would be workable for thé 
Interstate Commerce Commission to be increased to, say, 12 members 
and the work that is in your plan to be submitted to the transportatior) 
board delegated to a sul.division of the Interstate Commerce Cor 
mission, composed of 8 members, with the right of appeal to the 
whole commission. | 

Mr. Jounson. My own personal opinion is very definite that 1) 
would be more effective to have a separate body, not three members 
added to the Interstate Commerce Commission. I think we musi} 
look forward, or ought to look forward, to the most effective execu) 
tive body that Congress can create. I would make it an egtirels) 


: 
























RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 301 


‘ew body, with very definite powers and very large responsibilities, 
nd I would give it very large latitude. I believe personally that 
he results would be much more satisfactory than would be sectired 
rom an enlarged commission, much as I admire the Interstate Com- 
aerce Commission, and I have known their membership personally 
or many years. I do not think that their methods can become as 
ficient administratively as such a body as the transportation con- 
arence recommends. 3 

Mr. Denison. Is there any particular reason why the board should 
e composed of five members instead of three? 
‘Mr. Jounson. No; that ought to be determined by the wisdom of 
longress. I had. thought personally, first, of three members. Some 
thers had thought of seven, and you know how different thoughts 
nally express themselves in the medium of extremes. I think, 
cowever, five members gives a commission not too large for executive 
‘ction and yet large enough to have the combined judgment of 
yveral men. 
The CuarrMan. That concludes the hearing for this afternoon, and 
will recess now until to-morrow morning at 10 o’clock, when 
tr. Doak will be ready. | 
'Mr. Jounson. Yes. 

(Whereupon, at 4.50 o’clock p. m., the committee adjourned until 
riday, July 25, 1919, at 10 o’clock a. m.) 





CoMMITTEE ON INTERSTATE AND ForEIGN CoMMERCE, 
Hovuss oF REPRESENTATIVES, 
Friday, July 25, 1919. 


The committee met at 10 o’clock a. m., Hon. John J. Esch (chair- 
an) presiding. 


tATEMENT OF MR. W. N. DOAK, VICE PRESIDENT BROTHERHOOD 
OF RAILROAD TRAINMEN, WASHINGTON, D. C. 


r. Doak, state whom you represent. 

Mr. Doax. I am here, Mr. Chairman, this morning in my indi- 
dual capacity. I am vice president of the Brotherhood of Rail-: 
ad Trainmen. | 

Mr. Wrnstow. But you do not appear for the brotherhood? 

Mr. Doax. No; not in this instance. 

Gentlemen, in appearing before the committee this morning f 
1 so at the request of the national transportation conference com-/ 
ittee to discuss only one subject of this proposed plan, and that 
the plan indorsed by the national transportation conference deal- 
g with the adjustment of labor disputes. 

It is only fair to say to the committee that the railroad brother-} 
ods are committed to another plan. All of the organizations have 
\dorsed what is known as the Plumb plan which is a form of Gov- 
ament ownership. Consequently, the organized labor of the rail- 
ads and I myself are committed—tothat—plan, but having spent 
\veral months, or having spent some time during several months 


| 
| 
The Cuarrman. Mr. Doak will present his testimony at this time. 





302 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


with the gentlemen composing the national transportation conference 
und discussing the different phases of this question, the national con- 
ference has adopted the same plan of adjusting wages an : 
of-service as proposed J Plumb plan, and having had a part in 
those conferences, I was requested_by the con ; 
the committee and _present.their_views_on_this subject. 
T want to make this statement, in fairness and justice to the gen- 
tlemen of the conference—that they have made a most exhaustive 
tudy, and all of their deliberations have been conducted with the 
utmost frankness and freedom. They tried to assemble as many rej- 
resentative men as it was possible in this conference from the differ- 
ent walks of life, and every one has had an opportunity in their con- 
ferences to frankly and freely express his views, and I am quite sure 
‘that the committee can well afford to give consideration to their plan, 
I am convinced that there are no selfish or ulterior motives that 
‘prompted these gentlemen during their deliberations. 
We differ on the question of Government and private ownership. 

I think there are some most excellent features connected with this 
plan, and if we have Government ownership, I think the -Plumb| 
plan is the only one’that has been proposed that would cover the 
situation fully. If private ownership is to be the policy, I think if} 
would be well to give careful consideration to the plan adopted hy 
the national conference. a 
Mr. Wheeler and other gentlemen have appeared before you and) 
have discussed the different features of the plan. I shall only dwell 
on this feature: 
The conference favors the adjustment of wages, hours of labor, and othei| 
conditions of service of railroad employees by boards consisting of equal num 
bers of representatives of employees and officers of the railroads, with appeal) 
in cases of the disagreement (deadlocks) of an adjustment board, to the Federa’ 
Transportation Board as referee. | 


The Cuarrman. You are reading from page 234 

Mr. Doax. I am reading from page 15 of the program. ai 

The Carman. It also appears. on page 23 as a part of the drat) 
of the bill given in Mr. Wheeler’s pamphlet. ; | 

Mr. Jounson. I may say, Mr. Chairman, that we will send to eact) 
member of the committee the books containing all the statement) 
made by the members of the conference. | 

Mr. Doax. For the purpose of identification, I will refer to pag) 
23 of Mr. Wheeler’s statement. | | 

For a number of years the question of the adjustment of dispute 
arising from requests for increases in wages and the adjustment 0 
many of the numerous grievances arising on the railroads has been! 
subject of general public concern. | 

In this country we have always had what might be termed volun 
tary systems; and I think that under our old Erdman Act, whic), 
was later supplanted by the Newlands Act, we have had more accom 
modations than in any other country in the world, with their s0 
called compulsory acts or labor courts, and practically all of thes| 
matters have been disposed of without any suspension of business. 

But in 1916, when the four transportation brotherhoods inaw 
rated their 8-hour movement, an accommodation was not had unde 
the provisions of this law, with the result that Congress, after 
































q 
: 
: 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 303 


resident had intervened, passed what was known as the Adamson 
IW 
There has been a great deal of difference of opinion as to that par- 
zular law. Personally, I do not know whether it ever amounted to 
tything or not, because, outside of a declaration by the court hold- 
g it to be constitutional in practical application, we do not know 
hat it means. It temporarily stopped any action on the part of the 
aployees in looking to a suspension of business, but it did not 
ttle the question. It was a mere declaration, and, as*a result, the 
aployees finally had to take steps to see that it became effective or 
‘at the 8-hour day became effective. A second serious crisis be- 
me almost inevitable, it seemed, and on the morning of the 19th of 
arch, 1917, before the court had finally passed on the constitu- 
mality of the act, an agreement was reached between the national 
nierence committee of railroads and the representatives of the em- 
pees providing a method for the application of the 8-hour day. 
One plan provided how it would be applied in the event the law 
is declared unconstitutional, and another how it would be applied 
_the event it was declared constitutional. At noon that day the 
jurt, after this agreement had been reached, rendered its decision, 
holding the constitutionality of the act. 
At this conference certain basic principles for the application of 
e basic 8-hour day were outlined; but anticipating that with all 
the care that had been exercised there would be many contro- 
rsies arising when this law was to be applied to sixteen or seven- 
ee ee ecbedales over the country, the parties agreed 
at there would be a commission appointed composed of four man- 
ers or four representatives of the railways and four representa- 
res of the employees, whose duty it would.be to apply this prin- 
dle to the different schedules and settle all questions of controversy 
ising from the application of the basic 8-hour day. 
This commission was in existence about a year, or probably a) 
tle over a year, and during that time they had somewhere in the | 
ighborhood of between thirty.and_forty thousand disputes arising | 
|t of the application of this basic 8-hour day to the individual 
jiedules. But the singular feature of it was this, that of these 
)/merous cases that were referred to them their decision was unani- 
|)us in all the cases with the exception-of one or two. | 
js a result, when the contention of different ones followed that 
| Was neecessary to have some compulsory form of investigation or 
itration in this country, the transportation brotherhoods ap- 
ied before your committee and stated that they believed it was 
wise to attempt a plan of that kind, and they thought more good 
{ud be accomplished if we had voluntary boards, or even a feder- 
y created board, evenly balanced, to adjust all wage disputes. 
After the declaration of war there was no desire on the part of 
y of the employees to interfere with transportation in any way; 
1 after the period of governmental control it was decided that 
‘re would be created a commission or a board with extended 
hhority to take the place of the commission of eight that was cre- 
l solely for he purpose of handling questions arising out of the 
dlication of the basic 8-hour day, and an agreement was entered 
‘0 by the chief executives of the organizations, on the one hand, 


| 


| 
| 









. - 


304 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. : 
and the regional directors on the other, and approved by the directc | 
general, and issued in what is known as General Order No. 13 
There were eight men selected. The regional directors on the on 
hand, selected four operating officers and the chief executives o 
the four transportation brotherhoods, on the other hand, selectec 
four officers, one from each of the respective organizations. The 
eee organized on April 8, 1918, and_up to the recess of the 
board last night we had handled about 1,100_ disputes, involving 
almost every form of discipline and schedule disagreements imag 
nable, and no dissenting opinion has yet been filed by the board, anc 
I think it is safe to say that in practically all of these cases ther 
as a unanimous decision of the board. ae 
( Following the creation of railway board of adjustment No. 1, ¢ 
‘short time, railway board of adjustment No. 2 was created, whie¢ 
/handles cases of shop men, and it is created just in the same manne 
‘with an equal number on each side. Later, railroad board of ad 
justment No. 3 was created, which takes in the other classes of em 
ployees on the railroads. 
Mr. Srus. All other classes? 
Mr. Doax. All of the remaining classes on the railroads. 
Mr. Dewar. What does railway board No. 1 handle? 
Mr. Doax. Disputes of the four transportation brotherhood em 
loyees. | 
; With the issuance of General Order No. 27, which is a wage order 
which was issued about the 1st of June of last year and made re 
troactive to January 1, 1918, the director general provided for th 
creation of a wage board whose duty it would be to investigate wag 
questions and make recommendations to the director general. 
board has been functioning since that time. 
The CuarrMAn. That is an additional board to the adjustmen 
boards. ; | 
Mr. Doax. Yes, Mr. Chairman, it handles only questions pertain 
ing to the wages of employees, increases in wages, and it is pure 
an advisory board that makes exhaustive studies. They study th as 
“mestions éIl the time and make their recommendations to the cliree 
or general. Boards of adjustment—have—abselute authority a2 
their decision is final, and not subject toreview-b the director get 






ral-onty in such cases where- NM terpretation of a wa z 
rder, and in s-cases we review them and make the recommen 


[dations to the director-general as to how it-would be~apphed 0: 
ithat_certain property. mt 

When the national transportation conference met, labor repre 
sentatives were invited to participate in the conference, and I pre 
sented, or tried to present to the gentlemen of the conference, tl 
question just as I am presenting it now, in about the same langt 
and in about the same way, with the result that they indorsed t» 
principle, and they asked me to present it to your committee as 
had to them. t 

The question may be asked, whether or not this would work 0 
under private ownership? I will say to you frankly that a plan ¢ 
this kind can be worked out under any form, be it Government regt 
lation, strictly private ownership, or Government ownership: becaus 
it has been tried out under private ownership and it has been trie 


TQ as 


ad 


ie 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 305 


J 


at under Government control, and so far it has been a decided 
‘1ecess. No one ever thought years ago that such a thing was pos- 
ble—to take eight partisans, if you please, or so-called partisans, 
4d put them on a board, that they would settle such disputes, but 
aving served on Board No. 1 since it was created, I am prepared 
say that the four gentlemen representing the railroads have met us 
‘the broadest, most liberal manner, and you would be surprised to 
ow how easy it is for us to arrive at a conclusion after we hear 


@ arguments in a case. 


: 


In eevee deadlock, there is provision made that the direc- 
-r_general will act.as the referee, but_in case five of us agree, that 
ral 


| Knowing that, we have tried to reach an agreement, and } 
¢ 


@ have, in every single case that has been presented to us. 


Je 


_I have no doubt the question would be raised as to who would act 
referee. That is a matter that could be very easily taken care of, 
ad: of course, in the plan that the national conference has adopted, 
ey provide that the transportation board shall act as referee, and 
assume that when you get through with this legislation, whether 
is Government ownership or what not, there will be some kind 

a board created, and whatever that board is, it can easily referee 
j re cases, because from past experience, the referee has nothing 
ao. 
Té would no doubt be asked, how you could handle it if you had 
ictly private ownership, where would you get authority? That 
very easily answered. In my opinion, practically all the railroads 
| ll come in and the organizations will come in. Those that do not, 
+3 two parties will make it very uncomfortable for them before they 
¢ through with them and they will be glad enough to come in. 

Mr. Denison. Whom do you mean by the two parties? 
Mr. Doax. The railroad managers who have come in on the one 
‘6 and the employees on the other side. We found in the experi- 
*e of the commission of eight that certain railroads did not give 
thority to the national conference committee to represent them. 
, ter when they were confronted with the question of either settling 
4 the employees or having their business seriously interfered with, 
4y came to the board and asked them to arbitrate their differences. 
» have acted as arbitrators in several cases on Railway Board 
justment No. 1 on small lines that were not under Government. 
wtrol. After the machinery is once established, gentlemen, I am_ 
ivinced of its practicability because as hard as we have worked 
ce last April, when we adjourned yesterday there were 479 cases, 
aiting action before the board. I understand that the other two 
rds have been about as successful as our board. Of course, they 
ve not had the numerous cases that we have had to adjust. 
¥ Sanpers of Indiana. How many are there on the other boards? 
‘fr. Doax. Twelve on one and eight I think on the other. I think 
_t Board No. 2 has 8 and Board No. 3 that takes in the miscellane- 
craft has 12. I want to say also that the board of railroad wages 
| working conditions is likewise composed of equal representa- 
ps, three from each side, and they have gotten along very nicely‘) 
nderstand their recommendations have been practically unani- 
as, all of them. 


» 152894—19—vor. 1 


7 

















20) 


306 RETURN OF THE RAILROADS TU PRIVATE OWNERSHIP. 


_ There is one thought which I should like to leave with you. A 
I explained to the conference, do not_ attempt ae 
thing further than voluntary arrangements in tion with board 


of this kind. -I-do not believe that a purely povernmental hoaTdaae 
work, and there is a reason for it. While we have approached thes 
questions in the broadest and most liberal spirit and the results ar 
here to speak for themselves, we have not lost our connection will 
our respective sides, and consequently we can go to them and advis 
them and they can likewise come to us. In that way we know th 
things that we represent and we suggest many things that we couli 
not if we were a strictly governmental board. The other feature 
it is this. I do not care whether it is a man operating a railroad 
a man braking on a train, or a lawyer, or a Member of Congress, w 
are all American citizens and you can lead us to do anything withi 
reason, but you generally can not drive us to do anything. Th 
minute you would give a policy the stamp of compulsory action yo 
would to a great extent limit it in its efforts. 

I think there should be a plain declaration by Congress in what 
ever plan you adopt. Somewhere in your bill you should provid 
that boards shall be created to dispose of disputes and then leave th 
details, leave all the rest to the employer and employee to work ou 
If you do that I think you will get results. The employees and lik 
wise the manager have some hesitancy in going to a governments 
tribunal that they would not have in going to a board of this kin 
In the Dominion of Canada the War Board created a similar boar 
It takes in all of the classes and they can handle on request anythin 
and act as arbitrators in any case. It is purely a voluntary arrang 
ment, each side pays its pro rata part of the expense and they hat 
gotten along in a most admirable way, and they have adjusted man; 
many complaints. The only difference with our_boards is that eat 
side pays their representatives on the board, but the cost of the mai 
tenance of the office is borne by the-Railroad Administration. Er 
was created by voluntary agreement and it has been maintained thi 
way, and that is what I would suggest to you gentlemen as a sol: 
tion of the labor question of the American railroads. Our expe 
ence has demonstrated the practicability of it and the feasibility 1 
the plan. 


} I was asked the other day what I would suggest to be done wil 




































he Newlands Act and the Board of Mediation and Conciliation. 
stated at that time that I would not interfere with it at all, that the 
‘might be cases, there might be times and certain conditions un¢ 
‘which the parties would desire to invoke mediation. If such is tl 
case, I would let it continue. That law has_adjusted more dispute 
entlemen, than any ‘Other-piece® of legislation that was ever pass 

n the face of the earth. : 
In the Railroad Administration, I understand, they have mediato 
that go out in certain cases and use their good offices to bring aho 

{ adjustments of schedule revision cases, or to make new schedules wi 
some of the railroads where the employees were not organized a 
had no agreement prior to the period of Government control, and 
think it would be just as well to let the Board of Mediation and Co 
ciliation, as provided in the Newlands Act, continue to function” 


Vv 


| 
} 


y 


_ +» RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 307 


‘ases of private ownership of railroads after this period of Govern- 
ent control ceases. 

| Of course, the transportation brotherhoods feel that Government 
-wnership is the proper thing and that possibly labor adjustments 
ould be more easily taken care of under that plan, but these gentle- 
aen of the national transportation conference feel that the suggested 
aethod of labor adjustment ought to be adopted as a part of their 
ilan; and, frankly, the method can be carried out about as easily 
nder their plan as under Government ownership of the railroads. 

I know what is in the mind of each of you gentlemen, that if some- 
ody has a solution for the labor question of the American railroads 
‘hat you will be most happy to give it careful consideration. I think 
re have one; I think it 1s practical, and I think it is worthy of your 
onsideration. I will say that the gentlemen representing the national 
ransportation conference think so, and they have given careful con- 
ideration to it. The gentlemen interested in the Plumb plan think 
9. I think if you ask the representatives of the Railroad Adminis- 
ration, who have been handling these matters, that they will say 
dere is one thing at least in which the Railroad Administration has 
een successful, and that is in handling the labor disputes with 
ae four transportation organizations since and prior to the beginning 
f the war. 

Mr. Winstow. My inquiries will be more of a general nature than 
verhaps directly applicable to the consideration of this bill. I want 
) ask if you recall any instance wherein employers, having agreed 
\)) Btrate, have ever jumped the arbitration board or their conclu- 
/oné 

Mr. Doak. Not directly; no. I would have to speak, of course, 
)fr, Winslow, from the viewpoint of the four transportation employ- 
s—that group—because I am not so familiar with the other groups. 
Ve have had this to occur after arbitration awards: That there were 
|umerous misunderstandings growing out of the award which have 
}2en as serious almost as the question that was arbitrated originally, 
hich was brought about in a large measure by the gentlemen who 
ere the neutral arbitrators on the board not being familiar with the 
ibject. For instance, I will give you an example; I do not desire 
|) quote any names, but in 1913 a special act of Congress was passed, 
| think, in a day, known as the Newlands Act, supplanting the 
‘iginal act, to take care of a serious situation in the eastern terri- 
wy. For an arbitration under that act there were two gentlemen 
lected as neutrals whose honesty and integrity could not be ques- 
joned by anyone. They rendered a decision that they thought they 
jaderstood. On one railroad in particular running out of this city 
\te two classes of employees, conductors and trainmen, spent many, 
any thousands of dollars trying to get that award properly applied 
1 the property. One of these gentlemen, when the matter went 
ick to him, said: “ Well, I thought I understood English, but I see 
lat I do not understand English when it is being applied to these 
ansportation schedules.” That did more to give arbitration a 
‘ack eye than anything else. 

On these boards all of the men are practical men, and you would 
» surprised to know how quickly they can arrive at an understand- 















308 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. , 


ing that would take, possibly, a long time for other men to reach. _ 
would not say, so far as the gentlemen that I have been connecte 
with or associated with in any way, that they have deliberatel 
broken the arbitration agreement or award. : 
Mr. Winstow. My question was in respect to the action of th 
employers, not employees, you understand. : 
Mr. Doax. I understand. I said that I did not know of any. | 
Mr. Wrnstow. Taking the reverse of that, have you known of an 
cases in the past where employees have repudiated the findings of th 
arbitrators to whom they had agreed ? 
Mr. Doax. Answering as I did in the instance about the employer 
T could only speak for what are known as the transportation er 
ployees represented by the four train-service brotherhoods, and_ 
will say no. : 
Mr. Winstow. I will ask if you have made up your mind, in th 
light of the existing relation with employers, that both the employer 
and employers have had something to learn from each other ? : 
Mr. Doak. That is quite correct; they have. : 
Mr. Winstow. You spoke of human beings being willing to f 
led, but not being willing to be driven, and that leads me to ask yo 
this question—I think it is superfluous, but I would like to ask ~ 
nevertheless: If laws had existed, do you not think that such law 
if objected to, would have had to be set aside by legislative actio 
rather than by refusal to obey ? {| 
Mr. Doax. Our past experience is all that I can answer from. _ 
will say in every instance in the past, speaking now for the fou 
transportation organizations, that we have obeyed the law. : 
Mr. Winstow. I did not mean to apply it to anything in partic 
lar; I was asking a general question, with a view to getting th 
attitude. : ) 
Mr. Doak. I think I understand you, and I will try to give yo 
an answer. The statement was not made in the form a threat at al 
Mr. Winstow. I appreciate that. | 
Mr. Doax. It was made from the standpoint of the independent 
of an American citizen. I will say this, and I think it will answe 
you fully. Suppose you were to pass a law making it strictly illeg: 
to strike and saying that you would have to submit to certain tribi 
nals, and so forth. I do not think there is a man in America wh 
would for a minute question the right of anybody to quit any ul 
-he wanted to as an individual, and, likewise, I think that a liber 
construction of the same principle would accord that right to 
number of employees acting in concert. But, regardless of that, 1t_ 
an unsettled question, and there is difference of opinion on it. J 
you were to pass any kind of a compulsory arbitration law, what 
to prevent each individual of a railroad, without concerted actic 
or conspiracy or prearrangement, to leave his position; and wow 
not the object of that law be defeated in the same manner as if tht 
had all stopped at the same time? That is practicable. Such thin 
have been done. In one instance, where a court in a certain distri 
took a very arbitrary position toward negotiation of a settlemel 
on a certain little railroad and issued’ an injunction the like of whit 
has never been heard of, even restraining the employees from tal 
ing to anybody, and within an hour after the temporary restraint 





















| 
| 


. + +RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. ' 309 


‘der issued had been perpetuated—that is, the order after the last 
tion by the court—there was not an employee left in the service 
ithe property. They did not strike; they stopped work; they quits 
‘signed their positions; and for all the good the injunction did the 
‘eople on that railroad—that is, the community it served—the in- 
inction might just as well never have been issued. 
. Then there is this other feature of it: There is a difference be- 
‘yeen legitimate organization and a mob. Most all organized labor 
is strong discipline; and in speaking for the organization with 
hich I have been associated practically all my life, we have very 
ringent laws and our discipline is severe, and we enforce it. As 
ng as it is legal and in accordance with the law you can enforce 
seipline, but the minute you strike down discipline and set aside 
‘e operation of the law then you have a mob to deal with, some- 
ing that no living being can control. 

T am going to cite you another example in another country. You 
mtlemen have been told about the Australian act. I heard a gen- 
man before the Senate committee a few years ago testify that he 
id just come from Australia and how this law was operating there 
id how they were getting along under it, and that when he landed 
this country, first in British Columbia, he found a strike at Butte 
id strikes at other places, and before he got through he was con- 
onted with a cablegram that every miner in Australia and Austral- 
‘ia was out on a strike at that time, except those mining coal for 
eships of the British Government plying in and out of those ports. 
) that did not work. A great deal has been said about the so- 
Hed Le Mieux Act in Canada. | 

That is supposed to be a compulsory investigation act, where you 
ve to suspend hostilities for a period of 90 days, until the board 
views the controversy. As to its effectiveness as compared to the 
|w in the United States, the Newlands Act, we had an example of 
jat. A few years ago there was a controversy in this country in- 
|lving the eastern Canadian line, the eastern lines of the United 
ates—that is, north of the Chesapeake & Ohio lines, everything 
rough to the north of Canada and east of Fort William. We 
iched a settlement under our law in the United States, and they 
d strikes in Canada under this Le Mieux Act. That is the differ- 
ee when you talk about compulsory methods as against voluntary 
thods. Results are what we want in this country, and results are 
Jat we are getting under voluntary methods. Gentlemen, my hon- 
Opinion is that you will not get the results under any form of 
|mpulsion, because it is impracticable. We all have the greatest 
|sire to be law-abading citizens. 
Hor instance, I had a case in a certain city, representing the organi- 
ion, a while back, in which authority had been vested in 4 commis- 
ni; the law had been set aside, and authority over certain men and 
ngs had been vested in this public utilities commission. The men 
‘re holding out for one thing after another. Finally I said that I 
‘uld see the whole matter was settled according to the due process 
‘law, and when it next comes up for hearing I will subpoena every 
‘0 before the commission, but we will not have a strike; there will 
ibe a strike, but it will be scttled strictly in accordance with the 
vy. And when that became known that action was to be taken they 
















310 | RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


did not have any more hearings. So I am trying to approach thi 
subject, as I have for a number of years, with the broadest and mos: 
liberal viewpoint to see where the best results can be obtained. I wil 
say to you, gentlemen, after doing so, that I am convinced the bes 
results can be obtained by voluntary methods in this country, and | 
speak of the transportation organizations in particular. 

Mr. Wrinstow. Do you differentiate in your mind between the na 
ture of the responsibility that employees of public service corpora 
tions have intrusted upon them with the nature of the responsibilit) 
of pnp Oy ors of what we will call private or commercial undertak 
ings? 

Mr. Doak. Yes, I do, to this extent: I appreciate the fact tha 
it is recognized that we owe a duty to the public and that it 1s ; 
serious thing to interfere with the orderly process of public servic 
corporations or of public utilities in this country. On the othe 
hand, it should be borne in mind that the public should be fair witl 
the employees engaged in this public service to the extent at leas 
that they should have as good conditions of employment and wage 
as prevail in outside industry. . 

During the war especially, gentlemen—I want to make this state 
ment—the men on the freight trains in this great eastern section o 
the country here worked from 1918 to June 1, 1918, at $2.67 a day a 
compared with a minimum of $4 or $4.50 in any industry aroun 
them. If the public recognizes it and meets the situation on the ona 
hand, you can be reasonably assured that you will not have any trou 
ble from your public service corporation, but the public certainl 
has to recognize that they are entitled to fair consideration and tha 
they must give them some means to secure reasonable conditions. 

Mr. Wixstow. Do you think, Mr. Doak, that in the past th 
reasonably few differences between employees and employers hay 
been due to a lack of confidence in each other’s good intent? 

Mr. Doax. In a great many instances; yes, sir. 

Mr. Wrnstow. And has that resulted in each one pulling from th 
true objective in order to make their case appear a little stronge 
than it really does appear and thereby create a distrust rather tha 


to allay it? 





| 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 311 


ee how little the other fellow would get of what he wanted in the 
ctual operations of the discussion. 
Mr. Doax. That could only be applied one way. The employer 
vould not be getting anything. He would be doing all the giving. 
‘say to you meay that in a great many instances the employer has 
iuken the position he would see just how little the employee would 
et. 
Mr. Winstow. Pardon the interruption, but I want to hurry 
long. Would not the employee or his representative, on the other 
and, be putting forth his greatest endeavor to see how little the 
nployer should retain of what he wanted to retain? 

Mr. Doax. Probably that is true. 7 

Mr. Winstow. Do you think that you have now set an example 
irough the medium of this evenly divided tribunal which can be 
yoked to and pointed to throughout the country as giving evidence 
f the fact that in the operation of that tribunal, at least, the aim 
as been to see how nearly each one can accord to the other what 
ich desires? 
Mr. Doax. That is correct. I think you will find 
Mr. Wrinstow (interposing). I think you will find you have made 
ot step forward. : 

‘Mr. Doax. Thank you, sir. I think you will find that to be a fact. 
‘should be very glad, when we get a little further along and get the 
scisions of the adjustment boards printed and filed, if you gentlemen 
ould take occasion to investigate them. I think it is worth the 
hile of every American citizen to do that. It has given us a demon- 
ration, and I want to say further that I understand the typographi- 
I people have for some time had a system similar to this, and prob- 
‘ly ever since the anthracite coal strike they have had boards of 
is kind created, and a gentleman who is on the board with me has 
‘en serving for a number of years as the referee in those cases, and 
says he very seldom has anything to do. I think it is a real solu- 
on of the question viewed from every angle. 

The Cuatrman. Mr. Doak, suppose this committee did not adopt 
|e plan suggested by the conference for a transportation board, how 
ould a deadlock be determined, provided we otherwise accept the 
‘ovisions of section 8 of the plan of the national transportation 
nference ? } 
| Mr. Doax. That is a matter that could be determined, I presume, 
‘some other board, if you have a board to supervise the issuance of 
/curities or anything of the kind. Really, Mr. Chairman, I do not 
\ink it makes so much difference who the tribunal is. 
|The Cuarrman. Of course, the pending bill, as you know, contem- 
i that the matter of stocks and bonds shall be given into the 


nds of the Interstate Commerce Commission. 

}Mr. Doax. Yes; I appreciate that. 

The Cuarrman. In lieu of a transportation board separate and 
)stinct from the Interstate Commerce Commission, would you think 
| Jeadlock should be settled by the Interstate Commerce Commis- 
ym, or a subdivision thereof, by the Secretary of Labor, or by the 
“bitration Board provided by the Newlands Act, or any other exist- 
% governmental agency ? 























oly RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Doax. I do not know, Mr. Chairman, whether I would wan 
this to go under the Labor Department or not, answering that par 
of your question, and I think that each of you gentlemen appreciat 
the fact that during all of these years the railroad labor, especial] 
the transportation men, have not been under the Department o 
Labor. For instance, the Interstate Commerce Commission look 
after the enforcement of the, safety appliance laws, and things o 
that kind, and we have never been under the Department of Labo? 
and I would not think, or I do not think, it would probably be th 
desitable thing. I am just saying this offhand, however, and — 
have never consulted with any of my associates about it. It prob 
ably would not be the best thing to put this transportation questior 
or any part of it, under the Labor Department. I say that with th 
greatest respect for the Labor Department. As to the commissior 
the only thing I care about is, and I say this because the commissio; 
is going to be, if your plan is carried out, as suggested in your tenta 
tive bill, and all this work is put on the commission of handling al 
the issuance of securities and all those things—they are going to b 
simply swamped with work, and I do not know whether it would b 
a desirable thing to let the commission handle it or not. I rathe 
think it would not be. i : ae 

The CuairmMAn. You understand the commission do not desire t 
have it put upon them. | 

Mr. Doax. I appreciate that fact, because I have talked to som 
of the gentlemen on the commission and they realize they will have 
under any of these plans, just about all they can attend to. | 

As to the Board of Mediation and Conciliation, personally, I wil 
say no. Not that I have anything, gentlemen, against the personne 
of the Board of Mediation and Conciliation, but I am afraid it woul 
not be acceptable to the employees, generally speaking. — : 

The Cuarrman. You have exhausted all my suggestions; now wil 
you make one of your own? : 

Mr. Doax. Well, the commission of eight, when it was in existen¢ 
had no referee, but I think you would have to create a referee. 
think it is a matter, Mr. Chairman and gentlemen, that can 
worked out, if you set aside or do not adopt any of these plans th 
have been provided for the creation of an additional board. As 
suggested before, in making the declaration on this matter containe! 

in the bill, I would simply provide for board and also provide fo 
referee or provide they would be agreed upon, or name a referee. 

The Cuarrman. Do you mean that the boards themselves ma, 
name their referee ? 7 i. 

Mr. Doax. No; let the parties organize the board. Our idea is” 
voluntary plan, you understand. q 

The CHarrmMan. Yes. ' aj 

Mr. Doax. What they will do as sure as anything, if ther 
is a declaration in the bill, will be to organize these boards, and whe: 
they organize them let them suggest their referee at that time. 

The Cuairman. In other words, when they get to a deadlock, le 
the boards solve the problem ? ce) | 

Mr. Doax. No; I think the referee should be designated at th 

ltime the board is selected. I am not much in favor each time 0 
selecting a referee for an individual case. 


































RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP... 313 
The Cuarrman. When your board knows there is the possibility 
if a referee’s action, that would lessen the efforts of the board to 
itself come to a conclusion. 
| Mr. Doak. That is what we thought or what we feared, Mr. Chair- 
nan, when we first created these boards, but we found that just the 
reverse was true, because we have not used him‘and he has been 
here all the time. The director general was the referee. PAR ce 
|| Lhe Cuarrman.. Do you think it would be advisable for the Presi- 
‘lent to name a standing referee, or to name a referee for each par- 
|ieular instance where it involved any large territory, or to leave it, 
)iS you suggest, to the boards themselves? 
| Mr. Doax. I think that a standing referee would be preferable to 


| he individual referee. 
) 


|) The Coairman. Why? | 

| Mr. Doax. Simply because you would want an experienced man 
)md after a man has served in one case, the further he goes along, the/ | 
| Xperience and the knowledge he would gain would better qualify him 
md you would get better results, in my opinion, by a permanent 
\eferee than you would by having one in each individual case. The 
)mthracite question was settled in that way. You know that Dr. 
\Jharles P. Neill was the referee, and he has been the referee ever 
|mee, and I have talked with him quite a number of times about it, 
md he says it took him quite a ‘while to get acquainted with or to 
‘mderstand the situation, but now it takes him very little time, when- 
_ver he has a case, to settle it, and that is the advantage, it seems to 
2, of the standing referee in preference to having one in each indi- 
idual case. | 

| The Cuairman. The pending bill has no direct provision with 
\eference to the adjustment of labor troubles, but the committee 
as opened that field for inquiry and is willing to get just as 
}auch information as possible, and I think the committee would 
|ppreciate it very much if you would draft a provision along the 
mes you have suggested, and in consonance with section 8 of the 
ational transportation conference plan, and give your best judg- 
jtent as to the appointment of such referee. Will you be kind 
jnough to add that as a part of your hearing? 

) Mr. Doax. I shall be very glad to try to get that up for you, Mr. 
| hairman. 

| The Cuarrman. I wish to assure you that the committee is very 
/esirous of coming to a right conclusion on such a very important 
hase of this matter. | 

| Now, you stated, I think, that under Federal control the two 
des of the table got along with practical unanimity. Do you think 
|iat was due, to any degree, to the fact that the representatives of 
fie railroads realized that they were under Federal control, and 
jiat the railroads were required to secure the standard return; 
1 other words, do you think the railroad representatives were 
jtoad, as you used the word, because of a knowledge of the fact that 
}iey were representing roads under Federal control, the financial 
turns of which the Government was interested in, and now, if the 
jdads were turned back to private ownership, would those repre- 
jntatives of the roads be equally broad under that changed status? 


314 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Doax. Mr. Chairman, yes, sir. The gentlemen that I have 
been associated with, I am quite sure, would be just as broad one 
day as they would the next. 

Mr. Dewar. Mr. Chairman, would not the difference be this, in 
consonance with your question, that in the one instance the Gov- 
ernment is paying the bill and in the other the private owners, I 
presume the railroads, would pay the bill? 

The CuairmMAn. I submit that to the witness for his reply. 
Mr. Doax. I think I can very happily answer that. Probably 65 


\ 


per cent, if not more, of the cases that we have handled _originated 
priodr_to Government-controland-we inherited them. We have re- 
instated men and paid them money that will have to come out of the 
corporations because they originated under private control, and J 
have never seen a bit of difference in the managerial end of our 
board in paying out corporation money and paying out Government 
money. I doubt very seriously whether you could get those gen- 
tlemen to accept service under a strictly governmental board. For 
that reason, if no others—but I have cited numerous others—I think 
the voluntary plan of each side furnishing its representatives, and 
the Government not paying, is the preferable one. 

Mr. Dewaur. Mr. Chairman, may I be permitted right there to 
interrupt a moment? 

The Cuarrman. Yes, Mr. Dewalt. 

Mr. Dewar. There is something I am not clear about, and I want 
to submit an example to you, and your answer to that, I have no doubt, 
will clear up what is in my mind. Railroad “A” has a dispute, we 
will say, with the conductors on that road with regard to wages or 
some other matter, hours of service, for instance. Under your system 
of voluntary arbitration your board No. 1 would take charge of that, 
if it was in regard to service. That board consists of four represen- 
tatives from the railroad management and four from your various 
organizations of railroad men. Your board makes a decision, and 
what I want to know is this: How do your four organizations of rail- 
road conductors, railroad firemen, railroad engineers, and railroad 
trainmen enforce that decision ? 

Mr. Doax. Under the orders : 

Mr. Dewar. Wait a moment before you answer. When that deci 
sion is made must it go back to your general meeting of these various 
organizations for affirmation? 

Mr. Doak. No, sir. 

Mr. Dewatr. Now, just tell me how that is worked out, because that 
is what is bothering me. : 

Mr. Doax. General Order No. 13, as I stated before, was an agree 
ment entered into by the regional directors on one side representing 
the Railroad Administration and the chief executives of the four or- 
ganizations representing the employees’ organizations, in which order 
it was provided that the decision of the board shall be final. Conse 
quently, whenever disputants submit their case our decision is final. 
Therefore it is not subject to review by the director general or by 
anybody else. 

Mr. Drewatr. Not subject to review by the organization of rail 
road men or any part thereof ? | 

Mr. Doax. No, sir; it is final; and I will say, furthermore, when we 
were put on the board—I know this was true in my case and the other 





RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 315 


gentlemen inform me that the same thing was true in their cases—they \ 
were told that they were answerable to nobody, only their own con- 
sclence and that our decisions were final, and I was told to “go ahead | 
ind use your best judgment, and what you think is right will be right; } 
we will make it right, and it is not subject at all to review by any- } 
»ody.” We have just passed our conventions, three of the organiza- 
ions, and there was not a question about the board in my convention 
vhile I was there. ; 

Mr, Dewatr. Now, just one more question. You stated in your 
‘xxamination that there were about 40,000 of these cases which He) 
een submitted to the board. 

Mr. Doax. That was the commission of eight applying the basic 
‘ight-hour day, Mr. Dewalt. 

_ Mr. Dewatr. And that in almost all of those instances there had 
een a unanimous decision by the board. Subsequent to that de- 
sion has there been any resistance by the railroad organizations in 
my appreciable number, or any number at all, as against the award 
f that board ? 

_ Mr. Doak. No; there has not been anything. They have accepted 
tand gone on. You understand that was. under private ownership. 
Chat. board functioned under private ownerships, and they went 
ight ahead and put the decisions in all over the country. 

Mr. Drwatr. Subsequent to private ownership and under Goy- 
rmment control, what has been the experience? 

_Mr. Doax. We have handled everything. The board has handled; 
ll kinds of disputes, not only with reference to the application of 
he eight-hour law. We inherited the authority of the commission\ 
if eight, or had it extended, and then our authority was extended to} 
ake in all manner of disputes, discipline and all things like that. 
__M. Dewatr. Concretely expressed, what I want to know is this: 
das there been acquiescence by the four brotherhoods in the dancer 
if these boards, or has there been protests against them? 

_ Mr. Doax. J have not heard of any protests. 

| The Cuarrman. Would that be equally trie of the railroad ais 
fanizations that have been organized since Federal control? 

Mr. Doax. I have not heard of any protest against it at all, Mr. 
Jhairman. Oh, there might be an individual occurrence, where some 
ndividual would have something to say, but so far as any official 
rotest is concerned, I have not heard ‘of any, and there has not 
een any. 

The Cuairman. Of course, those organizations are so young, and 
he discipline and so on has been so new, I was wondering whether 
here was the read acquiescence on their part which characterizes 
hat of the four brotherhoods? 

Mr. Doak. Yes; there has been, from the best I can learn. Of 
‘ourse, some one else, or some other officer, possibly, could answer 
‘hat better than I can, being myself a member of the board. I 
jaturally would not hear of any criticism as quickly as the fellow 
jut in the field, because I have been in Washington now constantly . 
|or three years and I get out very seldom, and have not had an 
/pportunity to hear, but the officers tell me, that generally speaking 
1ere is no complaint. 






3816 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


The Cuairman. There is no constitutional doubt in your mind as: 
to the power of Congress to enact legislation for the creation of 
these boards, in view of the decision of the Supreme Court on the 
Adamson Act, that Congress has power to fix wages of employees’ 
engaged in interstate commerce. | 

Mr. Doar. No; any doubt I would have had along certain linés 
was cleared up by that decision. ee | 

The Cruatmman. I assumed that from what you said before. So 
that there would be no question as to certain employees of a certain 
class, or the employees on a given road, being beyond the pale of 
the operation. of this plan if it became a law? . 

Mr. Doax. You see, this was my thought, and I thought I made it 
plain, Mr. Chairman. I would not provide any details, but would 
have in the bill only a declaration in favor of the creation of such 
boards. 

The Cuarrman. You would have to provide as to when and how 
they should be appointed. 

Mr. Doax. Yes, sir. You could do that, but never give the Presi- 
dent of the United States authority to appoint this board. Remove 
it absolutely from the pale of politics. Remove it; and I say this 
kindly to you gentlemen, because there is not a living man who has 
any higher regard for the Members of Congress and the Congress 
of the United States than I have as to your integrity and honesty, 
remove, it from the pale of Congress, because each time one of you 
gentlemen had a constituent who would get an adverse decision, he 
would almost demand of you a congressional investigation, and im 
the final analysis that would destroy the real effectiveness of the 
board itself; and, inasmuch as you suggested or requested that I 
give you something on that, Mr. Chairman, I would be very glad to 
set forth my views as to a section of any bill, whatever bill you adopt 
covering this, setting forth minutely my views as to how it should 
go into the bill, because I will say to you that you will have to be 
very careful about how it is worded if you adopt this plan. You 
had better not adopt anything at all and let the old Newlands Act 
remain in effect than not to properly word this section if you are 
going into it. at 

The Cuarrman. I invited you to do that very fully. | 

Mr. Doax. Yes; and I am quite sure, Mr. Chairman,.that you 
and the members of the committee would not put out anything that 
was not all right. I did not mean to say that you would go into any- 
thing without giving it careful thought. 

The Cyairman. I am sure this committee is not acting alon 
partisan lines, and we are seeking to frame such a bill as we hope 
will be effective and meet a very grave situation; and we invite, 
therefore, the widest expression of views. Yo & 

SE or-the repeal-of the Newlands Act? a 

r. Doax. I do not think I would. 
The CuarrmMan. Because of the possibility that-it-might-be used? ! 
Mr. Doar. Yes; it Might be necessary-to-use it,-because I_am bas- 







: 


words, appointed-mediators.—. 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. B17 


“I have not had occasion to meet one of them. I know several of 
them, but I have not had occasion in any way to be connected with 
their duties, and consequently I do not know just what they do, but 
{ know that they have created a board for a certain number of 
mediators to go around and-settle certain disputes. For instance, I 
will give you an example. The Louisville & Nashville Railroad for 
2 number of years has not been organized in certain classes. 
| Mr. Srus. In labor unions? 

Mr. Doax. The labor organizations have not existed on that road 
nm certain classes. After Government control and General Order 
No. 8 came out they guaranteed that there should be no discrimina- 
On against a man because of his membership or nonmembership in 
1 labor organization. Most of the classes were organized on that 
‘ine, but having no schedule or agreement with the road it was neces- | 
sary for them to negotiate a schedule. I understand in such cases 
‘hey have used these mediators. We have not assumed authority 
vhich has not been given us for a schedule revision, you understand, 
»ecause we were only applying schedule rules and adjusting the dis- 
yutes arising under revision. The board of wage and working con- 
‘tions have handled wages and conditions, and they have made 
“ecommendations to the director general to bring out those facts. 
4 would be true, I think, probably that it would be necessary to 
lave some form of board of mediation and conciliation. I do not 
mow that it is necessary, but then, again, there might be a condi- 
ion under voluntarily created boards where certain of the roads 
vould not want to come in—just a few, small roads. I think there 
‘aay be a very few which would not come in. 
| Mr. Dewar. On page 23 Mr. Wheeler’s statement in reference 
0 section 8 sets forth this: 
| The conference favors the adjustment of wages, hours of labor and other 
enditions of service of railroad employees by boards, ete. 
| Admitting for the purposes of the case that is the proper thing to 
| 0, you have stated that you still believe that the Newlands Act and 
he boards of mediation created thereunder should still be vested 
|7ith the powers they now have. You spoke of section 8. In my 
|adgment, at least, it might be faulty, this section would in a large 
jieasure take a portion of the province of these mediation boards 
jreated under the Newlands Act. Therefore, if we adopt this plan 
Te have two boards with concurrent jurisdiction. Do you not think 
vat it would be the part of wisdom, at least, if we adopt this sys- 
mm as proposed by the National Transportation Conference to so 
{mend and revise the Newlands Act or repeal the same in so far as 
} would in any way conflict with this plan or to so revise this plan 
§ to conform with the present province of the Newlands Act? 

Mr. Doak. I think you would have to have a declaration, quite \ 
robably; but so far as conflict of jurisdiction is concerned they are \ 
joth in existence to-day. The Newlands Act is in existence to-day / 
jad the boards are in existence to-day. f 
Mr. Dewatr. They do not seem to conflict at all ? 

Mr. Doax. No; not in the least, because when the Newlands ja 
‘finally analyzed, Mr. Dewalt, you find it is purely a voluntary sys- 
m after all. Either party can request their good offices.or they \ 


Soe 











318 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


can themselves offer their good offices, which can be accepted or re- 
jected. You do not have to accept them. I have worked under 
that act. 

Mr. Dewar. In other words, briefly stated, you think that they 
might both exist without conflict ? 

Mr. Doak. Yes, sir; I do. 

Mr. Dewa tt. Simply some slight revision of both ? 

7Myr. Doak. Yes, sir. They both exist very well. 

Mr. Sms. I think in justice to yourself I should say that you haye 
made a very luminous statement and it will be helpful to the com: 
mittee. 

I do not want you to come to the conclusion in advance that while 
the questions are critical they are intended to be antagonistic to the 
general plan which you have mapped up. Now, the wages of em- 
ployees and the salaries of operating officials are all chargeable as 
expenses of operation. Is not that true in practice? 

Mr. Doak. Yes, sir. 

Mr. Stus. Now, what difference does it make to thowe receiving 
dividends or interest whether wages double or stay where they are. 
provided that the rates must be increased sufficiently to pay those 
wages and salaries and still have enough left that can be devoted te 
the payment of interest and dividends, which shall not be less than ¢ 
per cent of the property investment. Does not that necessarily re- 
move all conflict between the two beneficiaries when they can both 
by operation of law get what they want and have it charged up to the 
freight payer and the passenger payer without any effect upon the 
compensation which the other is to receive? 

Mr. Doak. That same thing can be charged against Governmen 
control at this time, but we find it a little different from what you 
think. Whenever you go up to get some increase in pay under the 
Railroad Administration we find some gentlemen over there wh 
have always thought that there was a limit to which you could ge 
on the wage question. We have found them there representing thi 
Government who are fighting just as hard as they fought before 
I hope you do not misunderstand the conference’s s position. They 
intend, instead of having some man that they can pass this up to t 
finally pass on it, that this wage board, the board of railroad wage 
and working conditions, when created will consist of an equal num 
ber of men as now, and their decision shall be final except im cast 
of a deadlock, when some referee will be provided. That is a littl 
different from what it is now. I will say this frankly, if you ean 
not take the judgment of. six or eight practical men coming from 

| both sides, who know the business, to equitably adjust wages in thik 
‘country I fear any appeal to the Interstate Commerce Commissior 
iS any other body that does not know anything about it. Now 
Judge Sims, I am not committed to the conference plan on thes 
other things. 

Mr. Sits, I did not indevaticald that you were. You have suid 
that you were in favor of the settlenient of disputes? 

Mr. Doax. Yes, sir. I do say that these gentlemen have giver 
very careful consideration to that feature of it. I am to a certelt 
extent in favor of the action of the conference. They asked me &€ 
come here and to present it to you, which I have. I think some 01 
your fears probably are not well founded. 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 319 


Mr: Sims. I certainly hope so. 

_ Mr. Doax. I will say, Judge Sims, that sometimes we may think 
as partisans that there is a fellow on the other side of the table 
who if he had his hand in Uncle Sam’s Treasury would take all of his 
money. I have found some of them as representatives of Uncle 
Sam—for instance, the Federal managers—who have been just as 
elose on this question of wages, and who have put up as good an 
argument as they ever put up for a corporation. I think that will 
continue. It is their schooling and their environment. I do not 
believe there is any necessity in the world to fear. On the contrary, 
[ think you can strike a happy medium here by which all of these 
things can be ironed out. You know how hard it has been for cer- 
tain railroads to exist—some little fellows who were not so for- 
tunately situated as the others. You know the great charge that 
has been made against other railroads; how much watered stock 
they had, and everything of that kind. We have all heard the story 
svery time the employees have asked for an increase of wage, “ There 
is nothing here,” and you have heard the employees come back and 
say, “ You have watered stock and you are manipulating things 
aere and there.” Any of these plans, I am satisfied, when you get 
through will iron out a lot of things. 

Now, as to the financial end of it, I am not so sure, but I think that’ 
inally we are going to wind up with Government ownership, and 
[think it would be just as well to take that step, gentlemen, while you 
we at it. Instead of taking half a step, take the whole step. I un- 
lerstand that you have a terrible task in trying to solve these things. 
What is the best thing to do in a financial way? You realize and we 
ul realize that the American railroads can not go on in the chaotic 
condition they were just prior to Government control. There must 
ye something done. I have tried to make a study of the labor end of 
t, because we have had trouble and trouble and so much publicity 
ind notoriety about this thing. There have been charges and counter- 
sharges against the employees and vice versa on this labor question, 
ind if I could contribute anything at all toward the solution of this 
ye phase of it, the labor situation, any effort that I might in the 
yast or in the future be able to put forth individually, I would be 
unply repaid if we could reach a solution. I have devoted my time 
0 that feature of it, and I do think you would probably get good 
esults. These men you might think offhand that they would not 
lo anything. I think they would conserve the public money and 
hat they would conserve the interests of the people as rapidly as 
my other business men or labor men in the country if they were put 
nm these boards. 

Mr. Srus. I think, as I say, that your plan has proved wonderfully 
uecessful, but if you follow the conference plan you must have a 
ertain sum of money. You have taken away the discretion, so far 
S what is a reasonable rate for the man who pays the freight. 

_ Mr. Doak. I think it would be worth your while, Judge Sims, to 
tudy the provisions very carefully. I think it will have a wonderful 
flect in stabilizing rates in this country. 

Mr. Sims. I have been talking about the interest of those who 
eceive interest and dividends and wages and salaries. Here is the 
|uestion: We want to increase wages and increase the compensation 








320 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


of those who receive salaries, and the supply men and the materia] 
men will have to charge higher, because they have to pay more, and 
they will bring in the labor representatives and the representatives 
of the bondholders and stockholders and they will say, “ Look here, 
the Interstate Commerce Commission will only give us reasonable 
rates, and with the rates which they give us it will be impossible for 
us to pay the compensation and wages which we have been paying 
and to pay the dividends which we have been paying, so We are going 
to shade dividends and shade wages in order to not exceed the reve- 
nues which arise from the rates that are reasonable as determined by 
the Interstate Commerce Commission. That is all we can collect and 
all we have with which to pay.” Therefore no rate will be a reason- 
able rate that will not provide the results asked for by these different 
bodies. 

Mr. Doax. If the Interstate Commerce Commission has done any- 
thing to stabilize wages since its existence, I do not know it. 

Mr. Sirus. I am not talking about stabilizing wages. I am talking 
about the conflict of interest of those who share the returns, I want to 
see what the effect will be. There used to bea great controversy in 
this country about whether the foreigner paid the tariff or the con- 
sumer in this country. When it was thought that the foreigner paid 
it everybody was in favor of a high tariff, but when the consumer 
paid it they did not want the tariff so high. 

Mr. Doak. Here is what has happened: I will say this with refer- 
ence to the commission; it rarely has had anything to do with it 
You have given the Railroad Administration operating the railroads 
now a rate that is possibly 25 per cent, it may go higher, it may go to 
50 per cent, I do not think it would go over 25 per cent, while every- 
thing that the Railroad Administration has had to buy has gone from 
100 to 500 per cent. 

Mr. Sims. I do not mean to criticize the Railroad Administration 
for increasing the rates 25 per cent. 

Mr. Doax. I understand. For instance, I heard the other day 
about some fellow out in Butte, Mont., who wanted 15 or 20 cents a 
package for needles. They could be bought here for 5 or 10 cents, 
Somebody said, “I can get them in Chicago for 5 or 10 cents, why lo 
you want 15 or 20 cents,” and the reply was, “ We have had an ir 
crease in freight rates.” You can imagine what rate they would have 
to pay on a package of needles from Chicago to Butte, Mont. | 

Mr. Sims. I think personally that the best solution would be for 
Government control to continue until conditions become normal, but 
that is not the decree of the public, the owners must have the rail 
roads as quickly as possible, but the rate-making power must remaim 
in the Government, where it is, and there can not only be an increase 
of 25 per cent, that is only a shadow of what it will be. | : 

Mr. Doax. Those same gentlemen when they go down here to buy 
a piece of beefsteak they have no hesitancy in paying 50 or 60 cents 
a pound. They lose sight of the fact that they only got 15 or 20 oF 
25 cents a pound a few years ago. That is the unfairness. In my 
opinion the American people are trying to approach this railroad 
situation from the most broad and liberal standpoint, and not froma 
selfish individual standpoint. | 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 821 


| Mr. Srus. I do not think it will be possible for the railroads, after 
they go into private ownership after the 1st of January, to make the 
teturns they now receive. I do not see how they can possibly live 
without reducing wages and compensation. 

_ Mr. Doax. I fear the result whenever you do that. 

_ Mr. Srus. Or cut down the 25 per cent increase and not grant any 
further increase. 

| Mr. Doax. I fear the result whenever you cut wages. 

Mr. Srus. That we may also view with alarm? 

Mr. Doax. Yes; if you do not first bring down the cost of living. 
Uhe increased freight rates are not responsible for any increase in 
he cost of living. | 
_ Mr. Sms. Not at all. I think you are exactly right. I do not see 
iow they can work for any less. 

_ Mr. Doax. I know people. who are just existing even under the 
‘igh wages being paid. I frankly say that I do not believe anybody 
an live—that is, any man can maintain a family—on less than $150 
, month. 

_ Mr. Srus. The railroad owners are exceedingly anxious that the 
xovernment shall further increase the rates while it is responsible 
o that the increased rates will be in force when private control 
akes place. If the Government does that and immediately turns the 
ailroads over with the increased rates, I should like to see any Mem- 
er of Congress get back who votes for such a law. 

| Mr. Doax. That is true. I did not think anybody realizes that 
aore that the Director General of Railroads. 

| Mr. Merrrrr. In the last five years how many general arbitrations 

flecting generally the compensation to the four brotherhoods have 
aere been 4 

Mr. Doax. I do not know that I could give that exactly. The 
‘eneral arbitrations were the engineers of the East, the firemen in 
ie Hast, the firemen and engineers in the West, and the conductors 
jnd trainmen in the East, two cases, I think. No; in five years only 
/ae conductors and trainmen case in the East. I think that is all 
ie general cases of arbitration there have been. 
| Mr. Merrirv. In those cases to what extent have the demands of the 
nployees been met ? 
Mr. Doax. They have not gotten anything like they asked. It is 
tetty hard to say just what they have secured, how it compares, 
»eause they have asked for certain rates in certain classes, and the 
reentage of increase would vary. In most of those cases they have 
)me out on a flat increase under the arbitration award, some of 
}em would be much nearer what they asked for and others would be 
| rther away, because they asked for different rates not predicated 
\1 a flat percentage increase, and they came out of the arbitration 
‘ith a flat percentage increase. | 
Me Mrrritr. Has the theory been to differentiate between the 
: ill required to do certain things? 

Mr. Doax. Yes, sir; there has always been certain accepted differen- 
us between a trainman and a conductor and between an engineer 
id a fireman. There are some differentials that have been recog- 
zed as existing. The tendency used to be to say that a certain 


152894—19—-vor 1——21 



















329 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. - 


percentage of the firemen’s wage would be a certain percentage of ar 
engineer’s wage—say, 50 per cent or 60 per cent—but as wages in; 
creased that plan of differential would be widened at the top, anc 
consequently they had to even up to the percentage and try to kee; 
about the same money difference, and then, whenever you do ti 
apply the flat percentage arbitration award to the fellow who i; 

etting $2 he would get less than the men above, the fellow gettin: 
$4. and we had to get away from it, but in most of these cases wi 
have come out with a flat percentage, which did not settle anything 
instead of money increases. 

Mr. Merritt. They did not settle anything? 

Mr. Doak. No; because it only widened the differential between thi 
classes and gave to the fellow who: had money the larger increas 
and to the fellow who received a smaller wage a small increase, whicl 
did not satisfy those people. 

Mr. Merrirr. Do you finally come down to the theory, in you 
mind, that there is a certain minimum wage that a man must hays 
because he needs it, and then take that basis and figure out the wag 
for everybody ? 

Mr. Doax. I have come to that conclusion, especially since the war 

Mr. Mererrr. In the railroad business can’t you make a differen 
tiation between manpower in certain classes ? ‘ 

Mr. Doax. The only way you can differentiate is, to use a cont 
mon railroad expression, “Tie a can to the bad one.” 

Mr. Merrirr. Let him go? 

Mr. Doak. Yes, sir; that is what they do. Bear in mind that th 
discipline on a railroad is different from what it is in any other m 
dustry. They have discipline that is enforced. First of all, yot 
have to be physically perfect to enter the service, and you have « 
remain in that condition in many respects to remain in the service 
for the least little infraction of the rules they are suspended or dis 
missed from the service, and an accumulation of suspensions or dé 
merit marks against you means dismissal. : 

Mr. Merritt. Various organizations have objected to that system! 

Mr. Doax. We believe in reasonable discipline and insist on it be 
ing maintained. 

Mr. Merrirr. You have used the word “stabilize ” in connectidi 
with this board, by which you mean, I suppose, that it takes the dis 
putes under consideration, It does not prevent the men from asking 
for an advance later? The stabilization of wages that you speak 0 
simply means that the disputes have been under consideration ? 

Mr. Doak. Yes, sir. | 

Mr. Merrirr. It does not prevent the men from perhaps at one 
askine for another increase? ae 

_ Mr. Doar. No; it does not. In the question of wages we want & 
dNferentiate between the adjustment of wage disputes and other dis 
putes. Wage-disputes are comparatively few-as.compared with thi 

ver classes of disputes. For instance, you might adjust the wae 


~ 


of a certain-class-and that would go on for four or five years befor 


ee 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 323 


fed out would be a continuation of the present, plan under Gov- 
rmment control, and they would have a wage board and the wage 
yard would always be studying the question of wages and making 
djustments or adjusting any inequalities that might exist from 
ime to time, whereas, under the old system you would wait until 
‘ou had a real live controversy and go out and make a poll of the 
ountry as we did in 1916 over the eight-hour law, and have every- 
“ody alarmed that some morning they would wake up and not have 
ny milk. The trouble has been that we have had too much pub- 
icity. The people have been unduly alarmed over these things. 
Jur proposition was not as serious as people thought it was. 

Mr. Merrirr. It was true at that time that if the demand of the 
rganization had not been met the people would have awakened to 
nd that they did not have any milk? 

'Mr. Doax. On September 4, 1916, they would, but they would have 
‘ad a supply by noon. It would not have lasted more than three or 
our hours. It was just a question of who was bluffing. We had a/ 
ractical demonstration in January, 1917, when the men on the Balti-’ 
10re & Ohio from New York to St. Louis walked out and where the 
oad was tied up. It was a question of who was bluffing. It would 
ave been called off inside of four hours. It would not have been so 
ious. You might not have had milk for breakfast, but by noon 
ou would have been over your suspense. 

Mr. Merrrrr. I read a short while ago a circular sent out by the 
‘merican Federation of Labor, in which in the opinion of the gen- 
eman who signed the circular, there was no law of supply and 
‘mand which could not, so far as labor was concerned, be set aside 
y legislation. Do you remember a circular like that? 

Mr. Doak. No. 

‘Mr. Merrrrv. Is that your view of the political economic law on 
iat question ? 

Mr. Doax. That is very broad and you would not expect me to 
iswer that in less than half a day. The country has been in such 
‘condition ever since before we entered the war that it is very hard 

' determine what was the best thing to do. Naturally, being a 
ember of the committee that fixed the price in 1917 of the wheat 
‘op, some of the others who are not here said that after the cussing 
e got from it we better let the law of supply and demand go ahead. 

Mr. Merrirr. That is your view now? 

“Mr. Doax. That was their experience. 

Mr. Mererrr. I think so, too. 

Mr. Doax. However, I have no criticism to make of anybody, be- 
use it did really look like it was necessary for something to be done 
ong that line. While we reduced the price of wheat and the price 
a barrel of flour I never got any of the cheap bread, so I do not 
|.0ow just how it worked out finally to the ultimate consumer. 
}1at would be a question all the way down the line, whether the 
|W of supply and demand would better take care of things in an 
yiergency. In ordinary times the law of supply and demand, in 
7 Opinion, is the proper method. 

}Mr. Merrirr. I appreciate that is true. I only asked the ques- 
\m because I wanted to ascertain if you thought, representing the 
jZanization you do, or any other, that wages can by mediation 









324 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


or arbitration or in any other way be put up indefinitely without 
regard to the varying economic situation ? 

Mr. Doax. I do not think that I could make a positive statement 

- that such is the case, not knowing of experience, because wages have 
ten been for our classes anything like as high as they shou!< haye 
een. 

Mr. Merrirr. Of course you are speaking from a somewhat preju- 
dicial viewpoint ? 

Mr. Doax. Not at all; from the broadest viewpoint. When you 
take into consideration that the industrial life of a man is 11 years 
and he has to put away some money if he expects to take care of those 
dependent upon him after the expiration of the 11 years, and any man 
could figure out how much a man could lay up in 1917 and 1918 work- 
ing for $2.67 a day when he only had 11 years to engage in the oceu- 
pation. 

Mr. Merrirr. How do you figure out the average of $2.67—what 
class of men ? 

' Mr. Doak. The trainmen for the whole eastern territory; a large 
percentage of all the railroad men engaged in the business in the 
eastern territory. 

Mr. Merritt. Two dollars and sixty-seven cents a day? 

Mr. Doak. That was the rate up to June 1, 1918, from 1913. 

Mr. Merritt. The arbitration was retroactive, was it not? 

Mr. Doak. The order of the Railroad Administration was retroac- 

tive to January 1, 1918. 

Mr. Mrrairt. To what point does that bring the average now 4 

Mr. Doax. As you understand, the Lane commission plan would 
give the larger percentage to the men receiving the smaller wages, 
and as wages increased, taking 1915 as the basis, the percentage of 
increase would drop down for the country as.a whole. The brakemen 
drew 89.5 per cent increase. ? : 

The CuarrmMan. The base pay, exclusive of overtime? : 

Mr. Doak. That was the rate of pay, exclusive of overtime. Sd 
many of these runs in the eastern territory are short, they are 10( 
miles or less, and censequently that was the basis of pay on these short 
runs in this territory. They have not the longer mileage runs as con 
pared with the West and South. «| 

Mr. Merrrrr. Would that mean that this average of $2.67, so fat 
as trainmen are concerned, would be increased 49 per cent ? : 

Mr. Doax. Thirty-nine and one-half per cent increase they re 
ceived, whereas the engineers in the passenger service, I think, re 
ceived 11 per cent increase. 

Mr. Swerr. How many unfinished cases have you before the board 

at the present time? 
—— Mr. Doax. Foxhundred-and-sixty-nine yesterday. { 
Mr. Sweet. Are there any cases in which you are in deadlock now! 

Mr. Doax. No, sir. They have come in so fast that we could nol 
get the work off. We were stopped_in October-on-aceount of the 
epidemic;_we had to suspend hearings. 

Mr. Sweer. In any of the cases which you have determined in the 
past did you call in the referee? 
te Doan. No, sir; none. 













| 
} 


| Mr. Sweer. Are there any cases In which you contemplate calling 
inthe referee now ? ial 
| 


f RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 3825 
/ Mr. Doax. Not so far as I can see. I do not think.that any worse) 
ones can come up in the future than in the past. 

) Mr. Sweet. The chances are, so far as the board is concerned, and 
as it is now constituted, it will not be necessary to call in the referee? 
. Mr. Doax. It does not look so. We have not had to do it, and 
there is no indication. 

Mr. Sweet. The board has been working very harmoniously and 
‘has obtained, as you view it, proper results? . 

Mr. Doax. Yes, sir. That is, at least we have settled. We have 
sertainly a method of adjusting, and I think it has been generally 
very satisfactory. 

Mr. Sweet. They have been settled satisfactorily to the board and 
‘your decisions have been practically unanimous? 
| Mr. Doak. Yes, sir; they have. You will find each of the decisions 
with our initials on them. 

The Cuatrman. And binding? 

Mr. Doax. Yes, sir. As a matter of fact, some minor details in } 
some of them have not been agreed to, but we have signed the deci-\ 
slons, and, so far as everything goes, they are unanimous. 

H Mr. Denison. The chairman has asked you to submit a draft of a 
roposal as to your best judgment as to what the legislation should 
ye on this question of settling wage disputes. Speaking for myself, 
_am very much in hopes that you can submit something that will 
jneet the situation. Upon that question I want to ask if you do not 
hink the referee ought to be three persons rather than one? ‘ 
| Mr. Doax. I do not know. 
| Mr. Drentson. I am thinking of that question, because I know the 
|lifficulty—that is, the impossibility—of any one person, whoever he 
jnay be, to deindividualize himself, and therefore in matters of such 
) reat importance the judgment of a majority would be more satisfac- 
Ory than the judgment of one. Three can be arranged for just as 
asily. 
| Mr. Doax. You may be right. I would not go over three. You) 
| ppreciate the danger of going over that number. 

Mr. Dension. In my opinion I think we ought to avoid having 
‘hese things left to the individual judgment of one man. 
| Mr. Doar. Yes, sir. 
| Mr. Dentso -_ Your idea is that the members of this board should 
|e selected by the interests that are concerned ? | 

Mr. Doax. Yes, sir. 

Mr. Denison. You think,-too, thatthe referees should be selected 
y the board ? 
| Mr. Doax. No; not by the board. These gentlemen of the national 
ramsportation conference provide forthe transportation board in 
jieir plan. I presume*you gentlemen are familiar with their plan. 
‘hey have the transportation board, and in that case they suggest 
iat board. If there were to be created a board along the lines of any 
f the boards which have been suggested, you would have a board 
| hich could just as well act as referee in these cases, just as the 
rector general is doing now. 

The Cuatrman,. The transportation board is to have five members. 
ou think that is too large? 

Mr. Doax. Well, probably in this case you could go ahead; they 
yuld have an understanding, or you could take three of the members 











326 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


of the board. «I have not given so much thought to the referee im 
that case, because, knowing as I do, there will not be much business 
for the referee, holding that that is rather of minor importance. 

Mr. Denison. That is the reason that I directed the question to you, 
I know that you are submitting a plan. I agree with you that this 
board should not be appointed by the President and should be inde- 
pendent of Congress. I was wondering if it would not be better to 
have the referee selected in some other way ? 

Mr. Doax. Why not let the parties to the agreement that create 

e board also select the referee? 

Mr. Denison. That would be all right. 

The Crarrman. If the board of referees consists of three, you still 
have one who must be selected ? 

Mr. Doax. Yes; I appreciate your point of view, and the point is, 
who would select that man? ; 

The CuHarrMAn. Yes, sir. 

Mr. Sanvers of Indiana. Why not have each party select two and 
those two select the referee ? 

Mr. Doax. That is usually the case, and in arbitration cases they 
do that. 

Mr. Denison. I further agree that they should be permanent or as 

near permanent as you can make them. The board of which you are 
a member is considering the settlement of labor disputes, but that did 
not include any settlement of schedules in any way? 
* Mr. Doax. That is making a new schedule, something we have not 
done during the war, for the reason, as you probably know, that we 
went to the President early in the game and we asked him not to inter- 
fere with any of the schedule ratings, and they have carried that 
out since that time, and there have only been a few slight modifications 
in the order, something to make the order effective with certain in 
creases which would necessarily affect certain ratings which would 
be modified. Only to that extent have we had any general restoration 
of the ratings. There is a tendency on the part of employees gen- 
erally and several craft have already worked out what they call 
standard compensation schedules. They have the same rating in 
their schedule over the United States. There might be something 
of that kind come up. If the present system passes out of existence 
it would be just as well to let Board No. 1 be used for the four trans- 
portation brotherhoods and Board No. 2 for the shopmen or general 
lines. If it is to continue, let them settle those cases and then enlarge 
a little bit their jurisdiction, but that can be taken care of in the 
agreement. 

Mr. Denison. The adjustment board under the changed plan would 
have rather enlarged jurisdiction over the present board ? 

Mr. Doak. Yes, sir; I presume there would have to be some en- 
largement. 

Mr. Denison. Do you-think that-it-is-practical-and—wise that the 
public should be represented ? 

Mr. Doak. No; I do not think they should be. 

Mr. Denison. They are interested ? 

Mr. Doar. After_all these men are public_representatives. When 
they go on the board they are public representatives and they cease 


—— 





RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 327 


0 be partisans. I mean if they are going to make a success. That! 
s one thing that occurs to you when you go on the board. You cease! 


Mr. Denison. There is just one more question. You have spoken 
very clearly of your idea of attempting to use force in settling differ- 
mces between employers and employees. Did not the Adamson law 
iolate that rule? 

_ Mr. Doak. I think I prefaced my remark with the statement that 
‘he Adamson law did not settle anything. 

_ Mr. Denison. I know. I am asking you whether that is not your 
yreneral impression. 

' Mr. Doax. No. Here is what happened. We were in New York. 
‘Ve had reached a point where apparently we could not go any fur- 
‘her. As anyone who has ever acted as an officer in one of these or- 
ranizations or sat on the other side of the manager’s table knows, 
rou get to the point where you say that you can not go any further, 
ut you do not know where you are. We got to that point. We had 
he board of mediation and conciliation, and when we said that we 
ould not go any further, that we could not afford to accept arbitra- 
jon under those circumstances and we served notice on the board of 

nediation and conciliation, as I remember, Judge Knapp pulled a 

elegram out of his pocket from the President of the United States 

emanding that before we took any steps that we come to see him. 
None of us wanted to be discourteous to the President of the United 
jtates and none of us particularly wanted to make the trip to Wash- 
ington. However, we came down and Mr. Wilson said, “I called 

‘ou down here because I am not going to have any trouble here if I 
‘an help it.” He said, “In my judgment, the eight-hour law has sufli- 

ient sanction for me to act. I think it is right. The reason I say that 

3 that nearly every State has by law recognized the principle of the 

asic eight-hour day. It has been recognized in various industries. 

Jn account of your complicated schedules, and so forth, I suggest 
j|hat you drop this time and half-time question and let us investi- 
j'ate.” None of us knew what his decision would be. Everybody was 
‘alled up. A committee came first. It was put up to the committee 
\nd the President’s proposition was accepted by the employees. 

Mr. Dentson. That was applying force to the employers? 

Mr. Doax. It was to.our employers. I do not know whether they 
| eclined or not, but they kept on fooling around until Sunday. The 
‘resident extended our time from time to time as to when he was 
oing to release us. That kept on, I think, until about Saturday 
ight. There are some who might call that force. 

Mr. Dentson. What I want to get at clearly—I was one of the men 
‘ho voted for that law. I voted for it because it seemed to me it 
vas the only thing that could be done at that time. 

) Mr. Doax. Yes, sir. 















328 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Denison. I am simply following your statement to the effec: 
that you thought it was wrong fundamentally to force men to agre¢ 
upon these questions by law. Do you think that that principle ap. 
plies to both sides to disputes, employers as well as employees ? 

Mr. Doar. The point that I was trying to make was this: In th, 
final analysis under our system of government and under the Consti: 
tution we guarantee to every man certain rights. One of those right: 
is that a man can work if he wants to; and, if he does not, he does not 
have to work for a certain employer. If you pass a law in the form 
of compulsory arbitration or investigation, it could very easily be 
evaded. You can not inflict any punishment upon the individual 
and my own idea is that you could not punish a dozen individuals for 
the same thing any more than you could one individual; but in the 
final analysis if you had to resort to individual action, then you would 
lose control over the class as a whole, and then you would have a 
mob against an organized, orderly strike. There is some difference. 
We had a practical demonstration in Canada recently of a mob as 
against organized labor. I have heard men say, “ The minute Con- 
gress passes a compulsory arbitration act I will quit.” 

Mr. Dentson. I have applied that alike to employer and employee, 
and I wonder if you agree with me? 

Mr. Doax. I know you have in mind a lockout. 

Mr. Drntson. No; I have not. 

Mr. Doax. Lockouts are impossible. There is no use for you gen- 
tlemen at the present time putting any language in any law providing 
against lockouts. The railroads can not stop operating. They can 
not lock their men out, because the charter under which they are exist- 
ing compels them to operate. That part of it is nothing. 

Mr. Denison. I did not have that in mind. 

The Cuairman. I want to state to the gentlemen that the commit- 
tee is under great obligations to the members of the conference for 
the valuable exposition of their views. They have shown a great deal 
o ability and have taken a great deal of trouble in laying before us 
their plan. 

The committee will now take a recess in regard to this matter until 
Tuesday at 10 o’clock a. m. | mh 

(Whereupon the committee took a recess until Tuesday, July 29, 
1919, at 10 o’clock a. m.) 


PART 3. 
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


COMMITTEE ON INTERSTATE AND ForeIGN CoMMERCE, 
House or REpRESENTATIVES, 
Tuesday, July 29, 1919. 
The committee met at 10 o’clock a. m., Hon. John J. Esch (chair- 
ian) presiding. 


Se ee ae eee ~~ ee ee ee ee 





STATEMENT OF MR. NATHAN L. AMSTER, BOSTON, MASS. 


The Cuarrman. The committee this morning will be pleased to 
ear Mr. Nathan L. Amster, president of the Investors’ Protective 
-ssociation, of Boston. 

Mr. Amster, give your name and address. 

‘Mr. Amster. Nathan L. Amster, 67 Milk Street, Boston, Mass., 
‘presenting the Citizens National Railway League. | 
Mr. Chairman, I have had but a very short time within which to 
| repare the statement I desire to make before you, but I think I 
jaye succeeded in outlining my views on the situation. I would like 
) have the first five pages entered in the record without my reading 
lem, because I do not wish to burden you with a recitation of 
ngs which you have probably heard before but which I feel, 
ever are relevant; therefore I will read, commencing with page 
| of this statement, which I will leave here for the record. 

| When your committee held hearings some 18 months ago in con- 
etion with the framing of the Federal control bill practically 
ery interest connected with the management and financing of 
\r railroads urged upon you that the bill should provide that the 
Overnment relinquish the roads immediately upon termination of 
jar, while I appeared and urged you to use your efforts to have 
e control bill so framed that the Government would retain the 
ads for at least two years after the close of the war, so that Con- 
‘ess might have ample time to enact necessary railroad legislation 
safeguard the public and the security holders. 

That Congress acted wisely in providing in that bill that the 
ilroads should remain in the control of the Government 21 months 
\ter the close of the war is evidenced by the fact that since the 
|mistice was signed ceaseless efforts have been made to mold public 
imion in favor of having the Government relinquish control of 
e railroads at once. This would mean plunging at least half of 
\¢ railroads into the bankruptcy courts, yet the people who claim 
represent. the interests of the security holders are using every 
| ort to force the relinquishment of the railroads by the Govern- 
: ae of the known disastrous consequences that are sure 
tollow. 

/}The interests who want the management of our railroads back in 
cir control are,.in my opinion, behind the movement to have the 
329 















830 - RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Government relinquish the roads and are responsible, in my opinior 
for the statements that have been put forth in the press and othei 
wise with a view to creating the false impression that the increase 
cost of operation and certain necessary discrepancies in servic 
during the war period were due entirely to Government control. 

Every thoughtful man knows that the increased operating co: 
is the increased cost of labor and supplies thé world over, brough 
about by war activities, and of currency inflation. | 

Anybody who has studied the Wage Commission’s report on rai 
road wages should know that an increase in railroad employee 
wages was inevitable, and should also know that, even with th 
recent increase, railroad labor is not receiving any higher wage 
than other labor similarly employed in other industries. 

Everyone who knows anything about the situation knows th? 
any discrepancy there might have been in railroad service since th 
Government took control was due to war conditions and not ¢t 
any laxity or lack of skill on the part of the railroad administr: 
tion. They know, too, that there has been no real change in th 
operating departments of the railroads during Government control 
that the same men who were the operating heads of the railroa¢ 
before Government control have been and are still in charge ¢ 
operation. 

These facts are generally known to the interests that are crit 
cising Government operation, but these interests wish to rouse publi 
sentiment against any kind of Government control and, in a wa) 
to have succeeded in making the unthinking public believe that 
would be in its interest to have the management and operation ¢ 
the railroads in the hands of their owners. 

Your committee by this time must have convinced itself that thet 
is no such thing as ownership management of the railroads in ti 
country. Every investigation of the Interstate Commerce Commi: 
sion has demonstrated that fact and, further, that the people wh 
were formerly in control of the railroads were mere outsiders an 
owned very little, if any, stock in the properties which they cot 
trolled and mastered. 

These people are now clamoring for the return of the railroat 
to private control—meaning their control—and if they succeed beta 
Congress has had time to enact laws to define the policy of futw 
control, operation, and rates, we will be certain to have a repetitio 
of the maladministration, exploitation, and of financial scanda’ 
which the Interstate Commerce Commission brought to light in 1 
investigation of the New Haven, the Boston & Maine, the Per 
Marquette, C., H. & D., Rock Island, and other roads. 

My own opinion is that the thinking public has come to a realizi 
tion that the railroads are too much a part of the Nation and of 1 
economic welfare to again be permitted to become the playthin 
of a handful of Wall Street financiers as in the past. In fact, t 
financiers themselves are now beginning to realize that the publ 
will never permit the return of the railroads to their control undé 
prewar conditions, and are therefore now advocating certain g0! 
ernmental restrictions and supervision, evidently feeling that 
would be better for them to regain control of the railroads with som 
governmental restriction than not to regain them at all. 


\ 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. Ser 


_ Accordingly these interests have presented plans, directly or in- 
irectly, which on their face appears to offer cures for all past ail- 
aents and to promise safeguards for the future, but on close investi- 
ation it becomes quite clear that none of these plans are anything 
aore than mere stop-gaps. None go far enough to eliminate the men- 
cing evils with which we are so familiar, nor do any of these pro- 
‘osed plans point a way to a definite and permanent solution of the 
ressing railroad problem for the future. 

Some of the plans presented to the United States Senate Commit- 
xe on Interstate Commerce propose Government supervision over 
ye issuing of securities. Some propose that the railroads of the 
puntry be divided into different zones, or consolidated into a limited 
umber of competitive companies. Some advocate establishing zone 
ates to yield 6 per cent on the aggregate book value of the railroads 
i certain given districts, and that the prosperous roads shall divide 
ieir earnings in excess of 6 per cent with the poorer roads in their 
istricts. Most of these plans tend to confuse and encumber the situ- 
non rather than to clarify it. Some of these plans appear to have 
2en proposed with the object of so complicating matters as to make 
ie owners of securities and the public feel that it would be better to 
t the roads go back to former control than it would be to accept 
xw, cumbersome and possibly unworkable propositions. 
|The railroads are sick and everybody knows it. Doctors from all 
ver the country, many of them quacks, have gathered around the 
atient. All diagnose the case a little differently. The old financial 
detors appear the most grave and the most perplexed over imagin- 
‘y complications and have offered as a cure such volumes of figures, 
atistics, and charts as to confuse and bewilder the average person. 
hese financial doctors talk of the railroad problem in terms beyond 
ie understanding of the average intelligent citizen in order to con- 
ise him, as did the Olympian oracles. As a matter of fact, the 
ilroad problem is quite simple. The railroads are merely suffer- 
g from rate starvation and from improper trusteeship. Congress 
ts the power and can correct both of those evils. 

In approaching the railroad problem from the most. practical 
ewpoint, three things must be borne in mind: 

(1) That railroads are naturally monopolistic and for that reason 
ust be under strict Government supervision. 

(2) That the railroads are the most democratically owned indus- 
y in America, barring none; that more than a third of our entire 
)pulation have more or less of their savings invested in the rail- 
ads, either in bonds or stocks, or by reason of owning life insurance 
licies and being depositors in savings banks. 

(3) That the railroading is the only industry that has every in- 
| Stry and every individual in the country for its client, and is the 
|mmon bond between every community and every citizen. 

| With these points properly understood, the railroad problem be- 
|mes simplified and easily solved. 

The three questions therefore to be considered are: 

|(1) How can this naturally monopolistic industry be so regulated 
| to safeguard the public against being tyranized by it, since the 
ty life of our commerce, our industry, and our social well-being 
pends so much upon it? 










532 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


(2) How shall we safeguard, and to what extent protect, the i 
vestment of more than 30,000,000 American citizens who have ir 
vested their savings in the securities of the railroads outright ¢ 
through life insurance companies and savings banks? 

(3) How can we make this naturally monopolistic transportatio 
system—the Nation’s arteries of commerce and society—proper! 
perform its function and carry the Nation’s business and commen¢ 
adequately, efficiently, and economically? : 

It is my opinion that if Congress will address itself to these thie 
fundamental questions, it will simplify its task and will easily soly 
the problem to the entire satisfaction of all concerned. 

I have had occasion to study the railroad problem for more tha 
five years in the capacity of a shipper, stockholder, and as an exect 
tive officer of one of our important Middle West railroads, and fe 
that I can speak authoritatively on the questions to be considered i 
solving the railroad problem. 

I am convinced that if Congress would give the Interstate Co 
merce Commission additional power to establish minimum as well? 
maximum rates, and the power to regulate service and to ordé 
needed extensions and improvements, the public would be amply prt 
tected and well served. 

If Congress would enact a law requiring that the valuation ¢ 
the railroads shall be based on: (a) original cost; (0) replacemer 
value; and (¢) the average yearly net income covering a period ¢ 
10 years capitalized at 5 per cent. am 

Having regard for this plan the investment of the more than 80 
000,000 direct and indirect owners of railroad securities would | 
well and honestly established and safeguarded. ‘St 

I believe that Congress should enact a law making it possible i 
all of the railroads so valued to consolidate into a single compa 
under a Federal charter, for corporate purposes, and providing #hit 
consolidated national railroad company shall issue its own stock, pia 
value $100, for every $100 of actual property value which the Vahi 
tion Commission may find the different railroads to represent, th 
stock to carry a limited income of 6 per cent. . 
- If Congress will decree that in the country this national railroa 
company shall be managed by a board of governors composed of & 
equal number of representatives of security holders, railroad em 
ployees, farmers, commerce, and the Government, the country Wi 
have the most honestly managed and most efficient and economiett 
transportation system in the world. i 

I believe I have covered the vital points at issue, and if the prol 
lem is dealt with in the manner above outlined I am convinced 
policy could be worked out in the interests of the country, the en 
ployees, the shippers, and the security holders which would revivil 
the $20,000,000,000 or more of America’s most important investmél 
values, which rehabilitation is absolutely necessary in the interest ¢ 
the country. | 

I believe that the time has come for us to consider the fundaments 
points and details of any suggested legislation. Everyone sett! 
to agree that there must be consolidations, under strict Governmel 
supervision, of weak and strong railroads, in order to make a soun 
rate policy possible. | 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. aoe 


This committee is so familiar with that phase of the question that 
need say nothing further on it. 

‘The only question that remains is whether the consolidation should 
sult in 18 or 19 roads created under an effort to produce artificial 
mmpetition, or in one privately owned and operated unified system, 
ader strict control and supervision of the Government. I firmly 
sieve in the latter. No one denies the advantages of unified opera- 
on, both in times of war and peace. Many, however, are inclined 
| fear the overcentralization of one system and the defects of service 
ie to lack of competition. I feel that these objections can be readily 
| 

By having a representative board of governors, as I have sug- 
sted, the dangers of overcentralization can be met. I would sug- 
ist that the board of governors be 9 or 11 in number and be selected 
‘follows: One from the members of the Interstate Commerce Com- 
‘ission by the President. Thus you will make possible close contact 
id complete harmony between the rate-making body and the rail- 
vad management. A second member of the board should be selected 
7 the President out of five names proposed to him by the State rail- 
lay commissioners, acting through their national association. I 
ould suggest that two members be selected by the President out of 
ye names proposed to him by the employees of the railroads, acting 
‘ough their brotherhoods. There should be one member selected 
‘the President from the nominees of the United States Chamber 
* Commerce, and one member selected from the nominees of the 
ational Board of Farm Organizations. The security owners should 
‘opose seven names to the President, out of which he should select 
ree. 

Thus the controlling board will represent all the interests of the 
untry, and yet the National Government will have firm control. 

I believe that the time has come to regulate from the beginning and 
it after the act is done. In other words, let us have preventive 
yislation. Let the Government dictate the original policy. 

In addition to this board I would have an advisory rate board 
lected in about the same way, by the Interstate Commerce Com- 
ssion, which shall act under it, to suggest rates, hear complaints, 
d advise as to improvements. I would try to improve service by 
efficiency board composed of five of the ablest engineers of the 
‘antry who would make a study of necessary improvements in the 
\tvice and make recommendations to the Interstate Commerce 
mmission. 

In forming a Federal corporation, I would avoid the legal difficul- 
S of compulsory Federal incorporation by arranging for a method 
| acquiring the equities of the roads with the consent of the owners. 
ls can be done in fourvor five different ways and I would suggest a 
im to the railroads of half a billion dollars as a revolving fund. 
\irough my suggestion of a Federal trust corporation, the securities 
| the roads could be boiight and sold, this facilitating the acquire- 
mt of the equities in the roads. 

You will understand I have recommended a trust and finance com- 
hy as an adjunct to the United States railroad company, because 
know that the major part of the troubles in this country with 
‘pect to railroads came from the financial end; that the railroads 













‘ 


334 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


have never attempted to raise money for improvements and exten 
sions, which they were constantly in need of, direct from the public 
but depended upon their bunker directors, and have thus gotten them 
selves into the habit of looking to certain financial interests for th 
money they needed, thus becoming, so to speak, the bonded slave of : 
small coterie of financiers who did not hesitate to take advantage o 
them. Aside from deeming it desirable to change this order of thing 
because the railroads were obliged to pay out a great deal of mone} 
in underwriting reorganization and selling of commissions, it i 
deemed desirable for the railroads to have their own trust and finance 
company to handle their securities so as to make them independew 
of any financial clique or interest. I am sure that can be achievec 
through a railroad trust and financial company and I strongly recom 
mend it. 

The big question, however, before the country is that of rate mak 
ing. I would make it mandatory for the Interstate Commerce Com 
mission to establish a scientific rate structure to provide operating 
expenses, depreciation, interest on bonds, and dividends of 6 per cen 
on the stock, which stock shall represent nothing but real value a 
determined by fair valuation. In this way there will be no waterec 
railroad stocks upon which to earn or pay dividends. The surphr 
earnings, if any, could be divided as follows: 

‘Twenty-five per cent of the excess to labor as a profit share anc 
as an inducement to efficiency and surrender of the right to strike 
A voice in the management and a participating profit in the business 
would, I think, be suflicient inducement to employees to maintail 
harmony and exert their best effort in the public interest. | 

Sixty-five per cent of the excess earnings to be accumulated in ¢ 
reserve fund until the fund shall have reached the total of half ¢ 
pulion dollars. It will be understood that this fund would belong t& 
the public and would be used for its benefit in improvements anc 
extensions. 

There can be provision in issuing the corporation’s stock that TF 
can always be repurchased by the corporation when it is found de 
sirable to do so. Thus surplus earnings may be used to decrease rates 
which is the great desire of the country. : 

Now, speaking of valuation, I believe that it is the most important 
question to be considered. No sound rate base can be fixed and um 
consolidations are possible until the value of railroad properties i: 
definitely determined. I believe that we should try to arrange ul 
agreement between the public and the carriers on the following bases: 

The original cost, the reproduction cost, and the net earnings oye 
a period of 10 years as shown by Interstate Commerce Commissigt 
reports, capitalized at 5 per cent.’ | 

I need not remind this committee that if the railroads do not (le 
sire to accept the valuation of the Interstate Commerce Commissiol 
they can contest the valuation in the courts. This may mean possibly 
3, 10-year delay. The present procedure in our courts is highly uD 
satisfactory. ‘Arrangements should be made to expedite this pro 
cedure and to have the courts determine what the theories of valva 
tion are which satisfy the constitution. Thus the uncertainty can be 
ended. | 

My suggestion of capitalization of the net income of the railroad 

at 5 per cent, and of using that as one of the three elements oF 


| 


| 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 3o0 


vhich to determine their value is probably not clear, and I would 
ke to explain it. When you havea railroad valued as to its physical 
roperty, you are likely to take in a lot of physical property that has - 
een unwisely built. To pay or to allow the company to earn 6 per 
ent on such a basis alone is not fair to the public, because some of 
aese roads might have been projected for promotion purposes and 
ith no intention of making them really of service to the commu- 
‘ity. 

There are other railroads in the country, as we know, that have 
een wisely projected, honestly managed, and have been very success- 
alenterprises. I do not think it would be the fair thing to take from 
1em their business at a mere valuation of their physical property. 

therefore invented this third corrective method of valuing these 
roperties, and that is, to take the net earning capacity of all these 
ulroads for a period of 10 years and capitalize those net earnings 
i 9 per cent per annum. That would equalize and would indicate 
re road that has really been a wisely projected road, and the road 
‘at has been a poorly projected one for promotion purposes. For 
jistance, we will take the Alton—and I am going to speak figura- 
'vely—sup pose the Alton should be valued by the Interstate Com- 
Jerce Commission valuation department at $100,000,000 as its physi- 
ul or replacement value, and its net income over an average period 

[ 10 years was only $2,000,000 a year. Capitalize the latter at the 
wning capacity value of the Alton 5 per cent would be only $40,- 
)0,000. Now, if we add to the earning value the $100,000,000 which 
the physical value of the property we would have a total of $140,- 
= which divided by two places the average value for consoli- 





wing and rate-making purpose at $70,000,000. You have thus 
wrected any overcapitalization or physical overvaluation, if there 
as any, or if there was any unwise projection, the public would not 
ive to pay for it, because the physical valuation would b2 brought 
ywn to proper standard. 

Now, you may take the Delaware, Lackawanna & Western, or 
e Union Pacific or some other road which may have been pros- 
prous, we will assume that the physical value of Delaware, Lacka- 
janna & Western is, say, $200,000,000 as found by the valuation 
|mmission. On the other hand the earning capacity during an 
erage of 10 years may total $20,000,000 a year. Capitalize that 
| © per cent, and the value from the standpoint of earnings is 
| 00,000,000. Add that amount. to the $200,000,000 physical value, 
vide by two and you have a value of the property for consolidation 
irposes of $300,000,000. In other words, the Delaware, Lacka- 
una & Western would be compensated for good judgment and 
}sdom as the Alton would be penalized for bad judgment. ar 
mk that such a policy would be in accordance with the demo- 
atic emt of the country, which is to treat everybody fairly and 
uarely. 

| Now, as to a unified system of railroads, I know that various 
}lerests which have appeared before you and before the United 
jates Senate Committee on Interstate Commerce differ with me 
} the point of having one company own and operate all the rail- 
jads of the country, yet all interests admit the advantages to be 
jmed from unifying the railroads, from cutting out duplication 












ao0 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


of equipment, of terminals, and service, and from the elimination o 
competition to a greater or lesser extent. 

Practically every interest that has presented a plan before thi 
committee or the Senate committee recommends the consolidatior 
of the railroads into a greater or lesser number of competitive sys 
tems. I contend that if cutting out competition to any extent i 
advocated by all interests, the interest of the country, the elimina 
tion of competition entirely must certainly be even more desirable 
As a matter of fact, railroad competition is nothing but a delusion 
for there is no such thing as railroad competition, and there ha: 
been none for more than a decade. 

One of the greatest achievements of the Interstate Commerce Com 
mission has been its success in eliminating underhand rebates an¢ 
cutthroat competition. The very fact that Congress saw fit to creat 
a regulatory body as it has in the Interstate Commerce Commission 
is itself evidence that Congress believed the railroads to be a natura 
monopoly requiring governmental regulation. That being the case 
why attempt to fool ourselves into assuming that there is, or tha 
there could be, competition in railroads, or that competition woul 
benefit the country ? 

It would be of no benefit to the country because when there ji 
competition there must be waste, duplication of service, duplicatioi 
of offices and all sorts of things. If you want a transportation sys 
tem that will serve the country, the farmer, and every industry of tht 
country ,cheaply, rail transportation must be conducted as a mo 
nopoly under Government supervision. 

One of the reasons for advocating the consolidation of all rail 
roads into a single corporate body is: That consolidation of the rail 
roads into one company on a definite fixed principle of valuatio 
would be much simpler and more easily accomplhshed than con 
solidation into several groups or systems would be. Just pictur 
for a moment the confusion there would have been had Congres 
instead of authorizing the President to take over the railroads 0 
the country as a unit, ordered them taken over in certain definet 
groups of zones. Had latter been the decision of Congress, the ja 
of taking over the railroads as a war emergency by the Governmen 
would still be unfinished, whereas by ordering the railroads taket 
over on a definite basis, as a unit, the work was accomplished in ¢ 
few days. 

I wish to make it perfectly clear that I suggest that you bring 
all the railroads into one great national unit for corporate purpose 
only, and to facilitate the transition from the old form of corporat 
control to the new unified form as demanded by the people and tht 
times. My plan provides that after the railroads have been consol 
dated into one company, they shall be divided, for operating pur 
poses, into as many regional systems as may be found advantageou: 
in the interest of the country and economy. | 

Another reason for advocating the unification of the railroads int 
a single corporation is my conviction that only in that way can Wé 
ever have a scientific rate structure which is eminently desirable anc 
in the interests of the people. : 

It is generally known to those close to the railroads, that there at 
many industries that never have paid a proper or just rate for trans 


: 
| 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 837 


porting their commodities, while many others have paid more than 
a just rate. Those that have failed to pay, and are still failing to 
pay, a proper rate for transporting their products, have benefited 
by hundreds of millions of dollars. Had they been made to pay a 
proper rate on their shipments, the rates on commodities and products 
of other industries and shippers would have been materially reduced. 
We are all familiar with the history of secret rebates and special 
eates the railroads made to the Standard Oil and through which the 
Standard Oil became dangerously wealthy, while its competitors, be- 
ng compelled to pay higher rates, were made poor and driven out 

»f business. 

While the system of vicious, underhand, secret rebating has been 
liminated since Congress delegated additional regulatory powers to 
‘he Interstate Commerce Commission, it is, nevertheless, a fact that 
wen to-day there are important industries and shippers that are 
‘inderpaying the railroads for transportation, and were they made to 
»ay proper and just rates the railroads, instead of showing an oper- 
‘iting deficit, would be showing operating surpluses. 

_ If we had a scientific rate structure, as we would have with all 
‘ailroads under one corporate head, freight rates could be so appor- 
joned that those industries that can best afford to pay high rates 
vould be paying them, while those industries that can least afford it, 
yould pay less. A scientific rate structure would enable the railroads 

o nurse infant industries and help isolated communities to develop— 
or after all that is what the railroads are for—to develop the in- 
Idatries and communities of the country and not for any special in- 
fividual industry or any special locality. 

I mean by this, that if one company had all the equities of the 
ailroads in its keeping, it would have earning power in New Eng- 
and, it would have earning power in the West, and it would have 
arning power, when the cotton crop is good, in the South, and if, 
or example, somewhere up north the farmers should have a crop of 
iotatoes, or of wheat or corn, in a certain year when the price of 
hose commodities was so low as to prohibit marketing them at the 
revailing freight rate the National Railroad Co., operating all the 
ailroads, could make rates on those commodities which would enable 
he northern farmer in that particular year, or the southern farmer 
a other years, to market his product at a profit. That is something 
hich this country has needed since railroads have come into exist- 
nee, but being owned and operated by many individual corporations, 
0 one railroad had either the power or the interest to come forward 
') help out industries. I want you gentlemen to bear in mind the 
xtent to which a scientific rate structure could help and benefit the 
}ountry and the people that may need cheap transportation. In 
fame my plan is private ownership, but in substance public owner- 
up, because the people that own the railroads to-day would be 
anding them: over to the American public for 6 per cent on the actual 
jalue of the roads, all earnings above 6 per cent to go to the public. 
}{ the Government should be willing to guarantee the income on the 
\;curities, as Senator Cummins has suggested, the people owning 
i¢ railroads might be satisfied with 44 or 5 per cent, because a 44 or 
per cent Government guaranty would make the security worth par. 


152894—19—-vo1 1——22 





) 









O38 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


It is argued that combining the railroads under one corporate 
company would kill individual initiative. No one that knows any- 
thing about railroad history of the past generation can conscien- 
tiously claim that there has been any individual initiative at the 
operating end of the railroads where it 1s most needed. Whatever 
‘ndividual initiative there has been was at the financial end, where 
some directors and their lawyers worked overtime concocting schemes 
to make money out of their corporation through loading them up 
with properties, which they or their friends owned. You can not 
get 100,000 stockholders of the Pennsylvania Railroad to exert pro- 
prietary or individual initiative in the management of that great 
railroad system, but you can have individual initiative if you con- 
solidate them under one head and provide a fund, as I provide in my 
plan, for the purpose of encouraging the employers to exert their 
efforts in improving and economizing operations. Give them a share 
in the profits and you will have initiative where needed. 

Individual initiative which exists in other industries does not exist 
in the railroads because, as I pointed out before, the people who own 
the railroads are scattered and the people who administer and master 
them own little, if any, of the securities. 

It is argued, and with some grain of justice, that if the railroads 
were consolidated into one company, competition in service would he 
eliminated. That is, in a measure, true, but do you realize what 
competition in service really means? It means that certain impor 
tant centers, few in number, that have the benefit of several compet 
ing lines and certain important and favored industries, have been 
receiving a class of freight service—practically express service— 
which has been of great benefit to them, but a detriment to 99 pa 
cent of the country and to 99 per cent of the public. For instance, 2 
railroad in the Middle West desiring additional business would 
establish fast freight service, let us say, running from Omaha 
Chicago, and would so notify the packers of other industries. 
Naturally, they would get the business. When other railroads heal 
of this special service, they, too, establish similar service, in conse 
quence of which there would be a number of fast freight trai 
starting daily from Omaha to reach Chicago at a fixed hour or wick 
versa, and as they are obliged to make time, these trains would otter 
start out with a few cars and those few cars often only half loaded 
resulting in extra wear and tear of equipment and roadbeds, he 
cause of fast time. This is not from hearsay. You will find from amy 
railroad that this special service has never paid the cost of opera 
tion. The yield to the railroads out of this special freight servic: 
has often been less than 40 cents per train-mile, while the servit 
cost the railroads $1 to $1.50 per train-mile. Thus, you have al 
idea as to what the much-talked-of competition in service reall 
means and an illustration of its benefit to the public. . ae 

It is not, however, my intention to advocate cutting out this ela 
of freight or passenger service. These fast services are well esti 
lished and well known, and there is no reason why a large consol 
dated company can not maintain the same kind of service, designatiny 
it as service A or B. But the board of governors would have the ¢ 
of such service figured out and a proper charge made for it to th 
who wish it, whereas in the past important shipping centers and cer 
tain private industries received the benefit of that special service bj 










; 
{ 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 339 


‘aying freight rates, and hardly that, and the public had to make up 
ie deficits. 

_To conclude, I wish to impress upon you again that— 

(1) The railroads being so widely owned there can never be pro- 
rietary or owner management; 

_ (2) It is in the best interest of the security holders and the public 
iat the railroads be managed by a responsible board of governors 
‘nder the supervision of the Government, such board being composed 
[ the different interests that I have mentioned; 

(3) That the railroads, representing the cream of our investment, 
ie cream of our liquid wealth, should be so stabilized as to make 
ieir securities the equal of Government bonds. By doing that you 
‘; get money cheap, and the public will naturally get the benefit of 
“wer rates; and 
(4) That the public being so vitally dependent upon the rail- 
sads for its industrial and social existence, extreme honesty and 
treme efficiency and economy in operation must be the watch- 
ord. : 

As I have stated, to achieve these ends we must have: 

(1) A valuation of the railroads to define their real value, to 
‘able the Interstate Commerce Commission to establish a fair and 
ientific rate structure; 

(2) The elimination of hundreds of high-salaried officials with 
elt expensive attachés; and 
(8) The elimination of duplication of costly terminals, costly 
/uipment, and unnecessary service. 
| This is the opportune time to bring about these changes. We are 
‘ing in a period of tremendous upheaval and of great reforms, the 
rid over. No country and no people have suffered more through 
jtocracy and militarism than our own country and people have 
fered from the financial maladministration and exploitation of 
|r railroads. As pointed out before, the question of the railroads 
not one that interests merely investors, but the entire country at 
iege, and the correction and reform of the railroad situation is one 
| the most crying needs of our country at this time. 
|The railroads are being operated at a deficit of about $1,000,000 
rday. Why? Not because they can not earn it or should not earn 
| but because it is the only industry that is forced to accept a dollar 
\its dollar value. In the case of other industries, and other com- 
dities, where the dollar of old is but 50 cents, it is different, and 
}ese privately owned and favored industries are having their 
ight carried much below cost and are practically being subsidized 
the public’s expense. The industries for whom the railroads are 
king are being subsidized. The railroad, next to the farm, is the 
ly producer that sells-something for a price that represents 80 
>eent of actual labor. The commodity that the railroads sell the 
ple consists of labor and nothing more, except the small income 
‘ich a poor widow or a retired old man who have their money in- 
ted in railroad securities because they thought it was a safe in- 
‘tment. You have labor directly employed, you have fuel, and you 
ve supplies; 80 per cent or more of the receipts of the railroads 
*s into those items. The reason is the people who own them are. 
+ Concentrated and can not defend themselves and because there 











340 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


is an illusion on the part of the public that the railroads are own 
by the rich people. The Lord knows that there is nobody so bad 
situated and so poorly off as the average railroad stockholder wi 
has been living largely on expectations while everybody else h 
grown prosperous and rolling in wealth, flaunting their jewels ar 
their millions. 

The American citizens who have innocently and in good fai 
invested their savings in the securities of the railroads are beit 
deprived of their inherent right to receive at least a legal incon 

on their invested funds in public service. 

Congress can not perform a greater service to the country than th 
of enacting such legislation as will cure and eliminate the evils ar 
inadequacies in the railroad situation and once for all stabilize ti 
transportation system of this country, honestly capitalized on acti 
values, so that the public may have the benefit not only of adequa 
but of cheap transportation. 

T thank you, gentlemen, for permitting me to make this statemer 

Mr. Stms. Mr. Amster, as I understand, your plan contemplat 
the acquiring of all railroad property by a single corporation? 

Mr. Amster. Yes, sir. 

Mr. Sis. Is that corporation to be a Government ket bornti ( 

a private corporation? 

Mr. Amster. As I explained before, it is in name a private corpor 
tion, but it is practically a people’s corporation. As I explaine 
Congress would authorize the organization of a company to assip 
late the equities of these companies. As to the bonded debt, ¢ 
not touch the bonded debt, as it has been issued at a very low rat 
You take the Rock Island with $200,000,000 of bonded indebtednes 
Over $150,000,000 carries no more than 4 per cent. Some of the 
bonds do not mature until 1988. Do not disturb the bonded deb 
of the railroad, but take the actual equity of the stocks over al 
above the bonds. The stockholders will take the stock of the co 
solidated company in exchange for their equities in the railroa 
and the railroads will be owned by the same people that own the 
now, but the business of the railroads will be conducted by the publi 
as I have explained. 

Mr. Srms. Your plan is to acquire the railroad properties sbi 
to incumbrances? 

Mr. Amster. Yes, sir. , : 

Mr. Sims. And the bonded debt? : : 

Mr. Amster. Yes, sir. | 

Mr. Sts. And all existing lines; everethene of that sort remai 
intact ? 

Mr. Amster. Until they mature, after acquiring the railroad equ 
ties, the company will issue a refunding mortgage on all of 
property and refund any of the mortgage bonds that mature an 
become payable. | 

Mr. Stus. Do you contemplate acquiring the stocks of the existin 
railroad companies? 

Mr. Amster. Yes, sir. 

Mr. Sts. Upon the market value of the stock as deters aby 
period of years preceding the organization of the corporation? 

Mr. Amster. As I have explained, on the actual value of the pro} 
erty in excess of the bonded debt. | 


| 


i 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 341 


Mr. Sims. The physical or economic value of the property less 
sms, incumbrances, and the bonded indebtedness ? 
Mr. Amster “Yes, sir. According to my plan, Congressman, the 
ard of governors will not buy or have anything to do with the 
ock of a railroad company that has an excess bonded issue on the - 
due of the property. Then they will deal with the bondholders and 
_y them out at what the property is worth. In other words, if a 
‘operty is valued at $50,000,000 and it has $60,000,000 of bonds— 
ere probably are such railroads—the stock in such ease will have 
-value. The board of governors in that case would deal with 
e bondholders on the basis of the actual value of the property 
d pay them in 5 or 6 per cent consolidated stock on a valuation 
und by the valuation board. If the terms are rejected the bond- 
Iders would be allowed to stay out. 

Mr. Sims. Your corporation, in effect, is to acquire the oustanding 
‘yeks and bonds of the railroad companies? 

Mr. Amster. Only the equity; over the outstanding bonds if the 
ick had no equity it would not be acquired. 

Mr. Srus. And if you acquired the' outstanding bonds and they 
‘re only worth 50 cents you would only pay 50 cents for them? 
Mr. Amster. Yes, sir. 
Mr. Sims. And hold the bonds and stock by this corporation, and 
\ll this corporation operate the corporations issuing the stocks 
.d bonds? 
Mr. Amster. Yes, sir; the large company will take equity in all of 
ase railroads, and will wipe out stock not having any value. 
‘len the consolidated company becomes the proprietor and will 
,erate the railroads under the board of governors. | 
\Mr. Sims. They will buy the property of existing railroads by 
|juiring the stocks or bonds? 
\Mr, Amster. Either one. 
: e Sims. Where does this corporation get the money with whick 
\do this ? : 

/Mr. Amsrmr. In the first place, it is an authorization by Congress 
| the people that own these railroads—undoubtedly that is what 
| s—a permission by Congress in some form or other for the people 
/continue to own the railroads and to get together and consolidate 
}m on a basis of valuation that will be fair, as I have pointed out. 
Mr. Sims. You will compel them to go back, but how are you 
| ng to bring about that situation ? 

ir. Amster. You can do that by treating them fair. Here is a 
\n under which every railroad stockholder, except some, will come 
| because it is the only fair and just opportunity that has ever 
n given them for the last 10 or 15 years where they can get about 
at belongs to them. 
ifr. Sims. As I understand, your plan includes the right of con- 
onation of a railroad. Suppose a railroad has not transferred its 
/ck and the bondholders have not transferred the bonds to the new 
poration, when it is condemned it will have to pay the money, 
l where will the corporation get the money? 

Ar. Amsrer. You will not take over the bonds at all, just take 
r the stock. This will be a mutual consolidation, and I think 
t we can bring it about. That is the reason we have formed this 

















342 RETURN OFe THE RAILROADS TO PRIVATE OWNERSHIP. 


Citizens’ National Railroad League, to give the country cheap ang 
eflicient transportation and at the same time give proper recognitioi 
to railroads’ actual value. Railroad stockholders car¢not expect t 
get more than the value of their property and I am ‘ure they wil 
all be happy and willing to take a security that will assure them a 
income based on their property value. But if you will permit me 
we have Mr. Spring, who has helped to draft our bill, and he ea 
probably answer that question better than I can. 

Mr. Sts. I want to get the fundamental of your principles 
my mind. 

Mr. Amster. Yes, sir. 

Mr. Sims. You provide for the compulsory acquirement of al 
railroad properties through their stocks and bonds, or bonds wher 
it is less than the value of the property, or by means of condemnation 
and you are required to buy the condemned property. What I wan 
to find out is where your corporation gets the money with which t 
pur_hace the condemned property where the corporation owning th 
property will not voluntarily go into the arrangement? 

Mr. Sprinc. May I answer that, or is that against your proce 
dure? 

Mr. Sims. I do not care who answers it. 

Mr. Sprinc. The bill as drafted provides that there shall be ai 
appropriation of half a billion dollars authorized by Congress as’ 
loan to this corporation, to be used as a revolving fund. The bil 
also provides that a national railroad trust corporation shall } 
created which can use the securities of this corporation and of th 
acquired lines. As you are aware, Wall Street operates largely 0 
revolving funds. The men who have acquired the railroads did ne 
have enough money to buy all of the railroads, but they acquire 
certain securities and sold them to the public, and thus, by using ve 
volving funds, they were able to finance their purchases. This bil 
contemplates the same sort of procedure, it being started, to bee 
with, by Congress in the form of a loan. It is not to be a donatior 
but a loan for a fixed period of years, under the guidance of the Se 
retary of the Treasury, to this corporation for its capital. . 

Mr. Stas. The corporation not having any property to begin wit 
and not having any money to start with, it seems to me it would b 
in a rather poor shape to operate for the Government or anybod 
else. What I am trying to find out is where is your operating capita 
to begin with? | 

Mr. Sprine. Right at that point the bill provides that the corpora 
tion shall not become operative until a certain number of lines, it 
cluding three of the largest lines in the country, voluntarily aa 
the provisions of the bill. According to Mr. Amster’s plan under ti 
bill, a certain number of roads would have to come in. Of cow's 
this committee has full power to indirectly force the railroads|t 
come under the provisions of the bill. They can do that by chant @ 
the rate policy and giving certain privileges to them so that they wi 
come under the provisions of the bill. You are, of course, familia 
with the policy adopted in the case of the Federal reserve ban 
system by reason of which banks came under the Fever ree 
system:because of the privileges and inducements. This bill conte 
‘plates that a certain number of railroads will come in. The loan,- 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 343 


5 provided, shall be under the care and guidance of the Secretary of 
he Treasury, so that the Government will be secure. Then, under all 
yossible ways of financing, by condemning or by agreement, the rail- 
oads of the country will be gradually acquired by this corporation. 
_ Mr. Sims. It is all conditioned, according to your statement, upon 
hhree of the largest companies in the United States going into this 
hing voluntarily to start with? 
' Mr. Sprine. Yes, sir. 

Mr. Sims. If they did not come into it voluntarily, then your plan 
vould not operate? 
Mr. Sprinc. This committee could force them to come in volun- 
arily by changing the rate policy and giving them certain advan- 
ages under this corporation which they have not got under the pres- 
‘nt system. As a matter of fact, the mere relieving them of State 
egulations in the matter of the issuance of securities would, I am 
‘ure, cause large railroad corporations to seriously consider the adop- 
ion of a plan of this sort. 
Mr. Sms. That plan does embrace the Federal incorporation of 
ome railroads with some advantages over other railroads. 
| Mr. Sertne. The plan suggested follows the procedure which was 
dopted under the Federal reserve banking system by which the 
ational banks were brought in. This is strictly following that same 
rrocedure. 
_ Mr. Sms. Mr. Amster, this gentleman has answered the question I 
sked you, as I understand it. Now, as I understand it, you want 
© guarantee, through legislation or otherwise, a 5 per cent return 
pon the stock issued by this acquiring corporation ? 
Mr. Sprinc. A guarantee by the Federal Government. 
| Mr. Sims. By the Government or through full returns authorized 
/nd made mandatory upon the part of the railroad ? 
_ Mr. Sprine. By rates, not taxes. 
Mr. Sims. Rates and taxes are the same. In a sense it is money 
(hat is not paid voluntarily, because they would have power to col- 
,eet it. Now, this plan, so far as I understand it, depends, at least, 
| pon the Government for that which the Government only can do, 
\nd all of it depends upon what you think will be the earnings, and 
|5 assumes that the capital stock of the new corporation will always 
\e@ at par, or not less than par. 

Mr. Amster. Yes, sir. 

Mr. Sprinc. Except this, that the bill provides for a reserve to be 
ecumulated out of the surplus earnings which will carry it over the 
j3an years, because under the provisions of the bill which say thas 
\he surplus earnings go, not to the security owners, but to the pun. 
¢, the Interstate Commerce Commission, will be able to fix higher 
bi to insure an adequate return without thereby injuring the 
} ublic. 

Mr. Sims. But it is without the consent of those who have to pay 
\oe returns. 
| Mr. Sprrnea. I suppose that is always true of regulations under any 
orm. . 
| a Sims. Your bill does provide something with reference to a 
mit. 
_Mr. Amsrer (interposing). I pointed out that if we capitalized 
aese railroads at their actual value, nobody would object, and that 























344 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


the actual value in public service should earn 6 per cent. I do not 
believe that anybody would object to that. ie 

Mr. Sims. They would have to pay a rate that would bring it 
about. 

Mr. Amsrerr. If you have a scientific rate structure, you can earn 
three times 6 per cent and hurt nobody. 

Mr. Stms. You could have a very unscientific rate structure, could 
you not, and with the power behind it to do the same thing? 

Mr. Amster. The rate structure in this country has been wrong, 
There are people who pay about one-fourth of 1 per cent in freight 
rate of what they receive for this product, while there are other 
people who pay 90 per cent of the price they receive for their prod- 
ucts, for freight, and it is the purpose of the bill to make it so that 
the people can regulate those rates so that they would be paid by the 
products, commodities, or industries that can well afford to pay them. 

Mr. Srus. If the Government through taxation is to furnish a re- 
volving fund, and by legislation is to require all regulating bodies 
to do whatever is necessary to make this plan successful, why not be 
straight and square about it, and go into Government ownership to 
begin with ? 

Mr. Amster. The advantage is this, that you will have none of 
the complications that Government ownership would entail in the 
operation of the great railroad systems of the country. 

Mr. Sts. And you would have none of the camouflage that this 
plan makes necessary. 

Mr. Amster. You give the benefits to the people, and all that the 
owners of these properties will get will be the 6 per cent, or 5 per 
cent, or 43 per cent on the actual value of the properties, after cut: 
ting out all of the water and camouflage. The question is this: Do 
we believe that we can have two laws in this country—one law apply- 
ing to one set of men that own certain industries and another law 
applying to another set of men and women that own the carrying 
industries? If you think that we can operate under two laws, then, 
the way we have been going is the proper way; but if people are to 
be treated exactly alike under the Constitution of the United States, 
with no profiteering, and you can not say that 44 per cent is profiteer- 
ing . 
Mr. Sims (interposing). Three per cent might be profiteering 
under some circumstances, while 10 per cent under certain other cl- 
cumstances might not be. Now, this is in effect Government owner-. 
ship of the carriers. Now, why cover the thing under false names 
and titles or by designating it a loan of money? Why not provide 
for Government ownership and be done with it? ] 

Mr. Amsrer. Our railroads have been operated and conducted in 
the past in a way that has been unsatisfactory to the public and to 
the security holders, and if asked to decide between operating the 
railroads as they were before the Government took control and Goy- | 
ernment ownership, I would prefer Government ownership. But I 
say that the middle and safe way is to allow the people who own the 
carriers to consolidate on a defined valuation and save the country at 
cost, and since the consolidated company is to be operated and di- 
rected by and in the interest of all the people, I can not see how you | 
can Improve upon it, or how either the public or the security holders 
can be more fairly treated. | 








‘ 






RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 345 


‘Mr. Denison. Has this plan been used in actual use or operation 
any country that you know of ? 
/Mr. Amster. I do not know whether it has or not. As you know, 
me other countries own the roads outright, but I do not know 
‘hether there is a semigovernment ownership, as this would be, or 
ablic ownership, and yet with the securities held by the people who 
yn them to-day. 

Mr. Denison. Are you familiar with the railroad systems of other 
-untries? ; 

Mr. Amster. I am somewhat familiar with the system in middle 
arope and France. 

Mr. Denison. Was their transportation service superior to ours 
fore the war ? 

‘Mr. Amster. I do not think so. I think we have the greatest and 
jest transportation service in the world. 

/Mr. Denison. Then, what you are trying to do is to make some 
provements in the finest transportation system in the world? 

| Mr. Amster. That is to make sure that what we have got will 
/ntinue to be what it has been and not deteriorate, and it must de- 
‘morate if you are not going to have it operating on a basis on 
juch it will earn an income on the investment. As it is operating 
| w, the Government is having to pay a deficit. There is no innova- 
/m in this plan of mine. There is nothing new about it, because 
' deal with tangible property and fix the capitalization at exactly 


value. There may be much of the capitalization that represents 


\\ter. By my plan you would correct that and find out what the 
ery is worth and make it serve the country in a scientific 
/Mr. Denison. Do you think that it is wiser to devote our efforts 
| trying to put into operation an entirely new plan, such as you 
|tore our original plan with such corrections as experience has 
‘ywn us should be made? 
ns that you would like to bring about. If you allow the properties 
the country to be operated by a number of companies and compel 
jerests, and if they have to operate with duplications of service, 
/l with expensive terminals in order to keep up with their neigh- 
ng about. , 
Mr. Denison. It is your theory then that you can not correct any 
erse ownership ? 
‘ir. Amster. I am afraid not. 
troad companies do not have any right to control, do they? 
\tr, Amsrer. No, sir. 
fr. Amster. No, sir. In name it is, but it is not to a sense 
‘vate. 


inner. 
ive devised, or would it be wiser to devote our efforts to trying to 
Mr. Amster. I am afraid that you can not bring about the correc- 
: 
m to go for their financing, as they have in the past, to certain 
's, I do not believe you will bring about the result you want to 
these principal evils if the roads continue in operation under 
4. Merrirr. Under your plan, the stockholders of these united 
\4(r, Mererrr. So that it is not in any sense private ownership ? 
| Mr, Merrirr. Not in any sense? 



















SS 


— 


346 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Auster. Except that the people who own the securities to-day 
will own them, but in a different form and on a fixed valuation ang 
fixed income basis. 

Mr. Merrirr. But they will have taken away from them one 0 
the great accompaniments of ownership, in that they can not mu 
their own property. 

Mr. Amster. They have never run their own property. 

Mr. Merrirr. They have not? 

Mr. Amsrer. No, sir. You can look over the Interstate Commere 
Commission’s reports of every railroad company it investigated an 
you will find that the stockholders have never been able, and tha 
they never will be able, to say anything about the operation of th 
railroads. That is the entire crux of the situation and the greates 
evil of the railroad situation. The owners have not the persona 
touch of proprietors. 

Mr. Merrirr. I thought that in the Rock Island certain stock 
holders had a good deal to say. 

Mr. Amster. We had a lot to say when we got on the warpath 
but even so, we have but little to say to-day. We have been suc 
cessful in electing 4 members of the board out of 18. We have Pro 
William Z. Ripley, of Harvard University; Mr. Henry Bruers, M 
Peter G. Ten Eyck, a former Congressman, and myself, out of | 
board of 13. You can’ imagine how much power we have—4 ov 
of 18. We make objections here and there, but it is still in th 
control of the same class of management that was in control befor 
we fought and won. 

Mr. Merrtrr. You have some influence, do you not? 

Mr. Amster. We have; only as a minority interest has influenc 
Mr. Merrrrr. Under this board plan that you propose for thi 
United States railroad company, who will fix the wages of the men 
Mr. Amster. There will be a wage commission appointed, am 
that is one of the provisions of the bill. 

Mr. Merrrrr. Who fixes the rates under this plan? 

Mr. Amster. The Interstate Commerce Commission. . 

Mr. Merrirr. This board, under your plan, represents all th 
interests of the United States, does it not? 

Mr. Amster. Yes, sir. 

Mr. Merrrrr. What would be the use of having the Interstate Com 
merce Commission ? 

Mr, Amster. Because the Interstate Commerce Commission ia 
got the equipment to put into service or operation the rate syste 
that no other body in this country has. 

Mr. Merrirr. It would be easy to give this board that power, woul 
it not? Would not that make for simplification ? : 

Mr. Amster. Tf it should be found so, that could be done. 0 
course, I do not mean to dictate to Congress as to how it shall fi 
this bill. I have simply thought on this thing for so many years tha 
I feel that I have crystallized some sort of plan that would eliminat 
the evils and would put the railroad industry on a safe and soun 
footing and in a position to serve this country as cheaply as railroa 
transportation can be supplied. : 

Mr. Merritrr. That may be true, but, naturally, you must take int 
account the human element. 





i 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 347 


. Mr. Amster. Yes, sir. 
_ My. Merrirr. The great human element, of course, is a matter 
with which we must deal. 

_ Mr. Amsrer. Yes, sir. 
~ Mr, Merrrrr. I gather from what you say that you propose to pro- 
vide in your plan that the railroad employee shall have no right to 
strike, and as an inducement you have given him 25 per cent of the 
orofits above 6 per cent. 

Mr. Amster. Provided the profits do not exceed 2 per cent above 
Sper cent. After that the Interstate Commerce Commission will re- 
sast the rate structure and reduce the rates. I do not provide in this 
ll to take away from the employee the power of striking, but simply 
suggested that in giving him a voice in the management of this great 
‘ndustry and by giving him participation in the excess earnings, he 
night voluntarily be willing to give up the right to strike. There is 
‘me thing that we must consider, and that is that this period we are 
yong through is a period of the sellers’ market. The man that 
yells has a say about it, and the man who has labor to sell 
ss probably as well off as the man who has a pair of shoes to sell. 
Chen, why not face those conditions as we see them? Why talk 
bout railroad employees getting too high wages? I am holding no 
wief for them, but it is not true. As to the employees, when the last 
‘alse In wages came, 50 per cent of them did not get over $70 per 
month, while employees performing similar work got from $100 to 
3150 per month. 

_ Mr. Mererrr. Other railroad employees? 

Mr. Amster. No, sir. 

Mr. Mererirr. Do you mean employees in other industries ? 

Mr. Amster. Yes, sir; in other industries. JI am on the Rock 
Sland Board, and I know that our former President, Mr. Gorman, 
ame with tears in his eyes claiming that he was losing his best men 
ecause other industries could afford to pay them better wages than 
he Rock Island could afford to pay them. The American public 
-hould not expect a railroad company to get something more out of 
aboring men than do other industries. 

Mr. Merritt. I agree to that. In order to judge of your plan, I 
vas trying to find out how you had met that question. Now, have 
‘ou any figures in your mind that would permit you to say what per 
ent this 25 per cent of 2 per cent, which I understand is your 
imit 

Mr. Amster (interposing). Yes, sir; that is the limit. 

Mr. Mererrr. I want to ask you what ratio that would bear to the 
otal wages paid? 

r. Amster. IT am _ supposing that the railroads are worth 
| 20,000,000,000. 

Mr. Merrrrr. Not the equity? 

Mr. Amster. I am speaking of the equity. 

Mr. Merrrrr. $20,000,000,000 equity ? 

Mr. Amster. I think so. I mean the equity representing every- 
ling, including the bonds and stock. 

' Mr. Merrirr. No; this equity is not the bonds and stock, because 
ae dividends would only be paid on the stock. ; 

| Mr. Amster. Yes, sir; 6 per cent would be paid on the stock, or 
| per cent under Government guaranty, but it will be less on the 


















348 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


bonds outstanding. JI will assume 5 per cent on the whole thing— 
that is, 4 per cent on the bonds and 6 per cent on the stock. That 
would be 5 per cent on the $20,000,000,000, or $1,000,000,000, and 25 
per cent of that would be $50,000,000. 

Mr. Merrirr. What are the total wages? 

Mr. Amster. I would not be surprised if the total wages amounted 
' : | 

The CHarrMANn (interposing). $2,900,000,000. 

Mr. Amster. About that. 

Mr. Merrirr. That would be about one-sixtieth, would it not? 

Mr. Amsrrer. It would be a very small amount. 

Mr. Merritt. I was trying to figure out whether that percentage 
provided would be any inducement at all to the men. It seems to 
me that it would be a rather small inducement. 

Mr. Amster. But we have other things to consider, and when the 
laboring people realize that these industries are being operated for 
the interest of the country, and not for profiteering, as they assume 
to-day they are being operated for, and when they see that there 
is nothing in the capitalization but the actual bone, that the values 
of the railroads have been cut down to the bone, and that nobody 
is to get more than 4 or 5 per cent on their investment, I believe 
that the railroad employees will be more amenable to reason and 
more cooperative in helping to bring this service to the country as 
cheaply as possible. We must consider all of those elements. 

Mr. Merrirr. You have faith in the outlook? _ 

Mr. Amster. I have some faith in the human race still. 

Mr. Merrirr. Going to the other end of the line, or to the stock: 
holders, you instanced the case of a successful railroad, and I think 
you spoke of the I.ackawanna and gave some figures. I understand 
that they were theoretical figures ? 

M. Amster. Yes, sir. 

Mr. Merrrrr. Assuming that the value was $200,000,000 and that 
the earnings on that were 10 per cent, which would give a capitaliza- 
tion to the company of $200,000,000 more, and which would make 
the stock, we will say, worth $400,000,000, under your plan you 
would pay for that stock $300,000,000 ? | 

Mr. Amster. Yes, sir. | 

Mr. Merrirr. Do you think that would receive the assent of the 
stockholders ? | | 

Mr. Amster. I think so. During the last 10 years railroad stock*| 
holders have been so badly treated and have received so little returm 
for the money that they have put in their investments that I think 
they would be willing to accept almost any fair deal. Take the | 
case of the New Haven, and the St. Paul, for instance: The St. Paul | 
was considered one of the best gilt-edged investments in the country. 
People thought so well of the safety of that stock that they paid as” 
high as $200 per share for it when it was paying 7 per cent divi- 
dends. Now it does not pay any dividends, and is selling in the 
forties. New Haven stock sold once at over $250 and paid 8 per cent 
dividends; now it pays no dividend and is selling in the thirties. 
Rock Island stock which formerly sold for $200 and paid dividends, 
pays none and is selling in the twenties. The stock of the Pennsyl- 
vania, the greatest system in the West, is selling around 45, and the 





« 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 349 


‘stock of New York Central, than which there is no better system, 
has sold up to $170, although intrinsically worth considerably more; 
‘it is now selling at par. Now, if we go to the owners of those stocks 
‘and say, “Let us get together and settle the railroad question by 
‘compromise,’ I am quite certain that they will be ready to deal. 
‘If we submit a plan fair to all parties I am sure that we can get 
.them to see reason and pool their interests. Then we can have a 
transportation system to be justly proud of. 
| Mr. Merrirr. Is not what you are saying on this basis, namely, 
that “if you do not accept our plan, we will treat you so unjustly 
and unfairly that you must come in.” 
Mr. Amster. No, sir; that is not the purpose. That is one way 
\Mr. Spring theorized it could be done. I would come with this 
|honest statement, that the people of the country believe that the 
railroads belong to them, because they are highways. I would say 
|to them, “ You have money invested on which you have not been 
/cecelving what, probably, you were entitled to receive. Here is an 
|ypportunity for you to come in and get about what is coming to you, 
and at the same time perform a great service to your country.” I 
\oelieve it is only mutual justice and I believe that these considera- 
ions will impel them to come in. I am sure that we can get most 
of them to come in on this basis, because it is an equitable and fair 
yasis and because it is better than the railroad stockholder has had 
/n the last 20 years. 
| Mr. Merrirr. If the stockholders thought they were going to be 
‘reated, as you suggest they should be treated, the same as the 
)ywners of other properties, do you not think a large percentage of 
| he stockholders would prefer to take chances on good business in the 
Vuture ? 

| Mr. Amster. Yes sir. 

| Mr. Mererrr. Rather than take a Government guaranty of 5 or 6 
per cent? — 

; Mr. Amster. Yes, sir; but I do not believe it is possible, sir, for 
rou to treat the railroad stockholders in the same manner as stock- 
ilolders in other industries, because you have got 48 States, or 48 
lifferent regulatory bodies, and as you saw, in North Dakota, they 
have enacted certain laws and in other States they have enacted cer- 
jain other laws, and there has been nothing but trouble. 
| Mr. Merrrrr. But, as instanced by my colleague, Mr. Denison, 
jhat could be cured without ripping the whole system up the back. 
| Mr. Amsrer. If you can invent a better way than this, Lord bless 
‘ou, let us have it; but I am sure there is no other way of getting 
ut of this thing than by valuing the railroads at what they are 
jvorth and saying that these people will get 5 or 6 per cent on the 
}1oney invested. The Government would not have to issue any 
onds and would not have to go into debt or go into the business. 
‘he roads can be operated in the interest of the people as though 
hey were publicly owned. 

Mr. Merrirr. Of course, you are simply arguing as between giving 
rivate ownership a fair chance and Government ownership ? 
_Mr. Amster. Yes, sir. You can not give private ownership a fair 
hance any more. I would like to see it if you could. | 

Mr. Merrrrr. You have said that in the old railroad management 
tere has been no individual initiative? 










350 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Amster. I have said that, sir. | 

Mr. Merrirr. And you also said that the American railroad sys- 
tem before the war was the best system in the world? 

Mr. Amster. Yes, sir. 

Mr. Merrrrr. Of course, all the American railroads, before the 
war, were privately owned ? 

Mr. Amster. Yes, sir. | | 

Mr. Mererrr. And you think that that fine system, with American 
freight rates, which I understand were the lowest in the world, was 
accomplished without individual initiative in the operating end of 
the railroads? 3 

Mr. Amster. I will explain to you why we have had this system. 
Firstly, this country is so geographically located and so large, and its 
industries so varied, that you had to have a development of these 
great railroad arteries, and the next thing, or rather I should have 
put this primarily, the American public’s characteristic of wanting to 
gamble or wanting to get into something that will make them rich. 

Mr. Merritt. Do you object to that? 

Mr. Amster. No; I do not. I am not narrow-minded at all. I am 
trying to cure something that has to be cured, or help cure something 
that has to be cured, because the disease has gone so far that if we do 
not cut it out the whole thing will rot. Because of this speculative 
desire or characteristic among us—and I am one of us—we have gone 
out West, and we have gone East and South, and have projected rail- 
roads and built them. There never was anything said in any of the 
charters that I know of or in any of the covenants under which the 
railroads operated that they would be subjected to certain regula: 
tions that would limit their income but not limit their losses. Any- 
body thought in going into a railroad that he might make 100 per 
cent on his investment, if he was lucky the same as in other enter- 
prises; but conditions have so developed that the entire country 
seems to assume that the railroad, having a charter from the State. 
is the creature of the State, and everything it earns belongs to thie 
State, and everything it loses belongs to the stockholders. I have 
heard it argued in these very hearings by Mr. Plumb that because of 
the railroad being the creature of the State, all the undivided earn- 
ings and all the increase in values of its properties, should go to the 
State. In other words, he wanted to penalize a wisely managed 
railroad for not distributing its earnings and putting them into the 
value of the property so as to properly serve the public. Mr. Plunit 
in substance claims that the man who was a good, wise man and @ 
conservative builder, and put the earnings back into the railroaé 
should leave it there, because of not having distributed it in dividends 
to the public. This is the theory all over the country, and why nol 
recognize it in its fullest meaning? You can not regulate these rail 
roads so that the people who have their money in them will be as wel 
protected and receive the same benefits or possibilities of earnings as 
those in other industries. Now, the reason you have got a great rail 
road system is because at the time when we projected them there wat 
no such theory in the air, that the fellow who puts his money in the 
railroads may be permitted some time to get 4 per cent but may ofte 
lose 50 per cent. People have gotten wise to it now and they will no 
buy railroad securities, and you can not possibly induce anybody t¢ 
build a mile of railroad. 7 

















| 
| 


| 
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 351 
i 


Mr. Merrirr. I agree with much that you have said, but I was 
mply directing my question to your statement that there had been 
o individual initiative. I agree also that this great railroad system 
as partly due to the country and partly due to the spirit of enter- 
rise. 

Mr. Amster. Yes, sir. 

| Mr. Merrirr. But when you come down to other matters, such as 
‘savier tracks, heavier engines, improved engines, heavy trainloads, 
/ seems to me that must have been due at least to a certain extent to 
a individual skill and initiative of the operating end of the rail- 
pads. | 

Mr. Amster. You can well say that. 

Mr. Merrrrr. I do not see why that should not exist still. 

Mr. Amster. It will. 
| Mr. Mererrr. I do not think we have reached the end of invention. 
‘Mr. Amster. No, sir; but may I explain to you that the railroads 

this country went through three different periods? The first period 
tas the building or projecting of railroads when stocks went from a 
) w dollars a share to $200 a share and when the whole country went 
iuld about investing their money in built railroads. That was the 
sxriod when the railroad promoter and builder made his first bow 

‘fore the American investors and got rich. Then we had a second 

xiod around 1888 and 1889, when most of those railroads went 

rough the receiverships and reorganization. You know that period. 

“Mr. Mererrr. Yes. 

‘Mr. Amster. When Atchison, Reading, Baltimore & Ohio, and 
sactically every railroad went into the receivership, and when peo- 

e who originally put their money in them lost it and were obliged 

put in new money. Then the railroads got on a solid basis and 

ey were doing very well when the Congress saw fit to give addi- 
jal authority to the Interstate Commerce Commission; and it 
jas right that they should have had it. That was 1910. This new 
jywer of the Interstate Commerce Commission, which they probably 
| ed wisely—I know they have used it in good faith—has driven out 

i fellows who had originally projected and owned large interests 
riod when the public owned the railroads, 1,000,000 people or more 

ming the stocks and 20,000,000 people more who owned, indirectly, 

\lroad securities. You have in one single company, the Pennsyl- 
|nia, 106,000 men and women owning the stock, and these people 
!>re have not been any new railroads built and you will never get 
ditional railroads built until you either give a definite guaranty 
‘ what the return will be or else say to the speculative public, “ Go 
“ead, boys, make as much as you can out of the railroad business 













the railroads; for instance, the man who built the Great Northern, 
mes J. Hill. The various people who originally were the great 
wers behind the railroads and furnished the individual initiative 
ve sold their securities to the public and slipped from under be- 
ve gotten to the point where they understand that they can expect 
) get very little return from their investment and will not put in any 
}ore money, and you can not build any more railroads or improve 
2m as in the past, on investors’ money, who gradually furnished 


use they saw what was coming. Now, you have another and third 
}on the assumption that they were to receive good incomes. Lately 





852 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


as you could out of any other business.” I do not believe that eith: 
of those things is possible and therefore I strike for a middle-of-th 
road course and say, “ We have a great railroad system, pretty we 
developed, pretty well built up; let us intensely develop what y 
have got, and shape it so at to enable it to serve the country ad 
quately and cheaply.” You can accomplish that only through 
consolidated company with actual valuation and fixed basis of i 
come. The consolidated company would have good credit with goc 
people at the head of its management, and you can have all the e: 
tensions and improvements in railroads under that unified control : 
we had when the railroads were prosperous in the past, and whe 
their securities were in good demand. Under such consolidatio 
railroads will be able to manufacture and sell the commodity < 
transportation as cheaply as any country in the world. There wi 
be no leakage, no grafting, and no waste of any kind. There will! 
no reorganization expense, and no large underwriting commissions 1 
burden operating costs with, and the people will get the benefit ¢ 
it all. 

Mr. Mererrr. I do not want to take your time, or the committee 
time further, only it seems to me that it has been demonstrated thi 
what is’ practically a Government-owned railroad has never pr 
duced those good results you talk about. Now, I would like to as 
you just one or two other questions, as to the operation of this Unite 
States railway. In the first place, you think it will provide what ca 
not ne provided in any other way, and that is, a scientific rate str 
ture { 

Mr. Amster. Yes, sir. 

Mr. Merrirr. Under your system of altruism or under some othit 
system, you think that all the shippers are going to agree that yor 
rate structure is scientific if it puts their rates up? 

Mr. Amster. If we are going to ask the fellow who buys the con 
modity what he wants to pay. for it, naturally he will tell you thie 
he would like to pay as little as possible; but if it is going to be di 
vised by a scientific body of men representing all interests; if 
rate structure is to be devised by them, it is not a question of i 





the shipper will think. The fact of the matter is, gentlemen, th 
shippers have had too much to say in the past. Nobody had had am 
thing to say about the selling price of the shippers’ product. A pa 
of shoes.that I once paid $5 for I now pay $14, and the difference i 
cost of transportation of a pair of shoes from here to the coast 
only 8 cents, and if you advance freight 100 per cent, it will still onl 
be 16 cents on a pair of shoes, the selling price of which had ac 
vanced $9. The same thing is true of clothes. Twenty-five cents wi 
carry a man’s suit of clothes from here to the coast, yet the pric 
advanced from $15 to $40. If the freight rate on clothes were double 
it would only mean 20 or 25 cents on a man’s suit. at 
Mr. Merrirr. You remember the great’ enthusiasm with whic 
the scientific rate structure with reference to telegraph and telephon 
charges was received ? : 
Mr. Amster. I do. | 
Mr. Merrirr. Do you not think that with the same kind of +. 
structure on the railroads, there would be a tremendous appeal t 

Congress to favor this community or that community ? | 
| 















RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 3538 


_ Mr. Amsrer. I think not, if it was handled by a board of governors 
"ho are representative of all the people. Do you realize, sir, that 
rere has been a great change in public opinion with respect to rail- 
jad charges. You realize that there is before you a statement or 
solution passed by the United States Chamber of Commerce, the 
‘eople who have always been antagonistic to rate raising, because the 
/ssociation is mainly composed of shippers and manufacturers, advo- 
ating that a statutory rate-making law be enacted which would pay 
ie Operating costs, set up a depreciation fund and provide at least 6 
er cent for dividend purposes on a fair value of the railroads. That 
, what they recommend and they are the shippers of the country. 
here was a time when they did not want you to give the railroads 
anything, but they are beginning now to realize that the danger point 
as been reached and that they will be the sufferers as much as the 
allows who have their money invested in railroads if you allow them 
) go on and make the railroads nonearning. 

r. Mrerrirr. Did I understand from one of your remarks that you 
lwor that in times of stress, in one part of the country or another, 
wing to drought or other causes, the rates should be changed from 
jpar to year? 
| Mr. Amster. Yes, sir; I think so. I think the railroads ought to 
/; used to develop the United States. They will practically be owned 
jy the American public if they are consolidated on the lines I sug- 
jast. They can do much to help develop the different industries and 
}ymmunities that need it. If a community in one State uanufactures 
| us material [indicating| and make 100 per cent profit on it, why 
\ould they not pay more than 1 per cent for the freight when the 
}30ple who raise potatoes often pay more in freight than the potatoes 
hiemselves bring? There had ought to be this adjustment in freight 
j/ulues, and it can be done, sir, if we have a single railroad corpora- 
jon. 

Mr. Merritt. Do you or not think that if that were attempted 
ere would be tremendous pressure every year on Congress to have 
jecial legislation with reference to this rate or that rate or in favor 
| one section or against another territory. 

| Mr. Amsrer. I would take it out from the hands of Congress and 
it it into the hands of a body, although nominated by the President, 





| 
| 





minees from all the different interests. 

| It will be like the Federal Reserve Bank. Then we provide also 
r body of 25 representatives of the farmers and all interests to 
‘t together and make proper and just rates. 

‘Mr. Merrirr. I congratulate you, sir, on still having such altru- 
}m. Iam much obliged to you, sir. 

Mr, Amster. I feel we can bring this about, sir. 

| Mr. Montacuz. How do you arrive at this valuation? What are 
e elements that constitute this value upon which the rate of divi- 
inds or interest is to be determined ? 

‘Mr. Amster. Firstly, I say that we should take the original cost 
| the railroads and the book values and then we should take the 
placement values. 

Mr. Montacur. The physical value? 

Mr. Amsrer. Yes, sir; and then as a corrective, to show whether 
@ physical valuation really is of productive value, we should take 


152894—19—-vor, 1 23 








354 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 

the earning capacity, the annual net earning capacity, for an average 
period of 10 years, and that will tell you whether the railroad in 
valuation has been a wisely and successfully projected property or 
not, so that you would not have to pay for a lot of junk. If it had 
not earned anything, you should not pay the full physical value, and 
if it earned more than the mere physical value it should receive the 
fruits of the wisdom of the investors. | 

Mr. Monracue. If it has not earned anything, you would not pay 
anything for it? ah 

Mr. Amsrer. If it did not earn anything, and had not any physt 
cal value—of course, there are three elements in the valuation, the 
original cost, the replacement value, and the earning capacity value. 
They all represent values. The net earning capacity corrects the 
other two values and represents a certain amount of the railroads 
intangible value. You know that every plan that has been pré 
sented to Congress or to the Senate has had something like.that im it 
The Warfield plan provides for income on books’ valuation of raik 
roads, divided into zones, and to fix the income on the aggregate book 
value of the property in a certain zone and then those that can ear 
more than the fixed amount of income are to divide the excess earn 
ings with their poor neighbors. Now, you can not bring that about 
without cpposition from the profitable railroads. That does not look 
nearly as feasible as my plan. All the other plans presented have 
practically some sort of suggestion as to consolidation and fixed 
income, but I think that my plan really provides an as effective and 
honest a measure of valuation, taking the physical and original cost, 
the replacement cost, and the earning power, as you can possibly 
arrive at. 

Mr. Monracue. Those three factors, then, constitute the method 
by which you determine the value? 

Mr. Amster. Yes, sir. 

Mr. Stms. There is one question I. want to ask you. Can not all 
the outstanding stocks of all the railroads be brought to par by call 
ing it all in and issuing an amount of stock equal to the present mar 
ket value of the stock ? . 

Mr. Amster. I don’t quite understand you. ‘i 

Mr. Sus. If a railroad has $2,000,000 of stock outstanding, and 
that stock is selling at 50 cents on the dollar, can it not call it in and 
issue $1,000,000 of stock, and will not that be at par, as the market 
value of the stock? ; 

Mr. Amster. Yes. | 

Mr. Srus. Could you not handle all the railroads in that way, anc 
therefore bring all the outstanding stock up to par, provided tli 
stock is worth anything. It might not be worth anything at all, be 
cause the cost of operation might exceed the earnings, and, of comny 
the stock would not be worth anything on the market except fo 
control. | 

Mr. Amster. Yes, sir. If you do that, you step on very dangerous 
eround, because the market quotation of anv stock is fictitious and 
is seldom at its actual value. We have seen Northern Pacific sell at 
$1,000 a share when it was not worth as much as it is worth to-day. 
when it is selling at $90. We have seen the Rock Island hoary 
company stock selling on the basis of $200,000,000, and then in 4 





% 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 355 


ouple of years that was wiped out and was not worth 2 cents, and 
at it once had a good market at 94 for the preferred, and 80 for 
1e common, and 80 and 90 for the bonds, all of which was water. 
Mr. Sms. After all, has the stockholder got anything more than 
hat he can get for his stock on the open market ? 

‘Mr. Amster. It depends. You can not compel a man to selk at 
ie open market at any fixed time. He has a right to wait until 
(ie open market is in his favor. You may say to me that I can not. 
more than 50 for St. Paul stock to-day, but you can not compel 
e to sell the St. Paul to-day when it is selling at 50. If I paid 
00 for it, I have a right to wait until the price is right before I 
‘cide to sell. 

Mr. Sims. I have reference, of course, to the average price obtained 
the open market for such length of time as would reasonably 
tablish the actual commercial value of the stock. If a man dies, 
S administrator has got to sell his stock and he has to take what- 
er he can get for it. It seems to me that as a rule the stock is 
wth no more than what he can realize on it in the open market. 
ere is the statement in the old blue-back speller that anything 
‘worth what it will bring. 

Mr. Amster. At a certain fixed time. It sometimes is not worth 
iat it brings. If you are going to do that, sir, why not take the 
aul value of these things at the value fixed by people appointed by 
iurselves and representing yourselves. Put ‘a value on what it 1s 
orth and buy it at that value, not in cash, but give them an in- 
me on an,annuity to represent that value, bearing 4 or 5 per cent 


year. 
Mr. Sims. You provide in your bill for a guaranty of 5 per cent 
| the stock of the corporation, which is to provide a proper income 
d make that income certain. Would you be willing, also, to pro- 
ile that that 5 per cent shall be paid upon conditions that the 
sent rate of wages of railroad employees should not be reduced ? 


Mr. Amsrer. I do not think that is relevant to this question, at all,. 














Mr. Sims. If you are going to guarantee the income on property,. 
puld you not also guarantee returns upon labor that operates that 
yperty ? 

\Mr. Aursrer. I certainly feel you are right, sir. You heard me say 
U we are in the period of a seller’s market, and we had better 
eit. Labor is worth what it can get. 

fr. Stars. And stocks are worth what they will bring, so there 
| are. 

(Tr, Autsrer. It depends upon when you sell it. All I ask here, 
j( I think you are American enough to grant it, is that these peo- 
who have got their money in public service be given what their 
perty is worth, either in cash or in income; that is, a legitimate 
egal income. That is all I recommend, and a people like the peo- 
of the United States, who were willing to spend $30,000,000,000 
_ spend the best blood of our Nation to correct a wrong abroad. 
0 miles away, should not do less for its own people in their own 
st. I refer to the people who have invested their money in good 
hh. If they made a mistake, value down to the mistake, but when 
» get down to bone value, or real value of the public service, 


356 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


allow them an income of 5 per cent. If you do not do that, you 
must say to them, “Go ahead and make as much as you can, or lose 
as much as you can. Make your profits and losses Just as you see 
fit.” But that is not what we want to do. We can not do that with 
their railroads. We must have the-railroads serve the con iunitics 
as cheaply as possible. Then get them down to real value, and say, 
“your income will be so much, no more, and no less, and the balance 
goes to the people.” I think that is the equitable, fair, and demo- 
cratic way of treating these people. 

The Cramman. Mr. Amster, just a question or two as to the ma- 
chinery you provide under your plan. In the first place, you have 
a board of governors composed of nine men, chosen as you have 
stated. Then you have a trust and finance corporation which his 
disposition over this revolving fund of $500,000,000, as I under- 
stand it? ; 

Mr. Amster. Yes, sir. 

The Crarrman. Then you provide for a valuation adjustment 
commission, and then you provide for a labor adjustment commis- 
sion. | 

Mr. Amster. Yes, sir. 

The Crairman. All under the Interstate Commerce Commission. 

Mr. Amster. Yes, sir. 

The Crarrman. Do you not think you are getting a little top 
heavy on administration ? 

Mr. Asrster. You have before you, Mr. Chairman, the statement T 
made before the Senate committee? Is that what you have in front 
of you? 

The CrarrMan. Yes; a synopsis of that. 

Mr. Amster. The Valuation Commission which I had in mind, sir 
was really the Prouty Commission, which is under the Interstate 
Commerce Commission to-day. I believe, in addition to that, if we 
want to put this thing through rightly and expeditiously, we shoulé 
appoint an arbitration commission which will arbitrate between the 
Government and the railroads. For instance, if the Valuation Com 
mission brings in a valuation of the Rock Island at $200,000,000, 11 
we think it is worth $250,000,000, let us leave it to the arbitaas & 
commission to arbitrate between the two valuations. The valuatior 
of the railroads has already been practically completed by the Unitec 
States Valuation Commission, and I referred to that commission, 7 

The Cuarman. You would have all labor troubles adjusted by ¢ 
labor adjustment board composed of six members ? a} | 
( Mr. Amster. I thought we would have an equal number of repre 
‘ -| 





sentatives of labor and the railroad governors. | 
The CuarrMAN. Suppose they could not agree? | 
Mr. Ausrer. I have sat in a conference with the transportatio 
committee of the United States Chamber of Commerce, and we hat 
with us several of the labor leaders and one of them was Mr. Doak 
and he told us how admirably and how easily they are adjust 
all the questions of labor by having an equal number of representa 
tives of the railroads and the labor unions. They have had nm 
trouble at all. They never even go out of the same office. 1 
ave the same office together. 
The Cxuarrman. He presented that plan to us last Friday. 


‘ 
by 
' 


r ‘ 
1 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 357 







_ Mr. Amsrer. Yes. It seems they get along very well when they all 
‘yet around the same table on an equal basis. If you will permit me, 
{ would like to have Mr. Spring later on explain some of the pro- 
‘visions that you speak of, because he has drafted the bill embodying 
ny ideas. ; 
* The Cuarrman. How do you take care of this complicated ques- 
‘aon of State ‘commissions and the matter of intrastate rates ? 

Mr. Amster. You will notice that in my plan we have a repre- 
sentative on the board of governors, one-from the Interstate Com- 
merce Commission and one to represent the national public-service 
sommissioners, to represent ‘the different States, and they together 
will help formulate the rates. They will have a voice in rate making 
4s in everything else in the railroad management; that is, the intra- 
state commissioners and the Interstate Commerce Commission will 
doth be represented on this consolidated board of governors. 

The Crarrman. That would mean they would have a representa- 
on of one out of nine? 

' Mr. Amster. Yes. 

1 The Carman. And you just told us that you and three others 
onstituted 4 directors of the 14 directors of the Rock Island 
ind had very little power. 

_ Mr. Amster. There would not be any power centered in any single 
nterest on this board of governors of 9 or 11, because they would 
de representative of labor, of the shippers and commerce, of the 
States, of the Federal Government, and.of the security holders. 
You will notice that I only suggested three out of the governors to 

‘epresent the stockholders or the owners of the property ? 

The Cuarrman. Yes. 

Mr. Amster. So you see there will be no majority in single interest. 
[t will be the people’s corporation and managed by them. If there 

s any other way of making it better I would like to see it. I merely 
[pee nine in this way so they will represent every interest. 
| The Cuarrman. Is it your idea that a scientific rate basis neces- 
arily implies rates based on value? 
| Mr. Amster. I think that a scientific rate basis ought to be based 
irst on the actual value of the railroads and then on the value of 
| he products that the railroads are carrying and on what the traffic 
‘an stand. You realize that there are certain percales and print cloth 
vhich every American family uses, the freight rate on which amounts 
0 about one-tenth of 1 cent a yard, and yet these ordinary print 
tuiis have gone up 10 or 15 cents a yard. This class of freight, and 
uch as shoes, clothing, chemicals, and other classified freight is not 
aying in freight in comparison to what the service is really worth to 
hem, whereas, as I pointed out before, such things as gravel, pota- 
| 0es, wheat, vegetables, milk, and other farm stuffs, really sometimes 
|jay more than they get for the product in the market. I think it 
|an be scientifically arranged so the service of the American people 
|S to transportation should be paid by the people who can best 
| ford it. I have this in mind which I should like to suggest, that 
\here should be no increase in passenger rates. It has often been 
tated that the passenger income does not pay operating expenses. 
\chat is erroneous. It may look that way on the face of operating 
|tatements, but you have no expense incurred in carrying passengers 





858  %WETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


that you have in carrying freight. The passenger loads himself and 
unloads himself, and naturally he is very little expense to the rail- 
roads, but when you take freight you will find sometimes a car will 
contain 70 or 80 different consignments, and every one of those con- 
signments has to be loaded and unloaded and taken care of. There 
is attached an expense to freight that is invisible which you do not 
see. That 1s the way it figures out when you see passenger income 
as $2 per train mile and freight income as, let us say, $3 per aver- 
age train mile. On the face of it, it would seem as though freight 
pays better than passenger business, but it does not. You can increase 
certain freight rates 100 per cent and you would not touch the fellow 
who is interested in those commodities, nor would it be noticeable 
to the consuming public, for it would add but a fraction to the cost. 
The Cuarrman. Mr. Amster, the committee wishes to express its 
thanks to you for the time you have taken in the preparation of your 
plan and its presentation. 
Mr. Amster. I thank you for the opportunity, Mr. Chairman. 


STATEMENT OF SAMUEL SPRING, ASSOCIATE COUNSEL OF CITI 
ZENS’ NATIONAL RAILROADS LEAGUE. 


Mr. Sprrne. Possibly I might add a word about the general plar 
of the bill as drawn by me for the Citizens’ National Railroads 
League. I felt that the most successful piece of legislation recently 
passed by Congress is the act creating the Federal Reserve system 
I determined that the general method therein adopted of inducing— 
not coercing—State banks to come into the system should be adopted 
in arranging for the voluntary creation of a national railway cor- 
poration. : 

If I may start at the end of the bill first, I would like to point out 
the next to last section—that dealing with valuation. Unquestion- 
ably the most unsettled and distressing feature of the railroad situa: 
tion to-day is that of valuation. It is vital. It can not be ignoreé 
or glossed over. No rate base with any degree of permanency car 
be fixed until we know the value of our carriers on which they are 
entitled to earn a fair return. Consolidations under Government! 
supervision are impossible unless the public can rest assured thai 
such consolidations will not represent financial juggling and the 
palming off on the public once again of a large mass of watered se 
curities. How can that be prevented unless we know the actual value 
of our carriers? 

The task is a tremendous one, but it must be accomplished. As 
this committee well knows, under act approved March 1, 1913, the 
Congress instructed the Interstate Commerce. Commission to aseel 
tain the factors of value, such as original cost, reproduction cost, de 
preciation, value of stocks and bonds when issued and over a peri0e 
of years, revenues earned, land values, etc. The commission has 
worked diligently, even ardently. Within a year, possibly two, thesé 
factors will all be presented to Congress and the country. 

Yet, unhappily; the question of physical valuation of our carrier: 
is a legal question to be determined by our courts and not by the Im 
terstate Commerce Commission. This arises, as the committee wel 
knows, from our constitutional provisions, which enable the carrier 















rar ins 










RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 309 


‘o attack by injunction as confiscatory any valuation which they 
leem too low. The courts have not laid down any legal rules’ 
vhich are clear enough to enable the commission to fix any final 
value. Indeed, the whole legal question is a sad muddle. The 
ourts, as any lawyer knows, have a fixed judicial rule of avoiding 
he decision of any unnecessary question. Thus many of the most 
lifficult questions in utility valuation are unsettled. Who can say 
nything definite about intangible values, such as development cost 
© going concern value? Even the question of land values is un- 
ettled. Indeed, the method of reaching a final fair value still re- 
aains undetermined with any degree of certainty. I need not remind 
vou of the bitter years of litigation physical valuation has caused 
jn this country. The law, with its flaccid procedure, in this in- 
‘tance possibly has made for litigation. Our courts have had too 
\ig a task. No one to-day desires to have the question of physical 
|} aluation decided with meticulous, breath-taking accuracy. <A fair, 
|onest approximation that will end the controversy is demanded. 
f we leave the decision of the Interstate Commerce Commission to 
@ passed upon by the courts as valuation questions have been judi- 
ially determined in the past I say advisedly that it will take 10 
;}ears at least to end the matter. Congress with due regard to con- 
\titutional rights has got to settle the matter. 

} Already the Interstate Commerce Commission has encountered 
jad difficulties. I might almost call the valuation battle before the 
/ omamission between the carriers and the public, represented by the 
\\tate commissions acting through their national association, a rare 
\nd delicate comedy. This committee doubtless remembers how vio- 
ontly opposed the carriers were to physical appraisal in 1913. At 
j2at time the theory of reproduction cost, of ascertaining the cost 
|) rebuild the roads, thus eliminating original waste or extrava- 
jance, and squeezing out all water, was welcomed by the public and 
jondemned by the carriers. Now, the carriers—or, at least, they were 
\efore the war—are urging the complete and logical application of 
)1¢ reproduction theory, and demanding that the commission fix a 
jalue. The public desires to avoid the reproduction theory because 
\£the unhappy way in which it can be twisted, and desires the com- 
lission to state the factors of value only, not the final value. Thus 
/@ are on the threshold of a heyday of litigation, briefs, arguments, 
od passionate utterance. The Gordian knot must be cut by Con- 
tess, and at once. 

Now, Mr. Amster has suggested a sound way of ending this mat- 
ir. It is based on honest, fair approximation. Let us average the 
iginal cost, where an investment was made in good faith, and the 
production cost. Then let us correct this result by capitalizing 
1e net earnings of the toad over a period of 10 years and averaging 
4s result with our former figure. This is obviously fair. A road 
jt reality is not worth what it cost to build it if it can’t earn a fair 
}turm. By taking a 10-year period we give every road a fair 
lance to show its latent possibilities. But the committee is probably 
‘clined to say: “ Good; but will the Supreme Court of the United 
tates accept this solution; the Supreme Court and not Congress 
is the last word to say on this question.” I think that the Supreme 
}Ourt will not for a moment say that this method of reaching a fair 
dh 

















360 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


valuation, if adopted by Congress, is so clearly unreasonable as to 
require it to hold it void. The Supreme court, it is true, has avoided 
taking the earnings of a road as an indication of its value in a rate 
case, because it felt that this was arguing in a circle. But it has 
repeatedly and urgently said that any rate or value, over and above 
any question of original or reproduction cost, must be fair to the 
public and to the carrier. It has repeatedly said that_any value 
producing a rate unreasonably high must be rejected. In a word, 
it has left a big space for a corrective, and Mr: Amster’s corrective, 
since it is the only one-that I-have discovered im a careful examina- 
tion over a period of years of all court decisions and articles and 
discussions of the subject, will be in complete accord with the views 
of the court. Thus we can be fair to the carriers, to the public, and 
end the matter. Congress can not leave this problem of determining 
the value for rates and consolidation of one-tenth of our entire 
wealth, so far as the principles of valuation are concerned, to the 
Interstate Commerce Commission. It is too vital a question for any 
commission to determine. I feel confident that the commission feels 
this way; at least the commission has shown the greatest prudence 
in avoiding a final decision of the question. | 
Congress must speak. Congress is the logical, indeed the only, 
body that can speak. Mr. Amster has prepared and devised a solu- 
tion that is sound, in accord with the views of the courts, is fair and 
just, and is the only solution seriously suggested. ) 
This bill adds to section 19a of the act to regulate commerce various 
paragraphs which strive to end the valuation controversy. It ends 
the question of land values; it ends the question of intangible values. 
T can not take the time of the committee now to discuss this rather 
abstruse question, but permit me to say that these provisions have 
been drafted only after a painstaking study of court and commission 
decisions on the question, and that they are a codification of the best 
judicial views in a field where the decisions coniuse. | 
I would like to add a word about the rather full provisions of this 
part of the bill as to the procedure of ending litigation as to valua- 
tion. As the committee knows, the procedure now is that a carrier 
gets an injunction from a Federal court; a master is appointed to 
hear the evidence and a new beginning is made. Mr. Amster feels 
that the carriers will accept the valuation of the Interstate Contr 
merce Commission if a fair valuation is made. I hope that he is 
right; I feel that many roads will accept a fair valuation. But, 
judging from the way the carriers fought over valuation in the past, 
I fear some lines will carry the matter into the courts. At any rate 
a means of ending court litigation must be devised without the im- 
pairment of constitutional rights. For that reason this bill provides 
that a carrier desirous of contesting the final value of the Interstate 
Commerce Commission must file a petition in the circuit court of 
appeals where the larger part of the property is situated within 0 
days. The circuit court of appeals must hear the- matter at once; 
it can not appoint a master, but must treat the opinion of the Inter- 
state Commerce Commission as a master’s report with the power to 
require additional findings. Thus the whole delay of master’s 
hearings is avoided. No appeal lies to the Supreme Court of the 
United States, but the circuit court of appeals can certify ques 


RETURN CF THE RAILROADS TO PRIVATE OWNERSHIP. 3861 


tions to the Supreme Court, and the Supreme Court may, if it de- 
sires, review the judgment. Arrangements are also made for a 
board of arbitrators to arbitrate, within limitations, between the 
public and the carrier. Thus the procedure of valuation is markedly 
abbreviated and an early end of the matter made possible. 
_ I would also like to add a word about the theory of regulation as 
evolved in this bill. The great weakness of regulation of our utili- 
ties in the past has been due to the fact that the public acted only 
atter the act had been done. Then the public approved or disap- 
proved. Too much of our regulation has been of the character of 
locking barn after the horse was stolen. Again the utilities were 
hampered because they had to act and take the risk of the public’s 
disapproval. This bill gives the Interstate Commerce Commission 
and the State railway commissions representation on the board of 
governors of the unified railroad corporation. Thus the regulatory 
bodies will know all that is being done and can exert their influence 
before the act is done. The time has come when we must have pre- 
yentive regulation; the public must know all that is done*from the 
very. beginning. ‘ 
' YVhe CuarrmMan. To-morrow morning Mr. Rich, of Boston, will 
set forth the so-called New England plan. The committee will take, 
a recess until 10 o’clock to-morrow morning. hae 
(Thereupon, the committee took a recess until to-morrow, Wednes- 
day, July 30, 1919, at 10 o’clock a. m.) 


CoMMITTEE ON INTERSTATE AND ForEIGN COMMERCE, 
. Hovusr or REPRESENTATIVES, 
Wednesday, July 30, 1919. 


The committee met at 10 o’clock a. m., Hon. John J. Esch (chair- 
man) presiding. 


STATEMENT OF MR. EDGAR J. RICH, BOSTON, MASS., REPRESENT. 
ING THE ASSOCIATED INDUSTRIES OF MASSACHUSETTS. 


The Cuarrman. Mr. Rich, are you ready to proceed this morning? 

Mr. Ricu. Yes, sir. 

The Cuarrman. Give your name and address, and whom you rep- 
resent. 

Mr. Ricu. My name is Edgar J. Rich; I am a lawyer, engaged in 
the general practice of law at 6 Beacon Street, Boston, Mass. I 
appear for the Associated Industries of Massachusetts, which is an 
‘organization of some 1,250 manufacturers in that State, and the plan 
which I propose to submit for the consideration of the committee is 
indorsed by that association and is also indorsed by the directors 
of the Massachusetts Chamber of Commerce, which is an organiza- 
tion of some 60 constituent chambers, with a membership of some- 
thing like 40,000 people. 

_ I may say further that the plan was submitted to a transporta- 
tion convention held in Boston on May 8, 1919. At this convention 
‘there were represented 101 commercial, industrial, and agricultural 
organizations. At that time this plan was presented, and the plan 





362 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


of the railway executives was presented by Mr. Edward G. Bucklanc 
and the plan of the security holders, known as the “ Warfield plan, 
was presented by Mr. Luther M. Walter. | 

A set of resolutions was adopted, which resolutions did not oppos 
or favor definitely any particular plan, but did oppose or fayo 
certain underlying principles. The chairman of the committee ¢ 
resolutions, Mr. Charles A. Andrews, expected to be here to-day t 
present officially those resolutions, but was detained on accoun 
of a serious strike in the business in which he is engaged. I will as 
permission later to have a copy of those resolutions filed. I hay 
here a copy, but I do not think it is necessary to read them as I shal 
discuss the resolutions as I go along. 

The CuHatrMan. You can add those to your hearing. 

Mr. Ricu. Yes. 

The chairman has been good enough to refer to this plan as th 
New England plan, and I think it may fairly be said that it has th 
indorsement of the commercial, and the agricultural, and the indus 
trial interests of New England, but I think it only fair to state tha 
the principles of this plan were first formulated and presented t 
Congress by Texas interests. ° : 

I understand a representative of the Texas interests will be her 
to describe the very remarkable convention which was held in Texa 
at which certain principles were unanimously adopted, and I shal 
not take your time to do more than to refer to the Texas plan. 

It certainly is a very hopeful sign when two sections of the country 
so different commercially and industrially, as New England ane 
Texas, have come practically to an agreement as to the underlyin 
principles under which the railroads should be returned .to privat 
management. I may say that the remarkable instance of the coop 
eration of the Texas interests was what inspired us in New Englane 
to hold a similar convention last May. | | 

I do not want to give the impression that what I may say 1 
definitely indorsed by all these interests to which I have fon 
The plan is a plan which I have evolved and have submitted to thes 
interests which, as I say, in a general way have indorsed it. q 

It is perhaps only fair to refer to my past affiliations, for it is m 
purpose to present this plan in the interest of the public and 1% 
particularly in the interest of the shippers. My experience has beel 
such that I believe I have been able to look at the problem fr 
the point of view of all interests concerned. For 15 years I wa 
head of the law department of the Boston & Maine Railroad, ant 
for 2 years had the very great privilege of serving under Mr. Alfvet 
P. Thom in connection with his work for the railway execu 
For 10 years I have been a lecturer on the theory and practice 0 
rate making at Harvard University, but that gives me no authoritt 
to speak to this committee, for the subjects taught were elemental) 
subjects. At the present time I have no railroad affiliations. My pro 
fessional affiliations are entirely with the commercial interests. 

Before proceeding to the development of this plan I should like # 
refer to the bill which is now before this committee—House bil 
4378—which I understand in a general way is the bill submit 
by the Interstate Commerce Commission and is known as the Es 
Pomerene bill. 


| 


| 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 363 








Ima general way that bill meets, I think, with the approval of the 
ommercial interests throughout the country. It is intended pri- 
iarily to perfect methods of regulation. It does not, I believe, go 
9 the heart of the railroad problem nor does it purport to. In other 
rords, it does not purport to deal with the fundamental problems 
hich I shall state to you in a few moments. 

| The first part of that bill to which I wish to address my remarks 
s section 1, in which the control.of port-to-port water rates is given 
» the Interstate Commerce Commission. 

‘Ido not feel competent thoroughly to discuss that question, but I 
vant to call the attention of the committee to what I conceive to be 
ery grave dangers in placing water rates on the same basis, so far 
3 contro] is concerned, as rail rates. At the present time the water 
ites are under the control of the United States Shipping Board, but 
jat control is very different from the control] which it is the intention 
f this bill to put in the Interstate Commerce Commission. 

| If the bill is enacted, it will place water rates on the same basis as 
ul rates, and it will mean that those rates must be published and can 
jot be changed under 30 days’ notice, except in particular cases. 

| Now, for years, in fact always, there has been free competition in 
jater rates and water service, and the shippers with whom I have 
\ilked believe it would be very unfortunate if the rates were made 
| gid as is proposed by this bill. To-day the method of regulating the 
\ites by the United States Shipping Board is, in a general way, to 
tablish the maximum rate and the minimum rate on certain com- 
jodities. For instance, last year, when the question of coal transpor- 
| tion was so important, a maximum rate was established, and that 
jas helpful. To-day, I understand, no rate is established, and there 
free competition in coal rates, which is helpful. . 
Furthermore, the Shipping Board does not attempt in the case of 
ie great majority of commodities to fix any rate whatsoever, either 
‘a minimum or as a maximum, and I would respectfully submit to 
jou for your consideration the question as to whether or not you are 
|ot making an unwise departure in making water rates rigid, as they 
just necessarily be under this proposed act. 

| I have been instructed by the transportation committee of the 
|hamber of Commerce of Massachusetts to present to you its oppo- 
jtion to a law which will make rigid water rates or port to port 
tes. 

Coming to section 18, dealing with Federal control of intrastate 
| tes, I may say that it is exceedingly gratifying to us all that the 
/Mmission has recommended the passage of a law which gives to 
‘@ Federal authorities the exclusive control of intrastate rates when 
jose rates in any way. interfere with interstate commerce, and it 
Ves to the Interstate Commerce Commission practically exclusive 
ntrol of the intrastate rates. 

/I am instructed, however, to submit to this committee an exception 
| that control, and that is the case of commutation passenger rates, 
t that it is not Jogical that all rates should be under the control of 
2 Federal authorities, for I conceive that in the case of commuta- 
Mm passenger rates there may be a lessening of the burden of trans- 
‘tation which may have its indirect effect upon interstate com- 
rece, but our communities around our large cities have been built 














864 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


up under the theory that the workers in the cities should have their 
homes in the country, and the rates have been established not only 
by the railroads but by the State authorities with that principle in 
~ view, and although it may be that those rates do not bear their full 
measure of the transportation burden, it is highly important that 
the workers should live in the country, and we therefore respect 
fully submit that a qualification of section 18 should be made in the 
case of commutation passenger rates. | 

Now, coming to section 14, which practically provides the rate 
making rule, I want to discuss that more particularly when I come 
to develop our fundamental financial plan, but I want at this time 
to call the attention of the committee to the fact that that rule does 
not go to the heart of the rate question; in fact, it does not change 
the law as it is administered by the Interstate Commerce Commis 
sion to-day. 

Whatever criticism has been made of the Interstate Commeree 
Commission has been made of its economic policy in rate making 
I want to state here, however, that the interests which I represent 
are strongly in favor of maintaining the Interstate Commerce Com: 
mission with its full powers. 

It is a notable fact that throughout the history of the Interstate 
Commerce Commission from 1887 to the present time, no chargé 
has ever been made against the integrity of the commission or of at 
individual member of it; and, furthermore, it is a notable fact that 
no charge has ever been made that the commission has been in ti 
slightest degree influenced by partisan politics. We have, there: 
fore, in the commission and in its tradition, an asset which we ought 
not to diminish. ¢ 

I want further at this point to refer to the criticisms that have 
been made of the commission for failing to establish the credit o 
the railroads. The commission, as you know, must render its*dect 
sion upon the facts submitted to it. It is not at liberty to introdua 
new facts into the record. It can take only the facts which hay 
been presented, and I want to say, with some knowledge of the situa 
tion, that if the commission has made mistakes, it has been due almos 
entirely to the failure of the railroads properly to present thei! 
cases. | 

For instance, in 1910 the railroads were confronted with an in 
crease in wages amounting to forty or fifty million dollars. The 
went to the commission solely on the proposition that as expense 
had been increased by that amount rates should be increased by 
equivalent amount, and that was practically the only issue befor 
the commission. The commission very properly said that the mer 
fact of an increase in expenses does not necessarily mean that ther 
should be a corresponding increase in rates, for it may be that trafh 
-will increase to such an extent that the railroads will get a larger ne 
income than they would have got when the expenses were less, ai 
it turned out exactly as the commission said. Within the year, eve 
with their increase in expenses, their net had greatly increasee 
The railroads were at fault there for failing properly to presen 
their case. 7 d 

Referring to the 5 per cent case and the 15 per cent case, agit 


the commission was bound by the evidence submitted, and the ev 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 365 


lence presented was substantially this: That the credit of the rail- 
oads had been impaired, and as evidence of that fact they submitted 
he fact that their bonds had depreciated in market value. How 
lid the commercial interests meet that? By showing that the bonds 
if all other interests and concerns had likewise depreciated, and they 
howed that in the case of municipal bonds there had been a 
weater percentage of decrease in value than in the case of railroad 
vonds. ‘The railroads failed absolutely to make out their case, and 
he commission can not be charged with dereliction of duty because 
hey could not decide the issue raised by the railroads in any other 
vay than they did. 

When I come to discuss the financial plan, I will attempt to show 
6 you that the commission ought to have a more definite rule, and 
hat if it has a more definite rule and a more definite mandate from 
Jongress, it will discharge its duty in such a way as to reestablish 
he credit of the railroads. 

Coming to section 17 which deals with the Federal regulation of 
he issuance of securities, again it is exceedingly gratifying to find 
im unequivocal declaration in favor of exclusive Federal regulation 
of the issuance of securities. 

There is only one comment which I would make upon those pro- 
Asions, and that is this—and it is pretty fundamental: Under the 
vill the Interstate Commerce Commission is given the authority and 
he duty to determine the necessity for improvements. Now, it seems 
ome that the question of the necessity of improvements is essentially 
\ question to be passed upon by the managements of the railroads. 
We in New England have laws strictly regulating the issuance of 
‘ecurities and placing upon the management the sole responsibility 
yf determining whether improvements are necessary or not. If you 
ransfer that obligation to the commission, you at once place upon 
he commission a duty which it can not properly perform. I believe 
hat the judgment of the directors of a railroad would be infinitely 
‘nore in the interest of the public than the judgment of any regula- 
‘ory body. In other words, you must avoid, it seems to me, trans- 
‘erring functions of management to the commission, and I would, 
‘Nl particular, call the attention of the committee to two very strong 
‘ases which differentiate between the functions of management and 
he functions of regulation. 

The Cuareman. There is a twilight zone, is there’ not ? 

' Mr. Ricu. Yes; there is, indeed, a twilight zone, and it is very 
lificult to draw an exact line. The cases are the People v. Stevens, 
[97 New York, 1; Bacon v. Boston & Maine Railroad, 83 Vermont, 
142. 

I do not mean that the railroad directors should have the final 
wuthority to determine anything more than the necessity for 1m- 
srovements on the existing plant. If a railroad desires to make an 
sxxtension or to build a new railroad or to purchase securities or con- 
‘rol of another railroad, I believe the public necessity of those things 
‘should be passed upon by a public tribunal, but when it comes simply 
0 the question of determining the necessity for improvements in the 
*xisting plant, the authority of the directors should be supreme. 

_I want, in passing, to call attention to section 6, amending the 
Panama act. There is no part of that bill which is more strongly 











366 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


favored by our interests than that section. We believe that the 
original Panama act has resulted, in so far as transportation on the 
Lakes is concerned, and to some extent so far as transportation along 
the coast is concerned, in seriously restricting transportation and in 
seriously restricting competition. 

We have two or three amendments to suggest, and one is that there 
should be a limitation of time within which the railroads can colleet 
undercharges. At the present time the railroads ean collect under- 
charges any time within the State statute of limitation, which ordi- 
narily is six years, and there have been many cases where the ship- 
pers think they have settled their transportation accounts, and yet 
at the end of nearly six years have been obliged to pay undercharges 
which the railroads have dug out in the course of time, and I under- 
stand that the Interstate Commerce Commission itself believes there 
should be a limitation. I think they advocate two or three years 
within which the railroad can collect its undercharges, and I know 
that Director Prouty of the Railroad Administration, who has par- 
ticular jurisdiction over this matter now, feels too that there shoul 
be a limitation of time, and therefore we respectiully suggest that 
the railroads shall not be permitted to collect undercharges unless 
they are presented within a period of, say, two years or three years 
from the time the property was delivered or the freight collected. 

There is one provision which we are sorry to see is not in the bill, 
fle that is with reference to arbitration of wage disputes. 

I think we are inclined to believe that the Interstate Commerce 
Commission is quite right in the position it takes that it ought not to 
be the arbitrator, but if there is anyhing that the ‘people of this 
country insist upon to-day it is that there shall be no interruption in 
their transportation service, and there is another thing that has been 
brought home to the people during the last year or year and a half, 
and that is that they pay the increase in wages, and therefore they 
insist that those increases shall be fair. For instance, the director 
general, shortly after the roads were turned over to the Federal ad- 
ministration, announced that there would be an increase in wages, [ 
think, of $600,000,000, and that rates must be increased $600,000,000 
to take care of the increase in wages, and the people at once found 
they were paying higher freight charges and the average man on the 
street, the clerk, and the small dealer, the men who make up the 
majority of the voters in this country, found that when they went on 
their vacations they paid 50 per cent more than they used to pay. As 
a matter of fact, many of them did not go away on their vacations. 
Therefore I say that the people of this country demand, first, that 
railroad transportation shall not be interrupted, and secondly, that 
unjust increases of wages shall not be granted. To that end they ask 

that you provide a law at least which will provide that there shall be 
no strike, we will say, for 60 days after the award of a proper wage 
Veal ne 

There is another omission in the bill to which I shall only advert 
briefly because I understand it will be developed more fully by Mr. 
Fulbright, who represents the Texas interests, and that is, we fail to 
find any provision for regional commissions. We sincerely hope 
that you will provide for regional commissions in order that the ad- 
ministration of the law may be brought near our homes. We have 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 867 


confidence in the Interstate Commerce Commission, but we believe 
that results can be accomplished quicker and better if you have a 
jimited number of regions and have regional commissions of high 
caliber, all subject to the jurisdiction of the Interstate Commerce 
‘Commission. We believe it would be possible to give to those re- 
vional commissions final jurisdiction in a great many matters. Of 
course, you must provide that in the case of a matter affecting other 
regions there should be some way of reaching the Interstate Com- 
merece Commission. ‘ 

_ Coming now to the more fundamental problem, I wish to say that 
[ am presenting to you nothing which is new in its fundamental prin- 
aples. The problem which I shall present and the remedy which I 
shall suggest have been developed fully before this committee, be- 
fore the Senate Committee and before the joint committee. I want 
/0 Say, So far as the problem is concerned, that it is the problem which 
voubled the joint committee. So far as the remedy is concerned, al- 
vhough I do not want to put our burdens on anyone’s shoulders, I 
um afraid that Judge Sims may be responsible for the original sug- 
jzestion, although I believe he abandoned his remedy when certain 
‘lificulties were pointed out. We, in our plan, hope to show how 
hose difficulties may be removed. So the plan is not new, nor the 
woblem. What is the problem? If you had a single railroad, or 
ou had a number of noncompeting railroads, it would not be at all 
litteult to establish the rates on such a basis as to give credit to the 
allroad to make it possible for that railroad to sell its stocks or its 
yonds; not the slightest difficulty. Now, the mandate or the rate- 
naking rule provided in this House bill to which I have referred, 
‘s applicable to a single railroad under noncompetitive conditions, 
out 1t accomplishes nothing in solving this problem under the pres- 
“nt competitive conditions. 

Permit me for a moment to digress. The problem, of course, is 
0 provide service at the lowest possible cost. There is no reason 
vhy the owners of railroad securities should make any money out 
‘ft the railroads. It is necessary that they should make enough 
noney to induce them to keep the money in the railroads and to put 
Hore money in, but the return should not be more than is necessary 
9 accomplish thoSe purposes. 
| I agree fully with the presentations which have been made by the 
ailway executives of the condition which has confronted the’ rail- 
Re during the last six or eight years, and despite what may be 
hown as the return on property investment account and the possible 
nerease in return on property investment account the railroads have 
ot been able to secure money for necessary improvements, the rail- 
oads as a whole, and they have not been able to do it, because they 
ave not had the necessary credit. That lack of credit is not due, 
Xeept to a small degree, to a failure properly to manage their affairs. 
Mr, Raysurn. What is that? 

My. Ricu. The lack of credit is not due primarily to any financial 
‘regularity on the part of the railroads. It has something to do 
ith it, it is an element to be considered, but it is not the funda- 
iental reason for the loss of credit, in my opinion. 

_ Mr. Raysurn. Are you going to state now what you think is the 
undamental fault ? 











368 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Ricu. Yes, sir; I am. I trust the members of the committes 
will interrupt me at any time. 3 

Now, what is necessary to establish the credit of the railroads? 
Up to the present time credit has been established only in one way, 
by a showing of net earnings; that is the only way up to the present 
time that the credit of the railroads has been established. I have 
made quite an examination of the market quotations of railroad 
securities, especially of stocks, and I have had my conclusion con- 
firmed by the studies of more competent men than I, with this re- 
sult, that a railroad can not put out its stock at par unless it can 
show earnings of substantially 8} per cent on its stock over a period 
of three to five years. In other words, you must have a surplus 
in order to establish a basis of credit, you must have a surplus of 
substantially 24 or 3 per cent over a 6 per cent dividend. Ihave heard 
discussions before the congressional committees as to what amount of 
surplus a railroad would be entitled to earn. I have heard it stated 
that 1 per cent is sufficient. The trouble is that our attention here- 
tofore has been directed more to one function of surplus than to the 
other and more important function. 

Our attention has been directed to the function of surplus to take 
care of lean years. That is the least important function of the 
surplus; perhaps 1 per cent surplus would be enough to take care 
of the lean years. I have no doubt it would be, but the all-important 
function of the surplus is to establish credit and you must have 
from 24 to 8 per cent surplus. I am referring now, of course, 10 
the condition existing before these abnormal times. I do not know 
what it is now. You must therefore establish your rates or permit 
the roads to establish them so the railroads can have that surplus. 
It is just as much a part of the cost of transportation as your rails 
or your engines or your cars. I have heard also frequently referred 
to what has been regarded as the improper use of the surplus of 
railroads. I am referring to nine-tenths of the railroads, which 
have been honestly conducted. I want to say right here, with some 
knowledge of railroad affairs, that I believe there is no business 
conducted with equal integrity to the railroad business. I do not 
refer to some financial irregularities; I do not refer to the action 
of other than railroad officials. I refer to the railroad officials. 

Now, to go back a moment, you have a surplus of, we will saj, 
24 or 8 per cent, which you must have in order to give proper credit 
to the railroads. The disposition of the surplus, so far as it is 
honestly disposed of, is of no importance. It is substantially im the 
interest of the shippers that it should go back into the property, 
but where is your difficulty? Here is the problem with which you 
are so familiar. You can not give one railroad under our compet 
tive conditions a surplus of 8 per cent without, perhaps, giving 
another railroad a surplus of 20 per cent. Take a specific illustra 
tion. You have in the Middle West four competing lines that I 
will refer to, but there. are, of course, many others. Take the Bur- 
lington, the Chicago & North Western, the Rock Island, and the Cht- 
cago Great Western; those roads compete to a very considerable 
extent. The Burlington during the test period earned, if I reco ct, 
over 25 per cent on its capital stock, the Chicago & North W estern 
over 12 per cent, and the Chicago Great Western and the Rock 


Island only 2 or 3 per cent. Two of those roads had their ene 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 369 


established by their surplus, the Burlington and the Chicago & 
North Western, but the two other roads have no credit. Two 
thoughts must occur to you. One is, why is it necessary that those 
two roads should be allowed to take from the shippers so much 
more than is necessary in order to enable them to properly finance 
their requirements, and the second thought is, why should not the 
poorer roads have a basis of credit? If you raise the rates to such 
an extent as to give a basis of credit due to surplus to the Rock 
Island and the Chicago Great Western, you might enable the Bur- 
lington to earn 50 per cent on its capital stock, and, perhaps, if you 
established rates so that the Burlington only earned 9 per cent, not 
one of the other three railroads would pay its operating expenses, 
to say nothing of establishing its. credit. 
_ That is the fundamental problem that you can not get away from 
so long as you have competitive conditions, and a problem which is 
ignored by almost every plan. which has been submitted to Congress. 
[¢ is the problem which you have in mind, Mr. Chairman and gentle- 
men of the committee, and which the Senate committee has in mind, 
out in solving it you have obtained very little help from those in 
interest. You may establish your regional railroads, you may con- 
solidate your railroads, you may have valuation of your railroads, but 
your problem remains and always will remain so long as you have 
sompetition. We want competition. Very fortunately we are all 
vgreed now that competition is necessary. It is a great achievement 
for Judge Lovett that he has induced his railroad associates to see 
the necessity of the maintenance of competition. So we are all agreed 
on that. We must have a financial plan that fits that situation. You 
tan have a plan such as was proposed yesterday by Mr. Amster. It is 
ot my purpose to discuss or criticize the various plans, except inci- 
ientally, but in that case you will have to wait years, perhaps a gen- 
»ration, before that plan can be put into effect. When you have that 
lan in effect you have one great railroad company with centraliza- 
‘ion of authority. That is one thing the shippers do not want. We 
lave had our experience with centralization of authority during the 
ast year and a half. Right here I do not want that criticism to go 
vithout this qualification, since the present director general has taken 
10ld of affairs he has tended to decentralize authority to a degree 
vhich has been greatly appreciated by the shippers, and again, while 
_am referring to the present director general, whatever we may say 
‘Nn regard to the operation of the railroads under Federal control, I 
vant to say that to-day he is saving the shippers of this country from 
't disastrous increase in freight rates, because he is going ahead 
iautiously to find out how much increase is necessary, if any. He 
inderstands that an increase in expenses does not call for a corre- 
ponding increase in rates, and he is going to solve this question in a 
viser way, I believe, than it can be solved by anyone else. In other 
ivords, he is not taking the advice of his traffic men that when ex- 
yenses increase rates must go up. 
_Now, gentlemen, with your permission I will read briefly an out- 
ime of what I hope may be called the Texas-New England plan. 
_ Mr. Raysurn. Where did that plan get its name? 
' Mr. Ricu. I think, Mr. Rayburn, you were not here when I re- 
erred to the Texas part of the plan. 


152894—19—vor 1-24 


















370 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Raypurn. You have already gone into that? 

Mr. Ricw. Yes, sir. It will be developed more particularly b, 
representatives from the Texas interests who will appear later. : 

wal Raypurn. I was not here when you stated whom you repre- 
sent ! 

Mr. Ricu. I represent the New England commercial interests 
generally, I represent the Associated Industries of Massachusetts, 
the Massachusetts Chamber of Commerce, and indirectly a number 
of organizations. I rather want to steal the name Texas and have 
it attached to this plan. I am in hopes, however, that it will be pre- 
sented by the Texas interests so that you can properly call it the 
Texas-New England plan, unless Judge Sims thinks the name Ten- 
nessee should be attached to it. 

We propose that when a railroad having no credit desires to raise 
money for permanent improvements it may apply to the Federal 
Government for the guaranty of the obligations to be issued for the 
purpose of raising new capital. The plan does not contemplate a 
guaranty and return on existing capital stock, but as the plan works 
out it stabilizes to a very great extent existing bonded indebtedness. 

Right there, I should lke to say this: There are a lot of plans 
that call for a guaranty, but those plans all call for a guaranty on 
existing obligations. It was developed before the joint committee 
that there was a difference between guaranteeing a return on existing 
obligations and upon new obligations. 

Of course, this Government guaranty should not be given without 
some Government supervision as to the necessity of the improvements 
for which the new capital is to be used. 

You may see some conflict in the views I have expressed as to the 
propriety of the railroad directors determining finally the necessity 
for improvements. But where the railroad runs itself it should have 
the final voice in determining the question of the necessity of im- 
provements. 

It is proposed that when the application for the guaranty is mace 
the Government shall appoint two public directors, who shall sit 
upon the board of directors and shall have only equal votes with other 
directors on all questions except upon the question of the necessity 
for improvements, and on this question the vote of the Government 
directors shall be final. If thought best to meet any objections that 
may arise to the appointment of Government directors, the deter- 
mination of the necessity for improvements could rest with the 
Interstate Commerce Commission, through the regional commis 
sions. 

Such a guaranty without further provision would result in a loss 
to the Government, for there would be some railroads which would 
not be able to pay operating expenses, fixed charges, and interest oD 
the guaranteed obligations. Under normal conditions the amount 
of this deficit is not large. 

Right there is a surprise. I believe we ordinarily think that be 
cause we hear so much about the railroads being unable to raise 
money that the deficit of those railroads must be enormous. Why, 
gentlemen, the railroads can not raise money as I have indicated by 
the issuance of capital stock or by the issuance of bonds on the best 
terms unless they can show a net earning of about 84 or 9 per cent. 










RETURN OF THE LAILROADS TO PRIVATE OWNERSHIP. 871 


A great majority of the roads, a vast majority of the roads under 
normal conditions pay their operating expenses and fixed charges, 
but have not sufficient left to establish their credit. It is only a 
handful of roads that have deficits. 

Taking the three test years, the aggregate deficits of those rail- 
roads having deficits amounted to an average annual sum of only 
922,000,000. J think that we are all agreed, however, that no loss 
ought to fall on the Government, and we propose this as a funda- 
mental feature of the ptan: 

A railroad earning 9 per cent can issue its stock at par, or its bonds 
on favorable terms. It is proposed, therefore, that a railroad earning 
over 9 per cent on its capital stock shall divide the excess with the 
Government. During these test years the average annual share of 
the Government in the profits of such railroads would have amounted 
to $52,000,000, affording an ample margin of safety to take care, 
under normal conditions, of the deficits. 

_ I may say here that you can apply no plan until the railroads get 
ack, as far as their net returns are concerned, substantially to the 
jposition they were in during the three test years. It may be that the 
‘railroads are not satisfied with going back to the test period, but they 
‘should be, because those three years were the three best consecutive 
years that the railroads of this country ever had. We believe that the 
yasis of the rates should be such a basis eventually as to give to the 
railroads the average earnings which they got during those three 
years. 

| Imay say here that we believe that Congress should continue the 
Agreed compensation to the railroads for the year 1920 during which 
ame the Interstate Commerce Commission and the railroads can 
work out a proper basis of rates. We do not think that the losses, 
‘which have been necessary on account of the Federal operation of the 
ailroads during the war, should be thrown on the railroads nor 
hhrown on the shippers. We believe that it is only fair that the Gov- 
‘rnment should continue the agreed compensation for the year 1920. 
m discussing this matter with various shipping committees and or- 
ranizations I have found that nearly every man believes in the con- 
inuance of the agreed compensation during the year 1920. 

_ Mr. Sims. To the full amount? 

Mr. Ricu. For the full amount. That would not be a proper basis 
if permanent payment, but we believe it is entirely fair to continue 
‘he agreed compensation precisely as it now is. 

I was very much disturbed when I read a short time ago a very 
owerful article by Judge Robert S. Lovett, chairman of the board of 
rectors of the Union Pacific Railroad Co. 

_ Judge Lovett is not only one of the ablest lawyers in the country, 
ut one of the most profound thinkers on the subject of railroad eco- 
omics. He took the position that any plan which contemplated 
aking excess earnings was unconstitutional. I do not intend to 
rgue the constitutional point, but I know that a different view is 
ken by Mr. Elihu Root and by other lawyers who have given very 
wch attention to this subject. I simply want to call the attention of 
ais committee to a decision of the Supreme Court of the United 
tates which, it seems to me, absolutely forecloses discussion of that 
To) That is the case of Noble Bank v. Haskell (219 U. S., Reports, 








. 104 


872 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


The CuairmMan. Was that a State bank case? 

Mr. Ricu. Yes, sir; a State bank case. That case is, briefly, this: 
The State of Oklahoma—and also other Western States—passed a 
law requiring all banks to contribute 1 per cent of their deposits, or, 
in some cases, 5 per cent, to a fund which could be used to make up 
the deficit in the case of defunct banks. Now, without regard to 
the public policy of such a law—— 

Mr. Sis (interposing). Was it not, more properly speaking, to 
guarantee the depositors of defunct banks? 

Mr. Riou. That is exactly what it is, and my statement was in- 
accurate. In order to guarantee the deposits the strong banks ~were 
obliged to take some of their property and transfer it to weak banks, 
or defunct banks, in order that the defunct banks might pay then 
depositors in full. The Supreme Court held that such a law was 
constitutional, and, if such a law as that is constitutional there can 
be no doubt, in my mind, about the constitutionality of a law which 
seeks to apply the same principle to the great railroad service. 

An essential feature of the plan, in order that no loss may fall on 
the Government, is a mandate to the Interstate Commerce Commis- 
sion so to adjust rates that no loss will fall on the Government. The 
mandate might provide that over a period of three years the average 
annual balance over deficits should be, say, $25,000,000. 

If this mandate is followed the Government will meet with no 
loss in paying the deficits arising from operation and the payment 
of fixed charges. 

The payment of the principal of the obligations can be met by 
the establishment of a sinking fund, and the payment of one-half of 
1 per cent a year into this sinking fund will result in the accumu- 
lation of a sufficient fund to pay off 50-year bonds at maturity. Or, 
instead of a sinking fund, the bonds may be issued serially and a 
proper proportion retired each year. 

I notice in reading the reports of the last hearings that Mr. Com- 
yaissioner Clark, in commenting upon the plans providing for a 
fixed return upon the value of the property, referred to the difficulty 
of establishing rates so as to yield a definite return. Of course, 
there is difficulty, because no matter what rate you establish to-day, 
the net return must necessarily vary due to changes in the expense 
and due to changes in the amount of traflic, but that difficulty is Tun 
damental in any plan. It is fundamental in the plan suggested by 
the Interstate Commerce Commission. If they establish rates to 
take care of the cost of labor, and to take care of the cost of capital, 
the only thing that they can do is to make some estimate. You can 
not get away from that difficulty. It is a more or less serious diffi- 
culty, but it is not an insurmountable difficulty by any means, be- 
cause every time the Interstate Commerce Commission establishes 
rates they establish rates that, according to their estimate, will yield 
a more or less definite return. 

As to the advantages of the plan, let us see what this plan accom 
plishes. Any railroad requiring money for permanent improve- 
ments can secure it, and this money will be secured practically at the 
Government rate of interest. The bonds would not be sold by the 
Government, but by the railroad, and would find unquestionably 
ready and favorable market in that section of the country where 












RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 373 


‘the railroad was located. There would be little strain upon the 
-eredit of the Government. ; 
_ Now, gentlemen, think of the tremendous importance of a plan 
which involves every railroad in this country. I am referring now 
‘to the larger systems. I think the short-line roads have a distinct 
‘problem. But think of the tremendous advantage of every railroad 
of substantial size being enabled to get money for improvements to 
meet the public demands, and there is no other plan that provides 
for that. — 
The total annual charge to the railroads, including payment into 
the sinking fund, would not be much in excess of 5 per cent; whereas, 
if the railroad sought to borrow money on its own credit, it would 
have to pay exorbitant rates of interest. 
_ The plan contemplates that the railroads whose credit is estab- 
lished by earnings shall continue to finance their own requirements, 
and therefore would not be subject to Government supervision in 
the manner indicated. Under normal conditions probably two- 
thirds of the railroads would not have to apply for any Government 
| guaranty. 
| ‘That is important. You establish a basis of rates which estab- 
lishes a reasonable basis of earnings, such as prevailed during those 
three test years. Under a plan of this kind, I have no doubt. that 
very much more than half of the railroads, and practically two- 
thirds of them would have no difficulty in getting all the money 
they needed. Think of this further consideration: Heretofore the 
‘railroads have gone to the Interstate Commission and have pleaded 
with the commission, because they say that the public demands the 
| facilities. They say, “The public demands the facilities, and we can 
‘not get the facilities unless you raise the rates.” They pretend that 
lit is the public, and they use that as a lever to get higher rates. 
Under this plan that argument could not be used, because any rail- 
roads which have no basis for credit based on earnings can secure 
_eredit, as I have already stated. 
| Under normal conditions the railroads not earning their fixed 
charges and operating expenses are few, but there would be a con- 
eee number of roads which paid these charges but did not earn 
suilicient to establish a credit based upon earnings; in other words, 
all roads paying their expenses and fixed charges and earning up to 
9 per cent on their stock. It is this class of roads which needs help 
probably more than any other class, and it is this class of roads 
‘which with proper credit, enabling them to raise capital for eco- 
nomic operation, would be able gradually to establish their credit 
upon the basis of their earnings. 
Most of the improvements which railroads desire to make are for 
the purpose of effecting economies in operation. <A railroad does 
‘not undertake the change of a grade or a curve unless the economies 
affected are greater than the cost of the capital necessary to effect 
the improvements. Enlargements of yards, additions of tracks, 
likewise effect great economies in operation. But many of these im- 
provements are impossible under present conditions. 

Under this plan competition is preserved, and with it the rivalry 
for improvement in service, which is the shippers’ anchor of hope. 








374 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Fictitious capitalization is not recognized in rate making. No 
serious charge of overcapitalization has been made against the strong 
lines; it is the weak lines which have been subject to this criticism, 
and no attempt is made to establish rates so as to give credit to these 
weak lines through surplus earnings. The credit is given by the 
Government guaranty. | 

An important advantage which should not be lost sight of is that 
the weak lines would no longer be subject to the dominance of bank- 
ing interests. Bankers perform a most vitally important function. 
As a class they are as honest as any other class of business men, 
but they must protect their clients whose money they use, and in 
protecting their clients they must exact adequate return in order to 
compensate for the risk and they usually exact a voice in the man- 
agement. It is a well-known fact that the profits of bankers who 
are interested in railroad finance come very largely through arrange- 
ments with the weak lines, which they dominate, often, as the history 
of the last 50 years shows, to the serious detriment of the railroads 
and the public. : 

A very important consideration is that this plan can be put into” 
effect at once. It does not wait upon valuations or consolidations. 
Tt is the immediate bridge to carry us over the time necessary to_ 
make valuations or consolidations, if plans involving these considera- 
tions are ultimately to be adopted. : 

The plan goes hand in hand with the plan for consolidations of | 
the Chamber of Commerce of the United States. It is a necessary 
complement to that plan. 

If we aim ultimately at consolidations, of course, preserving essen: 
tial competition, the railroad taking over a weak line, whose bonds 
have been guaranteed by the Government, should, as a condition of 
consolidation, hold the Government harmless from any loss whicli 
it might incur in consequence of such guaranty. 

Referring to the criticisms of the plan there have been two objec- 
tions raised against this plan of limited Government guaranty, one 
that it paves the way for Government ownership and the other that 
it takes away private initiative. Either objection, if sound, would be 
sufficient to condemn it. 

It is pointed out that in France, in the case of one system, and in 
Italy, in the case of all its railroads, where Government guaranties 
existed, the operation of railroads was finally taken over by the 
Government. Why? Because the Government was confronted each 
year by a heavy deficit which had to be met by the public funds, and 
it was thought that as the Government had to stand heavy losses 
it might as well undertake the operation of the railroads, which we 
know has been accompanied with increasing deficits and inefficiency. 
It was the losses which furnished the excuse, if not the justification, 
for the taking over. Under our plan there can be no loss to the 
Government, and therefore no excuse for Government operatio1, 
for an essential feature of the plan is that the Interstate Commerce 
Commission shall so adjust rates that no loss can fall upon the Gov- 
ernment. If Government ownership comes it will not be hastened by 
the adoption of any such plan as ours. 

The second objection is that a guaranty tends to deaden initiative 
and enterprise. A guaranty of dividends on stock of a fixed amount 























RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 375 


‘would undoubtedly diminish the incentive to economy and efficiency 
of operation. Our plan contemplates no guaranty of dividends on 
‘stock. * There exists under this plan the same incentive on the part 
of the management for economical and progressive operation, in 
order that the balance sheet may show a profit available for divi- 
dends. The first thing which directors scan at their monthly meet- 
(ings 1s the statement of net earnings. The directors are the trustees 
of the stockholders and it is their first duty, having due regard for 
their obligations as managers of a public service, to manage the prop- 
arty so as to produce a reasonable return upon the stock. This in- 
centive is precisely as strong under our plan as under the present 
method of operation. 

Furthermore, with some knowledge of the mental processes of 
railroad managers, I am sure that nothing would give the manage- 
ment greater courage and incentive to undertake improvements in 
»peration than to be relieved from the eternal worry over the prob- 
lem of getting money for the improvements which are vitally nec- 
ssary if economy and efficiency are to be promoted. The President 
will no longer have to kowtow to the banking interests. His only 
responsibility will be to convince some public tribunal that the pub- 
je needs the improvements for which the money is to be expended. 

May I refer to an example which came under my personal observa- 

jon? Tor the last six years the Boston & Maine Railroad has been 
rying to raise money for improvements, but it has not been able to 
perrow money on economical terms for improvements, and it was 
tot until the Government took over the operation of those roads that 
ny hope was held out for securing the money necessary for those 
mprovements. The Railroad Administration has promised the Bos- 
on & Maine Railroad some money to be loaned to them to help out 
n those improvements. Right there let me refer to the difference 
vetween this form of guaranty and a direct loan by the Government: 
Yow, I understand that a very elaborate plan presented here by the 
Yational Transportation Committee provides that, in the case of the 
veak roads, the Government shal] lend money to the weak roads. I 
lid not hear the plan developed, and I have only talked with one 
joan who assisted in drawing up the plan, but any plan which re- 
|leves the situation must provide for that, or for this limited form 
q guaranty, so that we will not have a sky-high basis for rates. 
Yow, if the Government lends money to a railroad company it must 
ecure itself, and right here, Judge Sims, I think that perhaps you 
\howed the wisdom of the suggestion that if the Government loaned 
ioney to the railroads, it should have a first lien upon the earnings 
Ie: the railroads. Unless you have some such plan as that, the Gov- 
\tmment is not secured. Now, what does that result in? It results 
2 a mortgage of the railroad so that it can not raise any money 
xcept through the Government. Finally, if that does not secure 
jae Government, the Government will have to take over the road. 
\/herefore, any plan which contemplates Government loans leads 
Ventually, I believe, to Government ownership. 
Now, as to the immediate emergency: I have discussed this plan as 
pplicable to normal conditions. Of the three years ending June 
9, 1917, two were unusually good years for the railroads, and one 
/asa rather poor year. The average for the three years was better 
lan the average of any three consecutive years in recent times. 











376 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


But unquestionably to-day conditions are very different from what 
they were during that period. The falling off in net revenue this 
year as compared with last year is alarming in spite of a general 
increase in rates which amounts to at least 35 per cent. To-day there 
are few railroads whose earnings are sufficient to establish their 
credit. | 

Undoubtedly we are on a higher price level, but we do not yet know 
at what point the level of prices will eventually rest. The falling 
off in net revenue at the present time is due to the enormous falling 
off in traffic, as well as to the enormous increase in wages. It is cer- 
tain, therefore, that if business revives and traffic increases the situa- 
tion so far as net earnings are concerned will be materially improved. 
When the level of prices and the volume of business have become 
more or less stabilized and normal, and rates are so adjusted as to 
restore the conditions prevailing, we will say, in the three test years, 
you will have the identical problem which I have stated; namely, 
the problem of establishing the credit of the weak lines without un- 
necessarily raising rates on the strong lines. Every plan for perma- 
nent solution must be directed, therefore, to the time when normal 
conditions are restored. . 

No plan for the permanent solution of the problem can be made 
applicable and put into effect to-day, and for perhaps a year or two 
some method must be devised of meeting the present uncertain and 
unstabilized situation. 

As I have said, we propose a continuance for one year of the 
Government guaranty. 

I want very briefly to comment on the basic principles of some 
of the plans which have been presented to you, or to the Senate 
committee. All of the plans which are fundamental take into con 
sideration either property investment account or valuation. Now, 
J am not one of those who believes that the property investment 
accounts of railroads, taken as a whole, are very much in excess of 
their cost and reasonable value. I am familiar with roads whose 
cost 1s greater than the property investment account or the capitali- 
zation, and there have been railroads, especially in the West, which 
have been financed through issues of bonds equal in amount to the 
money paid in, with a bonus of stock in equal amounts, and that 
was a form of financing which was entirely justifiable. In fact, it 
was the only form for starting a new enterprise under pioneer condi- 
tions. Therefore I do not lay undue stress upon inflation in the 
property investment account, but I do want to call the attention of 
the committee to this, that under the plan which has been or will be 
proposed of allowing, say, 6 per cent on the property investment: 
account, it is also proposed that any railroad may earn up to 6 per 
cent, say, on its property investment account, and then it provides 
that a particular road that is grossly overcapitalized may still eam 
6 per cent return on that inflated capitalization or inflated property 
investment account. 

Let me call your attention to one specific case, because this is the 
case of a road of substantial size whose tentative valuation has been 
made through the Interstate Commerce Commission, and that is the 
case of the Kansas City Southern. The Kansas City Southern has 
a capitalization in bonds and stocks of substantially $100,000,000, 


a 







i - RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. Ok 
and its property investment account is substantially the same, because.,, 
as you know, when the stock is given away without anything coming 
im you must balance it by writing up an equivalent amount of the 
property investment account. The valuation of that road has been. 
found by the Interstate Commerce Commission, and my understand- 
ing is that the value, less depreciation, is less than $40,000,000, while. 
the reproduction value, or cost of reproducing new, is less than 
$90,000,000. The commission found that in the case of one of the. 
sonstituent roads in that system, for which $15,000,000 was paid in 
ash, there were issued $40,000,000 of securities. So I say that we 
should guard very carefully against any plan which permits an 
‘ndividual road, no matter how grossly it is overcapitalized, to earn 
) per cent on the property investment account. 

There are other plans which provide for a return upon the valua- 
‘ion. Valuation, gentlemen, used to be thought to be the panacea 
or all railroad transportation difficulties. In the first place, the 
valuation of the railroads of this country will not be completed for 
rom 5 to 10 years, and you must have some solution of the problem. 
yefore then. By the time the valuation passes through the com- 
‘Mission and the courts, the period of waiting will be longer than 
hat. Therefore, valuation affords no immediate solution of your 
wroblem. But, more important even than that, does this committee 
ully realize what is being handed out to the public and to the 
‘hippers in connection with this question of valuation? At the 
yresent time the Interstate Commerce Commission is making a physi- 
‘al valuation of the railroads, and that consists principally in valuing 
e and fills. It is an engineering problem. They take the cubie 





ontents of a fill and find out the unit value of that work, and they do 
he same thing with a cut. That is the way they arrive at the valua- 
ion, and that is the way they are authorized to arrive at it under the 
lecisions of the courts. You can not find any excuse for any criticism 
if the commission for adopting a method approved by the courts. 
Yow, what is the claim of the railroads, which is substantiated, I 
lieve, by the decision of the courts? The railroad is entitled to a 
air return, not on the cost of the railroad, but on the present value of 
he railroad. Following out that method of valuation, which was 
dopted by the commission and approved by the courts, the valuation 
f the railroads, or the present valuation of the railroads, is probably 
ouble what the railroads cost. The valuation is greatly in excess of 
ne capitalization of the railroads. I have been told by a thoroughly 
ompetent statistician who made a study of this subject—and he holds 
very important post with the Government, but not with the Inter- 
tate Commerce Commission—that his calculations lead him to believe 
iat to-day it would cost more to replace the cars and engines alone 
{the railroads with cars and engines of a similar type than the total 
ypitalization of all the railroads of the country. Valuation, under 
‘resent conditions, is the greatest menace to the public that exists 
-day. If the railroads maintain their contention that value is present 
alue, and from my examination of the law I do not see why the rail- 
oads are not right, I beg you to carefully consider whether that 
ution of this problem is in the interest of the public, or whether you 
\aght to wait for the determination of the values. 

gain, many plans look to the ultimate solution of the problem 
rough the consolidation of the weak lines with the strong lines. I 








878 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


think there is much to be gained from a consolidation of the weak 
lines with the strong lines, and I am inclined to think that the ulti- 
mate solution of the problem will be along those lines; but, Mr. 
Chairman and gentlemen of the committee, it will take a generation 
to bring about that consolidation, if the consolidations are to be 
brought about voluntarily. It will take many years to bring about 
consolidations if they are to brought about through compulsion—if 
they can be brought about through compulsion. Therefore we ask 
this committee, no matter what your ideas may be about valuation as 
an ultimate solution of this problem, or about consolidation as the 
ultimate solution of the problem, to direct your attention to the 
problem and its solution for even five years, and we believe that there 
is no solution of that problem except through this limited form of 
guaranty which we have suggested. 

I thank you for your attention. 

Mr. Watson. In your preliminary views you alluded to a change 
of rates, and, of course, they must be advertised for 30 days. In an 
immedate emergency, do you think the Interstate Commerce Con 
mission would have the power to make the rates upon an immediate 
hearing of the shipper and carrier ? 

Mr. Rrcu. They would have the power to waive the 30 days’ pro- 
vision. 

Mr. Watson. They have that power now? 

Mr. Ricw. Yes, sir. 

Mr. Watson. In all cases? 

Mr. Ricw. Yes, sir. 

Mr. Watson. You also spoke of an increase in operating expenses 
on account of labor, and said, therefore, the rate had to be increased. 
Do you believe in a tribunal for regulating the rates of wages of 
BGS that have been suggested here by one of the previous wit- 
nesses 4 

Mr. Ricn. I believe, and the interests which I represent most 
strongly believe, in an arbitration board established by Govern- 
mental authority, to which shall be referred all wage disputes. They 
firmly believe that the law should provide—and I have nevel 
doubted that such a law would be acceptable to the railroad ei 
ployees—that there shall be no strikes for, say, 60 days after fina 
award is made in order that passions may cool and that conditions 
may be thoroughly understood. I think that the objection the rail 
road employees have to arbitration is the form of the arbitratior 
board. I know, or I believe, that they are in favor generally of dit 
ferences being adjusted by a board consisting of equal numbers 01 
employees and officers of the corporation, and they dislike a thirc 
body injected into the board practically in the form of an arbitrator 
I am not prepared to suggest a form of arbitration, but merely insis' 
with all the power I have upon the necessity for arbitration. : 

Mr. Warson. You believe, then, in separating the Interstate Com 
merce Commission in the regulating of rates from the regulation 0 
of wages? You would not compel it to have charge of the regulat 
ing of the wages, but would separate them ? ) 

Mr. Ricu. Yes, sir. 

Mr. Warson. You think they should be entirely separated? 


™— 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 379 


Mr. Ricu. I am inclined to think that the objections raised by the 
ete Commerce Commission to assuming those functions are 
sound. 

_ Mr. Watson. Did I understand you to say that the cailroads’ earn- 
ngs in excess of 9 per cent should be paid to the Government ? 

’ Mr. Ricu. Half of the amount over 9 per cent. 

_ Mr. Watson. Would not that be an extra tax for the railroads to 
yay, would it not be a tax on efficiency ? 

Mr. Ric. No, sir; I think not. They will be able to retain 9 per 
ent and half of everything above that. That might not be exactly 
he same incentive, but it must be a strong incentive, and I do not 
mow but what it would be a stronger incentive, to earn as much as 
jossible in order that their share might be as great as possible. If 
rou sumply stopped at 9 per cent and said that the railroad could 
tot get any more than that, of course you would destroy to a con- 
iderable extent the incentive to efficiency. 

Mr. Warson. I understood you to say one-half of the earnings 
ver 9 per cent. 
_ Mr. Ricu. Yes, sir. 

Mr. Watson. If the earnings were 10 per cent, one-half of 1 per 
ent would go to the Government and the railroads would get the 
ther half? 

Mr. Ricu. Yes, sir. 

_ Mr. Merrrrr. I want to ask you some questions in connection with 
four suggestions about the Government advancing money to the 
yeaker roads: That, I take it, would tend, at least, to prevent some 
eceiverships and some reorganizations of weaker roads? 

Mr. Ricu. I do not think it would have any other effect than to 
revent receiverships. It might still be advisable that some roads go 
ato the hands of receivers, but it would have a tendency, a very 
reat tendency, to prevent receiverships and all the evils that follow 
rom receiverships. 
| Mr. Mereirr. Mr. Commissioner Clark stated the other day that 

nere were some roads which were not only overcapitalized but which 
ever could hope, under their present organization, to get on a 
‘able basis. If there are such roads, would it not be in the general 
terest of the public and general railway efficiency to have those 
Ly go into receiverships and be reorganized just as soon as pos- 
ble. 

Mr. Ricu. In a general way, one would say yes, but you are probably 
ware that whenever there isa reorganization itis very rare that there 
any decrease in total capital liabilities. Even in the case of the recent 
sorganization of the Pere Marquette, which is an admirable case of 
‘organization, where the fixed charges were greatly reduced, the total 
oligations were increased in amount. Now, it still becomes almost 
apossible to raise money when a railroad company has been re- 
‘ganized. The only way that a reorganization will establish the 
edit of a railroad is to drastically pare down, pro rata, or other- 
ise, all the obligations, and that is something which I believe is 
ardly ever done. 

‘Mr. Mererrr. You spoke about the fixed charges of the Pere Mar- 
-lette being reduced. 

Mr. Ricn. Yes. 






380 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Merrrrr. As a matter of consolidation, for instance, if a strong 
road is to take in a weak one, the only thing which they would 
necessarily look at would be the fixed obligations; is not that true? 

Mr. Rion. Yes. It would, undoubtedly, in certain cases be very 
helpful to have the reorganization. Reorganizations come slowly. 
Take the case of the Boston & Maine reorganization. It has been 
going on for about six years and the road is not reorganized yet. 
Reorganizations in theory are all right, but in practice they do not 
accomplish much toward rehabilitating the railroad. It is true there 
are railroads so grossly overcapitalized that they can not get money 
for improvements. There are roads which may not be overcapital- 
ized that can not get money for improvements, but the people served 
by those roads still have certain rights, and if that road can be put 
into proper condition to serve the public, it ought to be put inte 
proper condition. I believe, therefore, the mere fact of a road being 
overcapitalized is not a reason why we should not try to have thie 
public served by improvements. 

Mr. Merrrrr. Your view, then, on that idea of public service is thai 
2 prosperous road, for example, in New York, should contribute anc 
help out a road not so prosperous in the Middle West? 

Mr. Riou. I think that the correct way would be to have region: 
very much as proposed in the Warfield plan, and I think in som« 
other plans, and have those regions self-supporting. Have ont 
region, perhaps, of roads east of Chicago and north of the Potomac 
and perhaps have such regions as are proposed in the Warfield plan 
1 do not think it should be spread all over the country. I thinki 
would be fairer to have the excess earnings of one road used to mak 
up the deficit of a weak road in that same region. 

Mr. Mrrrirr. With which road it had no connection ? 

Mr. Ricu. Yes. 

Mr. Monracur. Have you formulated your ideas in the shape of: 
bill? 

Mr. Ricu. Governor Montague, I am sorry to say that I have not 
I am a very busy man and I have always intended to do it, but 
have not done it. 

Mr. Monracur. That would enable us to see how concretely yo 
work out your argument and views. 

Mr. Riou. I think, Governor, that is the test of the plan. 

Mr. Monvacur. It is almost the supreme practical test and woul: 
be very helpful to us. | 

Mr. Ric. I was in hopes the plan might interest the committe 
to such an extent that they might have some expert assistance r 
drawing such a bill. 

Mr. Sanpers of Indiana. You suggested regional commission 
About how many regional commissions do you suggest? 

Mr. Ricu. Representative Sanders, I have not worked out ti 
problem. I am going to leave that to the representatives of the com 
mercial interests of Texas who, I think, have some definite ideas 0 
it. I would not want to say, but perhaps seven or eight. 

Mr. Sanpers of Indiana. What power would you give these rt 
gional commissions ? . 

Mr. Ric. I would give to the regional commissions practical 
final power in determining matters of purely regional interest. Tht 
























RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 881 
loes not necessarily cover a large range of subjects because in the 
stablishment of a rate, the establishment of the rate in one region 
jay affect another, and if so, there should be some way to get the 
ecision of the full Interstate Commerce Commission; but the ship- 
ers want the administration of the law brought home to them and 
ith every confidence in the Interstate Commerce Commission, they 
refer, I believe, to have regional commissions under the general 
upervision of the Interstate Commerce Commission. 

r. Sanpers of Indiana. You would have the right of review by 
ae Interstate Commerce Commission ? 

Mr. Ricu. A pretty full right of review. 

Mr. Sanvers of Indiana. On the question of rates, for instance, 
‘ould you have a complete right of review on any question of rates? 
Mr. Ricw. I am inclined to think that if you confine it to a rate 
aat does not affect the rates outside of the region, you would not 
o to the Interstate Commerce Commission. 

Mr. Sanvers of Indiana. Is not that a pretty difficult thing to do? 

Mr. Ricu. That, of course, would take most rates to the commis- 
on, if any connection is found with rates outside. 

Mr. Sanpers of Indiana. What would be your view with refer- 
ice to Federal jurisdiction of intrastate rates of carriers engaged in 
iterstate commerce? 

Mr. Ricu. I think they should be under the supreme control of 
1e Interstate Commerce Commission. 

“Mz. Sanvers of Indiana. What would be your view of giving the 
aterstate Commerce Commission and the regional commissions com- 
lete jurisdiction of all transportation rates? 
| Mr. Ricxu. I believe it would be entirely safe to do it, although, as 
have said, I am under instructions here to make a reservation in 
je case of commutation passenger rates. I believe that, generally 
veaking, the Interstate Commerce Commission should have supreme 
ithority over all rates, and I believe that under the bill as read, 
jat although the bill provides for simply jurisdiction of the com- 
-ission when there is some conflict of interstate commerce or some 
irden is placed on interstate commerce that for practical purposes 
ie Interstate Commerce Commission is the supreme authority in 
ie determination of the reasonableness and the discriminatory 
ture of all rates, State and interstate. 

My. Sanpers of Indiana. But under the present law their powers 
‘e hampered by many limitations, are they not? 

Mr. Ricu. Under the present law nothing is practically accom- 
ished in reconciling State rates with interstate rates. I want to 
y right there, if I may, that that is of tremendous interest; that the 
ate of ‘Texas, which has been the greatest offender in regard to 
ate rates, by unanimous resolutions of a great transportation con- 
mtion, voted that the regulation of State rates, so far as they con- 
ct with interstate rates, should be in the hands of the Federal com- 
ission. JI think we have all come around to that now, and at last 
th Texas lined up on the right side, there ought to be no difficulty 
a satisfactory solution of the rate problem. 

‘Mr. Sanvers of Indiana. Do you not think that the greatest factor 

frightening away proposed investors is the fact that there are 48 
gulatory bodies dealing with rates? 







- 


382 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 































Mr. Ricu. I think that has its effect. 
Mr. Sanpers of Indiana. What would be your view with reference: 
to giving the regulatory bodies of the Federal Government power to 
fix maximum and minimum rates? 
Mr. Ricu. I think it is probably wise. 
Mr. Sanvers of Indiana. Taking up the question of the difficulties 
that would be encountered by the commission, as suggested by Com- 
missioner Clark, does not the commission have that same difliculty 
because of the provisions of the Federal Constitution which require 
that the commission shall not fix such rates as are confiscatory 4 
Mr. Ricu. Of course, the commission, and any commission, must] 
be confronted with the practical difficulties of establishing a pretty 
definite basis of rates, a basis of rates that will yield a pretty defimite 
return, and that is a difficulty inherent with every plan, I think. | 
Mr. Sanpers of Indiana. And there is the same difficulty under the 
present law. ' 
Mr. Ricu. Prescisely so. | 
Mr. Sanpers of Indiana. That is, when the commission undertakes 
to pass upon certain rates, they must pass upon those rates with a 
view to giving a reascnable return upon the property investment. | 
Mr. Ricu. I think you have shown exactly the difficulties that exist 
to-day. | 
Mr. Sanvers of Indiana. And does your plan suggest a statutory) 
mandate to the commission to make the earnings yield a certaig| 
return ? | 
Mr. Ricr. Yes; and it is really the vital feature of the plan. We 
go back to those three test years, three good years, and we find thai 
the deficits of the roads there were only $22,000,000 a year on tit 
average, and we find that the Government would receive its share @ 
the surplus, amounting to $52,000,000, so we can take that as a moti 
or less definite basis. That would yield to the Government a surplw 
of $30,000,000, and my suggestion would be that the rate-making many 
date to the commission would be substantially this, that the commis} 
sion shall permit rates to be so established, or shall establish rate 
so that under this plan the surplus over the deficit shall not be less 
we will say, than $25,000,000 a year on an average during a perio 
of three years, or perhaps more than $50,000,000 a year, giving then 
a latitude; or make it a minimum of $50,000,000 and a maximum 0) 
$100,000,000, if you please. Give them a certain latitude and over : 
period of three years they can establish rates so that there will be » 
deficit, and I think, as you have pointed out, that the difficulty is » 
greater to-day or no greater under this plan, or under other plans 
than it is to-day. 
Mr. Sanpers of Indiana. Now, taking up the question of the con 
stitutional objections to the plan of requiring a railroad compan, 
to turn back certain of its earnings, I presume it would be unconsti 
tutional to require them to turn back earnings already yielded prio 
to the enactment of the legislation ? | 
Mr. Ricu. I do not know, sir. | 
Mr. Sanvers of Indiana. But under the plan suggested, dealin 
with future earnings, if a statutory rule fixes what earnings shall b 
made by the railroads, and at the same time that law provides tha 
the railroads shall only keep a certain percentage above a certai 


i RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 383 
oint, is not the constitutional objection met by the proposition that 
whe railroad company receives these earnings not in its own right but 
is trustee to administer them as provided by the law under which 
those earnings were made? 

_ Mr. Ricu. I think that is a very excellent statement of the situa- 
ion. I think that is what, in essence, takes place. I might amplify 
hat a little by taking a railroad earning over 9 per cent on its stock 
‘tr 6 per cent on its property investment, rates could be established so 
hat that road would not reach over 6 per cent, but under our com- 
yetitive conditions rates have to be established so that some roads 
arm more, and this is a method of meeting a situation due to com- 
letitive conditions. 

Mr. Sanvers of Indiana. The commission, for instance, in fixing 
he rates of a certain strong road could say to that road, “ We will 
x this rate so that it will yield to you not to exceed 9 per cent,” 
ut in order to protect the weak road you think the commission 
jught also say, “ We will fix this rate so it may yield to you 9 per 
eu and may yield in addition a certain per cent, but if it does you 
| 














must use that additional fund in such way as the law provides.” 
Mr. Ricu. Exactly so, sir. That suggests this thought: Of course, 
per cent on capital stock is only about 6 per cent on the value of 
ae property, because the bonds bear a less rate of per cent. Sixty 
er cent of the capitalization may be bonds at 4 or 44 per cent, 
> that 9 per cent on the capital stock is only a little more than 6 
er cent on the property investment. 

Now, there is only one qualification I want to make in regard to 
us plan. You take the Burlington Railroad, for instance, earning 
)) or 30 per cent. That railroad is greatly undercapitalized, I 
ave no doubt. It is entitled, we will say, under the law, to 6 per 
mt on the value of its property. Now, that 6 per cent on the value 
\f its property may be 15 per cent on its capital stock, so that you 
lust have a provision that a railroad shall not be obliged to give 
,P any part of its earnings until it has set aside for itself an amount 
|{ earnings equivalent to 6 per cent on the value of its property, 
) that the Burlington road may continue to hold 15 per cent, and . 
*%t half of everything above-15 per cent, and keep it itself, so the 
le is absolutely fair and liberal to the railroads; extremely so. 
{ course, they have absolute constitutional protection anyway, but 
rite it in the law. Confidentially, I do not see the railway execu- 
ves here. I do not see why the railroad executives do not advocate 
is plan. I can not conceive of why it is not extremely favorable 
x the railroads. Representing the shippers only, I believe it is the 
ost favorable plan for the shippers if we are going to get service— 
}id we are bound to have service. Now, look at our situation in New 
jogland. We have two great systems, the Boston & Maine, and 
-¢ New Haven; neither of them can raise a dollar for the improve- 
ents that are necessary, and they will not, under existing conditions, 
under any plan you may put into effect, except under some plan 
ve this, ever be able to raise money in order to rehabilitate their 
jStems and render eflicient service to the public. I have not 
ferred to this as a plan especially for the benefit of New England. 
1s especially for the benefit of New England that I have discussed 
,entirely along broad, national lines. 
















384 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Wesrster. Mr. Rich, through my own fault, I have no doubt 
I failed to catch the full force of your criticism of that feature 01 
the Esch bill which seeks to confer upon the Interstate Commerce: 
Commission power to fix the rates of carriers by water. I do no 
seem to appreciate the reason for such a distinction. Why shoulc 
the rates of the carriers by railroad be subject to the regulating 
power of the commission while the rates of carriers by water shoul 
not be subject to such control when it is known that rail and wate: 
carriers must compete for business at water competitive points? 

Mr. Ricu. Mr. Webster, there is a great deal to be said in favo} 
of the control of these rates by the Interstate Commerce Commis 
sion. There are, however, two sides to the proposition. Up to thi 
present time it has been the theory of Congress that water carrier: 
should be free to construct their own rates. That is the theory upor 
which commerce has been developed, and I am inclined to think i 
is the right theory, and I do not see any urgency now for changin: 
the long-established policy of this country in reference to wate! 
transportation. If it were merely to give the control of water rate: 
to the United States Shipping Board or to the Interstate Commerc 
Commission, under similar circumstances and conditions, I have nt 
doubt that the commission is the proper tribunal, but under this bil 
you make water rates absolutely rigid. They have to be publishec 
and they can not be changed under 30 days. You deprive the ship: 
pers of all that inestimable value of competition which we have hac 
for generations, which we have had from the beginning of the his 
tory of this country, and it seems to me you ought to consider most 
carefully and gravely whether you want to reverse the policy long 
established in this country. And let me make another sugges 
tion there. In reading the report of the discussion before this coni 
mittee I noticed a statement was made that the tramp boats shoule 
be left out from the regulation of the commission. 

Now, gentlemen, that, I think, would be a very serious omission 
For instance, at the present time we are trying to establish a line 01 
ships between New England and Texas. You see there are a great 
many things in common between New England and Texas. Suppose 
we would establish that line, we could not maintain it successfully 
unless practically all of the water-borne business goes by that line 
because the rates of the line are fixed and rigid and can not be 
changed, and a tramp comes in, there is a big offering, at Galvestor 
or Houston, of cotton, and the tramp takes away every bit of thal 
cotton from the steamship line. If you are going to regulate watel 
rates you must consider very carefully whether the tramp ought 
not to be regulated as well as the line. I believe that the presen! 
method of regulation by the Shipping Board is vastly superior to tht 
method proposed under this bill. 

The Cuairman. There has been no method at all? 

Mr. Ricu. I think that is better. 

The Cuairman. They have not exercised any power? 

Mr. Ricu. I think that is true. I think more or less free competi 
tion is exactly what we want. 

Mr. Wesstrr. Might there not be found a reason for bringing th’ 
water carriers under the jurisdiction of the commission in order t 
do away with what we call cutthroat competition between rail an 


Pod 







RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 385 


‘water carriers at water competing points so that relatively just rates 
may be laid throughout the country instead of permitting the rail- 
roads to reduce their rates down to out-of-pocket cost and then to 
levy the deficit on the people at interior sections where they are not 
favored with water competition ? 
__ Mr. Ricu. That is a strong reason for a control of water rates by 
the Interstate Commerce Commission; I do not minimize the impor- 
tance of that. 

The Cuatrrman. The committee will now take a recess until 10 
o'clock to-morrow morning. | 

(Thereupon, the committee took a recess until to-morrow, Thurs- 
day, July 31, 1919, at 10 o’clock, a. m.) 


Commitree on Interstate AND Foreren CoMMERCE, 
House or REPRESENTATIVES, 
Thursday, July 31, 1919. 


The committee met at 10 o’clock a. m., Hon. John J. Esch (chair- 
man) presiding. 


STATEMENT OF MR. EDGAR J. RICH, NO. 6 BEACON STREET, 
BOSTON MASS.—Resumed. 


The Cuarrman. Mr. Rich, I think Judge Sims would like to ask 
you some questions. 
| Mr. Ricu. Mr. Chairman, before Judge Sims proceeds with his 
*xamination, I would like to introduce into the record a copy of the 
resolutions adopted at the New England Transportation Convention, 
0 which I referred yesterday. 

The Cuarrman, Very well: 

(The resolutions referred to follow:) 


‘ESOUTIONS ADOPTED AT THE EVENING SESSION OF THE NEW ENGLAND TRANSPOR- 
TATION CONVENTION AT THE COPLEY-PLAZA HOTEL, BOSTON, THURSDAY, MAY 8, 
1919. 









1. We are opposed to Government ownership or Government operation of the 

ailroads of the country. We believe that Government operation is destructive 
f initiative, enterprise, and economy. But more fundamental than these con- 
iderations is the menace to democratic institutions involved in creating such 
ast political power. 
' 2. We favor the restoration of the railroads to their owners at as early a 
ate as possible, but we believe that they should not be so restored until 
ongress has passed suitable laws which will avoid any possibility of economic 
isturbance, and which will enable the railroads, through the establishment of 
oper credit, to render adequate service to the country. To accomplish this 
turn to private ownership, we believe it to be fair and proper that the Gov- 
mment shall for a limited period continue its agreed compensation to the 
lilroads. 

3. We favor the exclusive Federal regulation of the issuance of railroad 
| curities by all railroads doing an interstate business. 

4. We favor relying upon the Interstate Commerce Commission to regulate 
I rates and practices which affect interstate commerce, with due regard for 
Tvice and for a fair return to the railroads, reserving, however, to the States 
le power to regulate commutation passenger rates. 

5. We favor the establishment of regional commissions or some form of 
ibunal, under the general supervision of the Interstate Commerce Commis- 


152894—19 25 








VOL L 


386 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. - 


sion, and to be constituted and appointed in a similar manner, in order thar 
matters of regional interest may be handled with dispatch, with minimum 
expense to the public, and with a thorough understanding of local conditions, — 

6. We favor legislation which shall provide for the settlement by arbitration 
of disputes relating to wages and conditions of employment in the railroad” 
service and declare our adherence to the principle that the transportation 
service of the Nation shall not be interrupted or jeopardized by such disputes. — 

7. We favor laws permitting the consolidation of railroads, and permitting 
pooling and combination, under express authority of the Interstate Commerce 
Commission, and without materially limiting competition. 

8. We favor legislation which will make possible the adequate financing of 
the railroads without undue increase in rates, and to this end we suggest con- 
sideration of the plan known as that of the Associated Industries of Massa- 
chusetts and advocated by the directors of the Massachusetts Chamber of 
Commerce. = 

9. We oppose any plan which takes away from the Interstate Commerce 
Commission any of its important powers and transfers them to a member of 
the Cabinet. 

10. We oppose any plan which gives undue recognition to existing capitaliza- 
tion or to the investment accounts of the railroads as bases upon which returns” 
to the owners shall be determined. 

11. We oppose the postponement of legislation until the valuation of railroads 
is completed, although when such valuation is completed a method may be 
evolved for determining the returns upon the basis of valuation. 

12..That a copy of these resolutions be sent to each Member. of Congress, 
together with the names of all the organizations represented at this convention, 

CHARLES A. ANDREWS, 
Treasurer Gorton-Pew Fisheries Co., Gloucester, 
Chairman of the Committee on Resolutions. 
; DupDLEY HARMON, 
Assistant to the President The Manufacturers’ Association 
of Connecticut (Inc.), Hartford, Conn., ; 
Secretary of Comnvittee on Resolutions. 

Mr. Srus. Dr. Rich, it seems to be a case of the railroads, or rail- 
road interests, asking, “ What must we do to be saved?” and we have 
a great many proposed plans of salvation. One of them is presented 
by the railway executives’ committee, in detail and comprehensively. 
Another plan of salvation is proposed by what is called the War 
field committee, or the Warfield-Root-Walter plan of salvation. 
Another plan of salvation is proposed by the United States Chamber 
of Commerce, or the transportation committee of the United States 
Chamber of Commerce. Then we have another plan of salvation 
presented by Mr. Amster, from Boston, I believe. We have, then; 
another plan of salvation proposed by organized labor, known as 
the Plumb plan. We then have another plan of salvation proposed 
by the representatives for whom you speak. I do not know whether 
Mr. Fulbright has a separate, detailed, plan of salvation or not, 
but it seems you couple him up somewhat with yourself. a 

Now, we have another—I would hardy call it a plan of salvation, 
but a proposition, at least, to help along that line, embraced in thie 
bill introduced by the chairman of the committee, which I would call 
the St. Peter plan. St. Peter attempted to walk on the water and 
began to sink and cried out for help and received temporary help 
and he did not sink; but I never heard of him making the attempt to 
walk on the water any further. Now, with all these plans of salvation, 
they certainly indicate the general belief of expert opinion, both as to 
financing and operating railroads, and those representing the public 
interests, that a plan of salvation must be adopted, and all these 
several plans present features that are good, undoubtedly. Now, if 


. 





i 
ul 


‘t 
| 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 387 


‘we can get all the would-be saviours together on the fundamentals, 
‘then we may supplement the St. Peter plan and ultimately arrive at 
the best possible solution. 
Now, I want to ask you a little about the inevitable tendency of the 
‘plan which you present. As I understand it, you propose that the 
Government shall guarantee the interest on bonds authorized to be 
issued under the plan. 

Mr. Ricw. Interest and principal, sir. 

Mr. Srus. I misunderstood you and did not catch that. Both 


principal and interest ? 


Mr. Ricu. Yes, sir. ; 
Mr. Sims. My recollection is that the incident that suggested the 
matter of the guaranty to me, when I a was a member of the joint 


Senate and House committee, was that the Philippine Government, 


‘which indirectly is the Government of the United States, had guar- 


‘anteed the interest upon certain bond issues for the purpose of con- 


“structing railroads in the Philippine Islands. That is my recol- 
Tection, but I am not absolutely sure. So in the joint committee 
‘hearings I did suggest that as a possibility of furnishing credit to 
roads having to have it, at a lower rate of interest than they could 


otherwise get it, and the precedent I had in mind was the action in 
the Philippine Islands; but I think it was Mr. Thom who made such 
objection to it, or gave such reasons for his objection—I do not re- 
member just what they were, but they satisfied me that it was not 
acceptable and perhaps not practicable, and so I abandoned it and 
‘paid no further attention to it. Now, will you actually strengthen 


these weak roads in the sense of servants of the public by doing what 
‘you propose to do, and if you do it for the weak roads, will you not 


have to do it for all roads seeking capital ? 
Mr. Ricu. I think not, sir. Any road which has the means of 
raising money through its own credit should do so, and if we reach 


“a basis of net earnings, substantially the basis prevailing in the three 


test years, it is my judgment, under such a plan as we have proposed, 


that probably two-thirds of the railroads could do their own financ- 
ing. May I interject here an answer perhaps to a statement which 


was not a question put by you. In your plan, or in your suggestion 
before the joint committee, you proposed that the Government, in 


order to protect itself from the losses which would accrue from the 
loans to the weak roads, should have a first lien on those roads. 


Mr. Srus. And all its assets. 

Mr. Ricuw. Yes. 

Mr. Sims. That is correct. 

Mr. Ricu. And Mr. Thom very cogently pointed out that if you 
gave to the Government a first lien on the earnings or property of 


that road, you would impair its credit to such an extent that it never 


could establish its credit on the basis of its earnings, and that the 
Inevitable result would be toward Government ownership. With 
that criticism I heartily concur, and it is in order to meet that criti- 


cism that we have suggested a means of holding the Government 
harmless which does not involve any lien on the property or earn- 


‘Ings of the weak road. In other words, our plan proposes the issu- 
ance not of mortgage bonds but of debenture bonds. In other words, 


“We propose simply a guaranty of the Government on a loan unse- 


cured by the property or earnings or other assets of the road. 


388 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Sims. Doctor, do you not then in effect ask the Government to 
do that which no private company would do or ought to do? 

Mr. Ricu. No 

Mr. Srus (continuing). And that is, to guarantee the bond issues 
of a railroad company without any security whatever, only the pos- 
sibilities of that company being able to make return of the loan or 
else sustain a loss should there be a loss. 

Mr. Ricu. I think, sir, there is a very much greater security than 
that which you suggest, and that security is the mandate of the Con- 
gress of theUnited States to the Interstate Commerce Commission to 
see to it that rates are so adjusted under this plan that no loss can 
fall upon the Government. That is the fundamental basis of the 
plan, and if the Interstate Commerce Commission fulfills its duty 
no loss can fall upon the Government. Right here, Mr. Sims, if 1 
may interject something which I intended to refer to yesterday but 
did not, I do not believe that there is any legitimate objection to this 
very limited form of guaranty that we suggest, but there is a preju- 
dice against any form of Government guaranty, a prejudice that is 
absolutely sound, so far as the guaranty of existing obligations is 
concerned, but if that objection appeals to any as being decisive in 
such a plan as this, I have suggested in some addresses which I have 
made on this subject, and I have suggested it to Mr. Warfield, that a 
corporation such as Mr. Warfield proposes, a National Railway Asso- 
ciation, should be the instrumentality through which the excess earn- 
ings should pass to the weak roads. I have not followed that out 
because I do not believe that there is any legitimate objection to the 
guaranty which I have suggested, but if it is constitutional to estab- 
lish such a corporation as he proposes, I do not see why that corpora- 
tion could not be made the receiving agent of these excess profits, and 
then it could guarantee the obligations issued by the weak roads, 
and in that way you eliminate all Government participation, except 
in So far as it becomes necessary for Congress to incorporate such a 
company. and to bestow upon it such powers as I have indicated. 

Mr. Srs. Your plan then is not to give the Government any 
lien upon the property or make it a preferred creditor in case it 
should have to pay anything on the guaranty. 7 

Mr. Ricu. That is our plan, sir; ves. | 

Mr. Sms. In other words, your plan is that the Government takes 
all the risk of this loan, and if there is default, it must be made up 
by taxation, and the Government gives the road all the benefit except 
the possibility of a division of a return exceeding 9 per cent on 
the capital stock of the road. 

Mr. Ricu. The Government takes no risk if the governmental 
agency, namely, the Interstate Commerce Commission, fulfills its 
statutory duty which it has absolute power to fulfill and which it has 
the duty to fulfill. So far as the second part of your question 1S 
concerned, that all the benefit goes to the weak road, we are not 
seeking to benefit the weak roads. We are seeking to benefit the 
people who are served by the weak roads. If it was merely a ques: 
tion of benefiting the weak road, we would have nothing to say; 
but you can not lose sight of the fact that in some way you have got 
to'establish the credit of that weak road if the public is to be served. 
Wo are not here advocating any protection to the private interest 










RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 389 


of the railroad, except so far as that becomes necessary to serve the 
public. 

q Mr. Sims. If a weak road receiving this Government guaranty on 
‘an issue of bonds could borrow money with that guaranty at 4 
per cent, and a strong road could not borrow it for less than 4 or 
‘44 per cent upon the competitive investment market of the country, 
would not that be showing a clear Government discrimination in 
favor of the weak road by way of guaranteeing the solvency of 
the loan? 

Mr. Rion. It is a discrimination, sir, but a just discrimination, I 
believe. There is much to be said, of course, toward guaranteeing 
the interest on the obligations of all roads, because there is a saving 
of money, but for one I do not want to get any nearer to Govern- 
ment control or Government operation than possible. I am Just 
‘as much opposed to it, and the interests I represent are Just as much 
jopposed to it as anybody, and therefore we believe that a road having 
eredit should exercise that credit, even if it costs a little more. 

_ Mr. Sims. Now, Mr. Rich, if the Government by guaranteeing 
‘bonds enables a railroad company to borrow money at a more favor- 
able rate of interest than it could otherwise borrow it, or perhaps 
lenable it to borrow money when it could not borrow money at all 
‘otherwise, why should not that company, receiving a special favor, 
@ive a preferred lien upon its property to guarantee the Govern- 
ment against loss? 

Mr. Ricw. I think the objections to a preferred lien were abso- 
lutely set forth by Mr. Thom in the way I have indicated. I believe, 
you should not further hamper the weaker roads. I think you 
should do everthing to enable them to get out from under Govern- 
ment protection, and therefore we should be opposed to the mort- 
gaging of that road in order to secure the Government when the 
Government does not need that security. It has security, under our 
plan, in the mandate to the Interstate Commerce Commission. 
Mr. Srus. Now, then, you get back to the crux of your position, as 
I understand it, and that is that there must be an absolute statutory 
mandate upon the rate-making body that whenever a road borrows 
money, guaranteed by the Government of the United States, the rates 
and services for which the road receives pay must be large enough, 
in fact, to take care of all former obligations, all existing prior 
obligations, together with the Government guaranteed lability, and 
if that should be high enough to actually reduce the uses of the road, 
to curtail the business it does, you will have an ever-increasing rate 
sharge with an ever-decreasing volume of traffic; would not that be 
inevitable? 

_ Mr. Ricu. I must have been misunderstood, because our plan does 
not contemplate increasing the rates on that particular road which 
has a Government guaranty to a point sufficient to take care of its 
operating expenses and its interest charges. Such a plan would be 
fatal, because, as you suggest, sir, the rates would have to be so high 
as to curtail traffic, and probably you could not put the rates at such a 
point that, in many cases, they would take care of the deficit. The 
deficits on that weak road are to be made up out of the earnings of the 
strong roads, out of this excess-profit fund, or whatever you may call 
it, and that is the vital principle of the vlan. You can not make 


390 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


rates for the weak roads sufficiently high to take care of their needs, 
even if the traflic would permit, without giving the strong roads an 
unnecessarily large amount of revenue. In the illustration I used 
before, if your rates were high enough to take care of the expenses of 
some of the weaker roads, they would be much higher than necessary 
to take care of the needs of the strong roads. 

Mr. Sims. Do you think it is good morals, good economy, and good 
legislation to require of a strong road, which 1s strong by reason of its 
own efforts, its own service, its own investment of capital, that a 
part of that earning, which is lawful, which is proper, and which is 
moral, and which is made under the same rate structure and rates 
permitted by Government authority, should be taken directly, or 
indirectly, to aid another road for which it is not responsible in 
any way whatever, in order to render a better service than it could 
otherwise render, or as good as the strong and the well-managed road 
does render? Now, is that something you would want to indorse as 
a policy for the Government of the United States, in general ? 

Mr. Ricw. In the first place, without directly answering the ques- 
tion, I call to the attention of the committee the fact that most of the 
carefully considered plans provide for excess profits to be used in 
some way, and provide for a portion of those excess profits to be 
turned over to the Government to be used in some way. Every plan 
except our plan provides that those excess profits shall be used in a 
general, vague, and indefinite way to help the railroad situation, and 
T ask you to examine the Warfield plan, the most carefully considered 
of these plans, to see how vague it is in that respect. It is even 
suggested in the Warfield plan that these excess profits that go to 
the Government shall be used to buy cars for the railroads. We 
have always thought the railroads ought to buy their own cars. But 
our plan proposes that these excess profits shall be used directly to 
strengthen the credit of the weak roads. There is where it differs 
materially from all other excess-profit plans. Now, to come down 
to the fundamental question as to the justness of it, yesterday, 1) 
think, I showed that such a plan is constitutional. I do not care to 
discuss that further. As to the justness of it, a railroad is entitled 
to a fair return on its property. That is all it is entitled to under 
the Constitution. That is all the owners of the road ought to have. 
If you were considering a single road aside from competitive condi- 
tions, the rates should be so adjusted that the railroad can issue its 
stock or its bonds on favorable terms, and there is no reason why a 
railroad should be permitted, aside from competitive conditions, to 
earn 15 or 20 per cent, and if you had a noncompetitive system your 
rates would be reduced to’such a point that the road would probably 
earn, perhaps, 6 per cent on its invested capital and, perhaps, 8 or 9° 
per cent on its stock, but because of competition you can not limit: 
the earnings of the strong roads to that amount without putting the 
weak roads out of business, and therefore the competitive condition 
raises a situation whereby the strong roads are enabled on the rates 
that are adopted to get a very much larger amount than is necessary, 
to meet their financial requirements. So, I say the justification of 
this division of excess profits lies in the fact of the competitive situa- 
tion which compels equal rates between competitive points. . 

Mr. Srus. Would it not be more natural and of greater public 
benefit to reduce the rates on the railroad that is getting excessive 










RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 391 


‘rates under regulation than to force the patrons of the road to con- 
\tinue paying excessive rates in order that the railroad not so eco- 
‘nomically constructed and not so efficiently managed would be able 
/to compete with the stronger road? It seems to’me that we are 
asking the stronger road to give up part of what they are compelled 
|$0 earn, because they can not reduce the traffic. They are compelled 
ito earn, they can not reduce expenses by reducing the service they 
‘render, and we practically take a part of that and by direction of 
\law transfer it to a road that they are not responsible for in any 
‘way, did not bring it into existence, do not manage it and do not 
operate it, in order that this inefficient road, comparatively speaking, 
may have as large an earning on its stock as will make its securities 
pequally desirable in the markets of the world with the stronger road 
that has made itself all 1t is by its own investment and by eflicient 
|management ? ; 
Mr. Ricw. Our plan does not contemplate that the stock of the 
weak road should at once become so attractive that money can be 
|raised in that way. 
| Mr. Srms. I know, the Government would put up the money. 
' Mr. Ricw. It would take time to do that, as methods of efficiency 
‘were effected and they were in a position where they could finance 
|their own requirements. I think one of the strong points of this 
iplan is that it enables the roads gradually to get out from under 
‘the wing of the Government and become self-supporting and self- 
/sustaining roads, without putting any unjust burden upon the public 
‘and without putting any burden upon the Federal Government. 
Mr. Sms. In order to save the Government from possible loss to 
be made up out of the Federal Treasury by general taxation, why 
should not the strong roads, as a permission to do interstate busi- 
ness, guarantee these identical same bonds for the weak roads that 
you want the Government to guarantee? Do you think that such a 
‘thing would be right or advantageous. 
_ Mr. Ricw. I do not suppose it would be possible to do that, Judge 
‘Sims. That, of course, leads to your next question, does not a solu- 
tion of this problem le along the line of the consolidation of the 
strong roads with the weak roads. I believe the ultimate solution 
does lie along those lines. I believe that the fundamentals of this 
problem have been developed by Director General Hines. In some 
statement which he has made he suggests the valuation of the rail- 
roads and then the reorganization of the railroads so that the capital 
stock may equal the value, and then a consolidation of the weak lines 
with the strong lines. His argument in favor of the consolidation 
‘of the weak lines with the strong lines is, to my mind, unanswerable, 
but Mr. Hines specially reserves for further consideration the ques- 
tion of what policy shall be adopted in the meantime. The ques- 
‘tion of valuation and the question of consolidation are» questions 
which can not be solved for some years, and that leaves open the ad 
‘Interim policy, and the ad interim policy is the policy which we have 
Suggested, and is the only policy I think which has been suggested 
‘by any one, except a continuation of the agreed compensation until 
all these applications and consolidations can be effected. Now, even 
the railroads themselves would not want the agreed compensation 
‘continued for that length of time. 





392 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Sims. But you do advocate, as I understand it, that the com- 
pensation now paid or, perhaps, to be paid to the railroads under 
Federal control shall continue for and during the year 1920? 

Mr. Ricu. Yes, sir. 

Mr. Sus. Without reduction? 

Mr. Ricu. Yes, sir. 

Mr. Suas. Would it not follow inevitably and necessarily that if 
the expense of operation and the cost of supplies should not be re- 
duced, or they might possibly be further advanced, would you not 
inevitably have to ask to continue it during the year 1921, would you 
not along the same line and for the same reason given for the con- 
tinuance during 1920? 

Mr. Ricu. I think not, sir. I believe a year is sufficient time in 
which to enable the Interstate Commerce Commission to permit or 
cause rates to be so adjusted as to establish as great a basis of credit 
for the railroads as existed in the three test years. I believe that con- 
ditions will become stabilized in that time so we will know about 
what increase or decrease in rates may be necessary. : 

Mr. Srtus. What evidence have you that indicates that there will be 
any reduction in the expense of operation with the constant demand 
for increase of wages by the employees of all public utilities, includ- 
ing the railroads? | 

Mr. Ricu. The problem is a difficult one. The prospect of reduc- 
tion in cost of operation is not very great, but I want to call atten- 
tion to the very wise attitude of the director general in refusing to 
be panic-stricken by these increased expenses and in waiting to see 
what effect the increase of traffic will have upon net results. Of 
course, you know and every member of the committee knows that 
with an increase in traffic the net deficit will be gradually decreased, 
even if expenses remain as they are or even go higher, and, secondly, 
JI want to call the attention of the committee to the admirable atti- 
tude of the railroad brotherhoods. They ask Congress not so much 
that their wages shall be increased as that the cost of living shall be 
reduced, and the brotherhoods have a very sound appreciation of the 
fact that what the workman wants is reduced cost of living rather 
than increased wages. That is not the attitude of all workers, but 
it is the attitude of the railroad brotherhoods. 

Mr. Stms. Your plan does not provide or point out any means by 
which we can reduce the cost of living? 

Mr. Ricu. I “duck” that. | 

Mr. Sirus. It seems to be necessary, though, to make the statement 
which you have just made logical. That is what every Member of 
the House and every Member of the Senate and everybody else in” 
the United States, so far as I know, is agreed on, that the cost of 
living should be reduced, and there is a greater number of plans to” 
do that, if possible, than how to save the railroads in their present 
situation. If Congress has the right to arbitrarily continue the 
standard return plan that was adopted as a war measure to assist 
this Government in time of war and during the war for one year 
simply as a credit measure—the railroads are supposed to be returned 
the last of December—the same thing could be done indefinitely 
with the increased cost of operation and the increased cost of ma- 
terials under present conditions, and Congress having established the 










RETURN OF THE KAILROADS TO PRIVATE OWNERSHIP. 393 


recedent of continuing a war measure after the war has ceased 
‘> meet peace conditions, it does not seem to me that it presents a 
ian that we can really have a reasonable guess as to what will be 
‘ne final result. That seems to me to be one of the very serious 
pjections to your plan, the possibility of having to do this very 
hing, without limit, so far as anybody can now foresee, I have a 
‘Jan of my own, but I am afraid that my plan would not live 15 
“nutes under the gunshot fire from such experts we are con- 
ronted with at this time, and I am going to hold it out for a period 
¢ least. That is all I wish to ask. You may make any statement 
ou desire. 

. Mr. Ricu. Of course, this question of the continuance of the agreed 
ompensation for the year 1920 is not a fundamental part of our 
Jan. We believe that the Congress has got to do something during 
his uncertain period to establish the credit of the railroads, and 
, would be absolutely unwise to turn the railroads back to private 
wnership without some help; if that is not the proper way to do it, 
yere may be other ways. 

- Sims. You mean private operation; you said private owner- 
ap ? 

| Mr. Ric. Yes, sir; I should have said private operation. 

‘The Cuairman. Mr. Rich, you stated that the shipping interests 
f New England and New York were opposed to the provision in the 
ending bill with reference to water transportation ? 

Mr. Ricu. No, sir. So far as water transportation is concerned 
_speak only for myself and for the transportation committee of the 
fassachusetts Chamber of Commerce. It has not been brought be- 
ore any other organization which I represent, and, in fact, my at- 
wntion was not called to it until very recently. 

The Cuarrman. What is your opposition to the pending measure 
ith reference to water transportation ? 

Mr. Ricu. In the first place, our commerce has been built up and 
ur country has been developed upon the theory that there should be 
lie utmost play of competition in water transportation, and ever 
nee the passage of the interstate-commerce act in 1887 it has been 
le guiding star of Congress, and the Congress has always, when the 
uestion has been brought up, sought to preserve the utmost water 
mmpetition. Now, it is worth while to be guided by the old land- 
iarks, which is not by any means a conclusive answer to your ques- 
on. I want to call the attention of the committee to the fact that 
‘the water carrier in its port-to-port business is placed upon the 
ame basis as the rail carrier, the rates of the water carrier must be 
ublished and filed with the Interstate Commerce Commission and 
jey can not be departed from under the severest penalties; they 
in not be changed under 30 days’ notice without special dispensation 
E the Interstate Commerce Commission. That at once provides a 
gidity of rates which destroys competition in water rates. We 
now how the enactment of the 80-day provision for the filing of 
ites has destroyed competition in railroads and done it wisely. I 
-ake no criticism there, but in the case of water competition we have 
‘different policy and we should conform our laws to what has been 
1 the past a wise disposition of the water question. 

; One thing further. It seems agreed that you can not or ought not 
lace the tramp steamer under the provisions of the interstate-com- 








’ 


B94 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


merce act. I understand the Interstate Commerce Commission i 
agreed to that, and I should assume that it would be extremely diffi 
cult to do it and very unwise to do it. The minute you fail to trea 
the tramp steamer as you do the line steamer you make it extremel) 
difficult for the line steamer to continue in business. Its rates af 


. filed; its rates are rigid. We may have a line steamer from Texas t 


New England and there may be a very large amount of cotton await 
ing shipment from Galveston. The liner has its rates filed and it ear 
not vary. A tramp comes in there and takes every bit of that cottor 
at a rate something below the filed rate, with the result that th 
tramp steamer is going to take it away from the line steamer ang 
the lines are going to be put out of operation. The lines are the forn 
of water transportation upon which we have to rely in the long run 
because the tramps go here, there, and everywhere. I speak of thi 
without the fullest study of the question. I present one side. Ther 
may be other sides that justify the rigid application of the principle 
of the interstate-commerce act to the water carriers, but I think th 
committee should consider that there are two sides to the problem 
I wish that the committee would take advice of some of those who ar 
engaged in the shipping interest. Of course, the railroads would lik 
to see this, because it destroys competition which is annoying. Iti 
a very excellent thing for the, railroads. : 

The Cuamman. Are you concerned about competition in wate 
transportation in itself, or are you concerned about the competitio 
between water transportation and rail transportation ? 

Mr. Ricw. Both. 

The Cuarrman. Very well. We have regulated the rates on rl 
transportation to prevent cutthroat competition because we foun 
that that was not to the interest of the country, have we not? 

Mr. Ricu. Yes, sir. 

The Cuarrman. Why not apply the doctrine to the water trans 
portation to prevent cutthroat competition of which you have jus 
spoken ¢ 

“Mr. Riou. Cutthroat competition between rail carrier results even 
tually in the depletion of the revenues of some of those carriers t 
the extent that they become insolvent. Those railroads being fixe 
on the land must continue fixed on the land. If you apply the sam 
principle to water competition and say that water competition sha 
not exist, you, to be sure, accomplish the same result which you #4 
complish in the case of rail competition, but with this exception, tha 
the results ensuing from competition of water carriers are not so dit 
astrous as the results ensuing from competition of rail carriers }¢t 
cause a water carrier plying between two ports and finding the bus 
ness unprofitable can transfer its ships to other ports and to othe 
and more profitable business. | 

The Cuarrman. And yet you said that the tramp would drive ov 
the line? if 

Mr. Ricu. T think it would. : 

The Cuarrman. And therefore you think there is no regulatio 
that we ought to enact that would prevent that result? .e 

Mr. Ricu. I am very much inclined to that; yes. : 

The Cuarmman. All of the advantages of regulated line servic 
with fixed schedules and regularity of sailings would be preventet 


| 


es 


RETURN OF THE RAILRUADS TO PRIVAYE OWNERSHIP. 395 











en commerce considers the established regularity of service as one 

| the most essential things? . 
‘Mr. Ricu. I agree with you, sir, but I am yet unconvinced—I do 

‘¢ want to put it stronger than that—I am unconvinced that we 

ould depart from the traditional policy of this country in refer- 

/ee to water transportation. I wish I could give the committee more 

tht, but that is a subject to which I have not given very careful 

‘nsideration and study. 3 | 

The Cuarrman. You realize the necessity of the coordination of 
wer and rail transportation ? 7 
Mr. Ricn. Yes, sir. 

‘The Cuamman. How can that coordination be made possible un- 

ss you regulate the water carriers ? 

Mr. Ricu. That is a strong argument in favor of regulation. I 

ipreciate that argument. The question is whether the advantage 
uch comes from that is counterbalanced by a general reversal of 
icy. As I say, I do not want to be dogmatic, because I am not 

lly informed about that matter, but I wish the committee very 
vefully to recognize the fact that there are two sides to this ques- 
on. 

The CuairMAn. We do recognize that and that is why I have 
ked these questions. You stated that there should be the freest 
issible exercise of rate making by the water carriers, that there 
ould be no inflexibility, is that the point? 

My. Ricu. I do not want to put it quite as strong as that because 
3 realize to-day, so far as rail and water rates are concerned, there 
‘the same rigidity as in the case of rail rates. 

The Cuarrman. The pending bill gives the commission power to 
‘maximum and minimum rates? “ 

Mr. Ricu. Yes, sir. 

‘The Cuatrman. That would apply to the port-to-port traffic of the 
ter lines, and if that be true, could not the commission fix the max- 
ium and minimum with such a spread as to give the flexibility that 
mm seek ¢ 

Be Ricu. I do not know but that is so. That thought had not 
curred to me, but there should be a mandate to the commission to 
that, because in establishing rail rates now the commission can not 
ty well establish one minimum rate and another maximum rate, 
cause of the provision of the act that the exact rate shall be filed. 
am a little afraid that there is some defect in the operation of the 
inimum and maximum provision, because of the provision that the 
act rate must be filed. Now, in the case of water rates you can es- 
blish a maximum and minimum and really eliminate great deal of 
e evil which I have suggested. 

The Cuarrman. You ‘suggested two or three amendments to the 
nding bill. Will you please incorporate those in your hearing? 

Mr. Ricu. Yes; I shall be very glad to do so. I should particu- 

oy jike to have the committee direct its attention to them, because 
ey are amendments which are favored by shippers and by the In- 

state Commerce Commision and by everybody, I think, and I am 

Tethat the Interstate Commerce Commission would have included 

‘em in their bill if it had occurred to them. 

‘The Cuarrman. Under your plan a carrier applies for an advance 

for aid from the Government. Who is to determine whether a 





t 


0% a 
a 
+ a el 


396 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


given road should be the beneficiary of such grant by the Govern 
ment ? | 

Mr. Ricu. Mr. Chairman, you have struck one point of the plai 
which I have not developed. It is difficult to determine what road 
can do their own financing and what roads can not, but I am not un 
mindful of the fact that some method should be provided. 0: 
course, market quotations on the securities of a road will in a genera 
way form a guide in the determination of that question, althougl 
it is not an inflexible one. I am inclined to think that that questior 
should be left for the Interstate Commerce Commission to determine 
I am not entirely clear upon that point. 

The Cuarrman. Under your bill whatever advances are made bj 
the Government to a common carrier would be on a bond basis ane¢ 
not on stock issues ? 

Mr. Ricu. Absolutely. 

The Cuairman. There is a growing tendency toward increasi 
the bond indebtedness as over against the stock indebtedness, i: 
there not? 

Mr. Ricu. There is. 

The CuatrMan. Have we not passed the danger line there? 

Mr. Ricu. In many cases we have, and if it were possible to pro- 
vide for the requirements of the weak lines in any other way J 
should be heartily in favor of it. I think that one of the great 
dangers that the railroad transportation of the country has been 
confronted with is the tendency to issue more bonds, and that & 
one of the things about this plan which I do not like. Your sug: 
gested criticism is absolutely sound, and it is one of the things that 
must be considered against it. But I believe, on the other hand 
that there is no other way of meeting this situation except by the 
adoption of some plan which will require these things to be worked 
out from the basis of valuations and consolidations. 

The Cuamman. Would your plan lessen initiative on the part of 
the roads that got Government aid? 4 

Mr. Ricu. I think not in the slightest degree, for this reason: 
The roads which would get Government aid would be roads earning 
under 9 per cent, most of them earning 2 or 3 per cent. Now, what 
is it that inspires the management of a road, the president of a road, 
or the directors of a road toward efficiency in operation and econony] 
in operation? It is just one thing, or one overwhelming thing, aud 
that is the desire to show to their stockholders a balance sheet 
which will show something earned on the stock. Speaking with some 
intimate knowledge of the mental processes of railroad presidents, 
T know that the thing that they direct as much attention to as any- 
thing else is “ how much have we earned on our stock during the last 
year,” and every financial report, as you gentlemen well know, states 
that the company, whether railroad or other corporation, earns 80 
much on its capital stock. Every effort on the part of the nae 
of a weak road will be directed toward increasing their pronts. 
Furthermore, being relieved from the anxiety incident to gettmg 
capital, and being relieved from the strangle hold of the banking 
interests, their courage would be renewed, and, furthermore, havmg 
the means to effect improvements which will effect economies, they 
will be able to show better results on their profit and loss account. 






RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 397 


“The Cuarrman, Under your plan the carrier that gets a Govern- 
ent loan has to have two of its directors appointed by the Govern- 
ent? © 

‘Mr. Ricw. I believe that is the best way to work out the problem, 
xcause I believe that you should have right on the job men who are 
, determine the necessity for improvements. These are the men that 
ight to do it. I think it is much better that those directors should 
» appointed and should determine the question of the necessity of 
aprovements, rather than that the matter should go to Washington 
» the Interstate Commerce Commission. However, it is not an 
‘sential part of the plan. The interstate Commerce Commission 
self through its regional commissions can determine the question 
{the necessity for improvements. 

The Cuairman. Would the presence of these directors upon the 
irectory of the carrier stimulate that road to go into the free class 
id thus get rid of the Government directors? 

Mr. Ricu. I believe that the presence of Government directors 
ould stimulate the other directors to get the road into the free class... 
{ there is danger in the appointment of Government directors—if 
here is a danger of politics coming into the management of the roads, 
id if that is a strong objection, I would suggest, as has been sug- 
asted by someone, that they be appointed by the Interstate Com- 
erce Commission, rather than by the Executive. I think that your 
iestions have developed some of the weak points of this plan, but 
do not believe that there are any objections that could not be sub- 
antially overcome. 

‘Mr. Wrnstow. If I ask you a question which you have already 
aswered in the record, will you kindly say so and omit the answer, 
ad I will get my information from the record. If a road were to 
sue debentures, to whom would those debentures be offered ? 

‘Mr. Ricu. My thought is that a railroad issuing debentures with 
Government guarantee would dispose of them in the locality where 
1e railroad was located and where its financial business was trans- 
sted. I am inclined to think that they should be offered to com- 
stitive bidding, and that if they yielded more than par, the excess 
ight to go to the Government. : 

“Mr. Wriystow. Who would determine the rate of interest of the 
abentures ? 

Mr. Ricu. The Secretary of the Treasury—a fact which I did not 
ention in presenting the plan. 

Mr. Winstow. Suppose the financial market was in such a condi- 
on as to be sluggish; that there was a need for the money or pro- 
eds from the sale of the debentures, and that the debentures did 
ot find a ready market—what then? 

Mr. Ricn. I think that authority should be lodged in the Secretary 
‘the Treasury to determine whether the market conditions were 
ich as would justify the floating of a loan at that time. It might be 
tat they would postpone the improvements. I think that that is 
evitable under any plan of operation. There often comes a time 
hen it would be unwise to float any kind of securities. 

Mr. Winstow. Can you not imagine a condition under which the 
sbentures might come on the market as the result of a plan deter- 
‘ned upon at a prior time when the conditions were good? 





Ne heal 
—- 


398 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Ricu. Yes, sir. : 

Mr. Winstow. In that case, where would the help come from? — 

Mr. Ricu. You would simply have to go without your mone 
That is something that has happened often. It happened once in 
marked degree in a case that came under my observation when # 
market changed inside of a week. That was a case where ‘the fai 
road had an agreement with the bankers for the purchase of 4} 
‘ bonds at a certain price. There was some little defect in the issi 
but that was corrected in a week. However, before the end of th 
week the market had gone off to such an extent that although 
years have passed those bonds have not yet been sold. | 

Mr. Wrnstow. Do you conceive that it would be a wise provisit 
under some conditions to let the Government take up those debe 
tures ? 

Mr. Riou. I should think it might be. 

Mr. Wrnstow. You think that the stock of any road, good, ba 
or indifferent, would be subject to some market fluctuations und 
such circumstances as you propose, or such as we have known in ¢] 
past ¢ ; 

Mr. Ricu. That is one of the great advantages of this plan. 1] 
stocks of the roads would not be subject to the same fluctuation 
Under this plan, with this mandate to the commission, the railroa 
would know that their rates were to be kept up at such a level as’ 
give them certain net returns, or such net returns as they had r 
ceived for the average three test years. Nothing would so much stabi 
ize the credit of the strong roads, as well as of the weak roads, as fh 
adoption of this plan, and I conceive that to be one of the strongeé 
points in the plan. 

Mr. Winstow. Would you feel that by virtue of such conditiol 
the stocks of the roads would become more desirable collateral f 
the owners who might want to realize on them? 

Mr. Riou. I think it would add marked strength and stability 1 
all railroad issues. 

Mr. Winstow. And by virture of that, it would safeguard in 
way the interests of the loaning institutions ? , | 

Mr. Ricu. Absolutely. There is nothing that would safeguu 
the interests of our savings institutions and savings banks so mue 
as the adoption of some such plan as this. It would be much ma 
effective and helpful in stabilizing the condition, for instance, of tl 
insurance companies than even the Warfield plan, although the Wa 
field plan imposes a greater burden on the public, but it does m 
stabilize the securities of the weak lines to the same extent that th 
plan does. P 

Mr. Winstow. Would all of that go to make the railroad inves 
ment a more desirable line of investment for trustees and other pe 
ple who have to look to the stability of their investments? 

Mr. Ricw. Absolutely. I have not developed that feature, bt 
perhaps my attention has not been properly directed to it. Since yo 
speak of it, Col. Winslow, it seems to me that it is one of the strons 
est arguments in favor of the adoption of this plan. a 

Mr. Wrnstow. Have not the uncertain conditions in connect10 
with investments in railroad securities been due to the fact that n 
body knew how stable an investment he would have to-morrow, ‘ 


ty 
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 399 
ie 
j!at he would feel secure in handing it on down to his heirs, for 
| stance ? 
| Mr. Rion. I think so. 
| Mr. Winstow. Do you believe that this general plan would relieve 
helpless community like that we have in New England, where the 
oeck sales in the New Haven Road have so run down in price as to 
| eae the people who inherited them? 

d 





| Mr. Ricu. I think it would help the New England situation, but 
‘do not think it would entirely cure it so far as the investors are 
mecerned, because of the unfortunate depth to which those securities, 
mmerly gilt-edged, have sunk. But I do not want to say that so far 
the public is concerned, I do not know of any other plan that 
ill help the New England situation. Let me put it this way: 
either of the big systems, the New Haven or the Boston & Maine, 
im borrow a single dollar except from the Government, and the 
tuation is such to-day that it 1s proposed to lend $22,000,000 to. 
Boston & Maine Railroad. It is proposed that the Government 
all lend $22,000,000 to the Boston & Maine Railroad, taking alk 
anner of security, and taking all manner of pledges in regard to 
ie payment of dividends, and so tying up the road that it can not 
nance itself in any other way. That is the danger of direct loans 
/weak roads. It is the danger that was pointed out so forcibly and 
mclusively by Mr. Thom in the course of the hearings before the. 
int committee. 

Mr. Winstow. Those of us who live in New England, I think, will 
rree that throughout the entire New England States, notably in 
assachusetts, and more so in Connecticut, persons in providing for. 
le distribution of their property at death would give their cash to. 
@ boys, and in many cases would leave their New Haven stock to, 
i women and girls, because they thought it would be the most secure. 
id dependable investment that could be made for them. Now, 
ould this plan help that situation ? } 
Mr. Ricu. I think it would help, but I do not think it would ac- 
mplish as much as we would like to see accomplished. In other. 
ords, I do not expect that this plan would be of immediate aid in 
creasing the value or stability of the securities of the New Kng- 
nd roads. My earlier remarks were directed more toward stabiliz- 
g the securities of roads which were already earning a reasonable. 
nount, or roads like the Pennsylvania and the New York Central, 
id roads, perhaps, like the Maine Central. I wish that I could say 
iat it would be preeminently helpful to the security holders of our. 
ew England roads, but all that I can say is that it would be some- 
hat helpful. Sal 
Mr. Winstow. If the purpose of the whole scheme is to stabilize. 
ie earnings on railroad stock, why would not that per se make these. 
curities more desirable-to hold with a view to handing them down. 
_ posterity ? 

Mr. Ricn. There can be no question about that. rae 
The Cuatrrman. The committee wishes to express its appreciation, 
‘your clear explanation of your plan. | 










400 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


CoMMITTFE ON INTERSTATE AND ForreicGh COMMERCE, 
House or REPRESENTATIVES, 
Thursday, July 31, 1919. 


STATEMENT OF MR. R. C. FULBRIGHT, OF HOUSTON, TEX., REP. 
RESENTING THE SOUTHWESTERN INDUSTRIAL TRAFFIC 
LEAGUE, THE TEXAS CHAMBER OF COMMERCE, AND THE 
TEXAS INDUSTRIAL TRAFFIC LEAGUE. 


Mr. Sims. We will start in by supposing that this is to be a dis 
cussion of the Texas plan. ; 

Mr. Furericut. No, sir; I will direct my remarks to the matter of 
regional commissions, and, also, I want to have something to say 
about the absolute fourth-section bill. Then, if you will permit me, 
I may make some remarks about the New England plan of salva 
tion. 

Mr. Sims. Dr. Rich claims that the Texas plan is related to the 
New England plan. 

Mr. Fuuericut. Yes, sir; they originated at the same time, but we 
have really not undertaken to work out any definite constructive plan, 
We simply, in a general way, recognize, as has been suggested, that 
something constructive should be done to take care of the poor, weak 
systems over whom we have shed so many tears. 

Mr. Stus. To hold them up while walking through the water. 

The Cratmman. Did not your chamber of commerce adopt some 
resolutions in January | 

Mr. Fursricur (interposing). Yes, sir; they did. 3 

The Crairman (continuing). Which, in a general way, gave a 
certain plan for constructive legislation ? 

Mr. Fuusricut. Those resolutions were presented here before the 
Senate committee Jast January. I will give the substance of thie 
resolutions that have been adopted by those various organizations: 
First, we condemn Government ownership and any permanent ex- 
tension, or any extension further than is necessary, of the Govern 
ment operation of the railroads. We request the return of the ear 
riers to their owners as soon as adequate législation can be enacted, 
as a reconstructive measure. We oppose all monopolies, and urge 
continuance of competition in service between carriers. We favo 
a unified system of control, both intrastate and interstate, under the 
supervision of nonpartisan commissions, contemplating the coopera- 
tion of commissions very much as has been set forth in the Hseh- 
Pomerene bill. We ask for the establishment of regional commis 
sions. We disapprove the idea of a director of transportation as ® 
Cabinet officer, as was suggested by the railroad executives, believing 
that that would put the railroads in politics rather than take ied 
out. We indorse the principle of national regulation of issues of 
railroad securities. One of our fellow Texans has been behind that 
measure for a long time, and he is a member of your committee. We 
ask that the Interstate Commerce Commission be given the power 
to eliminate circuitous routes, to compel the diversion of traffic, and 
to control routing wherever necessary to eliminate congestion, ant 
also to control embargoes and such matters as that. Those matters: 
are very well covered in the Esch-Pomerene bill, and, if I am pet 





















‘RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 401 


‘mitted, I shall refer to them more in detail when I get through with 
the subject of regional commissions. 
| We also recommended that the Interstate Commerce Commission, or 
‘some regulatory body, should pass upon the propriety and the 
necessity of new railroad extensions and improvements, and also 
‘ et mergers and consolidations. That matter and like matters 
‘have been included in the Esch-Poremene bill. We also indorsed 
\ the principle of giving the commission power to make minimum 
| ates, and you have included that. We recommended that some 
| tribunal or nonpartisan board be created to adjudicate wage dis- 
i a and that some legislation be enacted guaranteeing to the pub- 
i¢ the uninterrupted functioning of the carriers’ facilities. I think 
| the suggestion made by Mr. Rich here yesterday would meet the 
) approval of the interests of our section in that respect, and by that 
| 1 mean the shipping interests. We also favor the preservation of 
(the police powers of the State in so far as is consistent with the 
| general program that we outlined. We believe that certain ques- 
tions relating to the public health, public morals, and public safety 
| could still be left with the State commissions or State bodies, and that 
jthe matter of furnishing local facilities, such as industrial tracks, 
‘station facilities, and many matters of that character, which are 
/really purely local in their nature ought to be handled by a body 
located close to the people in the several States. Those matters have 
generally been handled with a fair degree of satisfaction ‘to all 
parties concerned. 
|_ I will not undertake to go into a discussion of these various points, 
)1 did so before the Senate committee, and most of them have been 
much more thoroughly discussed before you by Mr. Clark. We feel 
Somewhat flattered in our section that we framed our resolutions in 
convention just about the time or just before Commissioner Clark 
appeared before the Senate committee and advocated practically 
the same thing. Of course, we had no communication with him, but 
the shipping public in the Southwest has given a-great deal of 
thought and consideration to matters of transporation. 

I have not prepared any formal statement, and I am simply going 
to proceed in an informal manner from a few penciled notes, and 
if you want to ask any questions at any time I hope you will do so. 
Of course, I do not promise to answer all of them, but I want to 
orovoke as free discussion as possible. 

Before I begin my discussion, at the risk, perhaps, of violating 
he proprieties, I want, in behalf of our interests, to express our sin- 
sere appreciation of the magnificent manner in which the Senate 
committee and the House committee have gone into the considera- 
Jon of this mighty and complex question. You have ignored all 
‘onsiderations except those which would be for the best interests of 
he country at large, and all idea of political party, or of political 
raditions of political parties has been largely swept aside in an 
fort to get right down and hear what anybody has to Baye eCOU 
ave heard many with great patience, and I am sure that you will 
lear me with patience. 7 

Now, as to regional commissions, we were really disappointed 
‘hat the Esch-Pomerene bill did not contain a suggestion or legisla- 
ion providing for some regional commissions. The demand for 


152894—19-—vox 1 26 





402 RETURN OF THE RAILRUADS TO PRIVATE OWNERSHIP. 


them has been very general. In the Senate committee hearings 
some of the questions propounded by Chairman Smith, Senator 
Poindexter, and Senator Kellogg indicated that they thought some- 
thing should be done along that line. The shipping interests from 
every section of the country have expressed themselves as favoring 
regional commissions: Mr. Elmquist, when he appeared before the 
Senate committee in behalf of the National Association of Railway 
Utilities Commissioners, urged that regional commissions be adopted 
or established under the jurisdiction of the Interstate Commerce 
Commission. The railroad executives, in the plan which they sub: 
mitted, suggested a very admirable scheme for regional commissions, 
The National Association of Owners of Railroad Securities also 
suggested that the country be divided into six regions, and that a 
commission be appointed for each region. This very general de- 
mand, it seems to me, must have its basis in the experience of the 
people who have had to do with the adjudication and regulation of 
transportation under the jurisdiction of the Interstate Commerce 
Commission. ~ It is not born out of any dissatisfaction with the 
Interstate Commerce Commission as a regulatory body, but we 
simply feel that the subject of regulation has become so very multi- 
form and complex and so large that the Interstate Commerce Com- 
mission needs the assistance of other bodies and needs to have the 
power to delegate a certain part of its authority to those bodies, 
The importance of the Interstate Commerce Commission as a tri- 
bunal can not be overestimated. Every year the questions that they 
pass upon are many times in magnitude or amounts of money in- 
volved to the people of the country those questions which are passed 
upon by the Supreme Court. I regard it as the most important 
tribunal created by our Government, and I say that, of course, with 
all due respect to the Supreme Court, which marks the highest point 
to which I as a lawyer can look. We have great respect for it 
The Interstate Commerce Commission is every month and every 
year passing upon questions involving millions and millions of 
dollars, and involving taxes upon every man, woman, and child in 
any given section or the entire country. Now, I will state our rea- 
sons as briefly as I can. { 
Our reasons for desiring regional commissions are, first, that ed | 
will expedite the handling of cases and matters subject to their 
regulations; second, that they will relieve the central body, or the 
Interstate Commerce Commission, of a great part of its duties, as It 
is already, you might say, overburdened; third, they will bring the) 
regulation closer to the people and conserve the convenience of all 
parties; fourth, they will secure greater efficiency on the part of the: 
interstate and on the part of the regional commissions; and, fifth, 
they will secure better undertsanding and cooperation as between 
shippers and carriers and also as between State commissions and the 
interstate bodies. | 
I will refer to the first point a little. To give you some idea of the 
volume of the duties of the Interstate Commerce Commission, I wi 
say that in the fiscal year ending November 1, 1917, that being the 
commission’s reporting year, there were filed before the commission) 
651 formal docket cases—that is, cases that require hearings, briefing, 
and handling as ordinary lawsuits in the courts require. Last yeal 


















RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 403 


je number fell down on account of the fact that the roads were 
der the supervision of the Government. Last year they held 590 
‘arings, and that runs at about the average. The informal docket 
3es last year amounted to 5,458, and that is about the average. 

The special application cases, or cases on the special application 
eket, which covers the applications that carriers make for au- 
ority to make refunds and which have to be investigated, last year 
jiounted to nearly 3,000, although ordinarily they run closer to 
))00. Now, in addition to those duties, they have a division of in- 
(iry which looks to the enforcement of the penal provisions of the 
)serstate commerce act. That is big field of work itself. They 
ve a statistical division and an accounting division in which they 
ve to prescribe, and from time to time revise, the accounting rules 
d supervise the reports of the carriers of the country. Then they 
ve a tariff filing division, and a division which formulates regula- 
ms to which all of those tariffs must conform. Those matters give 
eto many questions which must be determined by the commission. 
jiey have a fifteenth section board which has to consider the pro- 
ilety of permitting the carriers to file or to allow to become effec- 


e proposed increases in rates, and the sixth section board which 
's the general supervision of the filing of tariffs. Then they have 
2 safety appliance statutes to administer, covering automatic cou- 
ars, power brakes, etc., and such things as the bureau of explosives. 
iey have the physical valuation of the railways under their super- 
sion, although there is a special director appointed in charge of 
ju work. They have the car service on their hands already, under 
2 existing Esch bill, and under ordinary private ownership this 
uuld involve an immense amount of work upon the commission. 
Now, while that seems great, it is not anything to what that same 
rk is going to be when the roads are returned to their owners. 
ike the matter of reparation cases. I know of numerous cases in 
7 section that are going to be filed with the Interstate Commerce 
mmission within the next few months. There will be a tremen- 
us deluge of reparation cases—thousands of them. 

There will be a larger number of readjustments sought, for the 
aple reason that in many of the general orders made under the 
‘lroad Administration, the relations of one community to an- 
ier, the relative adjustments, have been very much torn asunder, 
‘d while some of those things have been ironed out before the Rail- 
ad Administration, we have yet but scratched the surface; not so 
ich seeking reductions of rates but seeking the reestablishment of 
justments and balances between communities and between com- 
ting interests. 

fo give you an idea as to how great this work is going to be, I 
‘ght refer to some of the work of the Railroad Administration 
that respect. The Railroad Administration, as you know, has 
vated 25 district freight traffic committees, whose duty it is to pass 
on proposed changes in the rate adjustments of the country. 
‘ey have their respective district jurisdictions. In the south- 
‘stern territory, the territory that I represent, we are within 
+ districts of the New Orleans Western, the St. Louis, the Kansas 
ty, and the Dallas committees. These committees have been in 
‘stence for about one year, some of them not that long. I believe 


| 















404 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


the oldest one is about one year old. The St. Louis committee 
had on its formal docket over 1,100 subjects. It has docketed © 
3.000 subjects, but there were over 1,100 subjects of sufficient imp 
tance to require setting them down for a conference, a special 
vestigation and a report on the application to be ade to 
general committee at Chicago or to the Railroad Administrat 
here at Washington. 

The Kansas City committee has had about 1,000; the Dallas ec 
mittee has had over 1,100, and the New Orleans committee has | 
about 700. So that right 3 in that territory you have had 4,000 s1 
jects up, most of them controversies filed by shippers, most of tli 
asking for readjustments, and the greater part of them are goi 
to go unanswered until. the Railroad Administration closes, not | 
cause of any desire on the part of the Railroad Administration 
ignore the requests of the shippers to right these conditions, beeai 
they want to do it, but because of the system that they have. Ev 
one of these applications has to come here to Washington and 
passed on by one of a small group of men in the Division of ‘Traf 
and one of a small group of men in the Division of Public Servi 
Now, what is the result? There are thousands upon thousands 
these cases coming in here and with the small body here in Wei 
ington to pass on them, although they are working day and nig 
they can not possibly keep up with them. We are behind mori 
now on matters of readjustment in which the railroad represer i 
tives and the shipping representatives are agreed that'we ough 
have the relief we seek, and we have not got it yet, and I don 
know whether we will get it or not. Why? ~ Because they. are taki 
them as they come to them, and doing the best they can here, 
when you get down to the tip of the funnel, it can only turn out t 
erist just so fast. Now, that is the condition that we labor und 
One of the assistants in the administration here who has the dut? 
passing on these cases for a certain territory, told me he had i 
60 to 90 subjects passed into his desk every day. If he had ana 
age of 75, and he gave them 10 minutes’ consideration, every one 
them possibly a pretty big subject, he would be working 194 hot 
a day. 

Mr. Sanpers of Indiana. Can you give us an illustration as 
the character of some of those subjects; that is, the most numero 
classes. 4 

Mr. Foursricut. They may involve the establishment of a 1 
modity rate where it has been disturbed, or they may involve & 
putting in of a transit privilege, or the taking out of a transit pr 
lege. They may involve any one of the numerous things that m 
come before the Interstate Commission or before the State comm 
sions. All of those adjustments of rates of various character are 
volved in it, and many of them have been situations brought abo 
through the making of some general orders which affected the rat! 
The same thing will be true of the Interstate Commerce Comat 
They are, already, you might say, a year behind, practicall, 
handling their cases. I should say this, perhaps: You can not 10 
to get a decision on a formal docket case before the Interstate ‘01 
merce Commission in less than a year’s time at the best. It is my1 
formation that some time ago a statement was compiled showing 5 











RETUKN OF THE RAILROADS TO PRIVATE OWNERSHIP. 405 


es in succession upon the docket of the commission, and it was 
ind that at that time the average time was more than a year. 
might say here that up until something over a year ago I was 
resenting carriers and for several years represented the carriers 
‘eases before the Interstate Commerce Commission. I have had 
aration cases where there was not any dispute, where we felt that 
the man needed to do was to prove he paid the rates. We knew 
t he was entitled to get back the excess money he had paid, but 
‘could not pay it to him without having it passed upon by the 
erstate Commerce Commission, to make sure there was no rebate, 
[yet that man who may have been a small shipper and may have — 
‘thousands of dollars tied up here would have to wait a year or a 
rand a half to get his money. Why? The commission is work- 
as hard as it can, but it can turn out that grist only so fast. 
in addition to all that, we are now proposing to cast upon the 
«mission a tremendous volume of additional duties in which we 
‘ect to get the judgment of the nine men who are constituted there 
his tribunal. Let us just glance at what those additional duties - 
_ Here is the question of jurisdiction over water carriers, a great 
ject in itself, and I sincerely hope you will never put that upon 
‘Interstate Commerce Commission. The Shipping Board can 
» care of that. I will get to that more fully, I hope, before I 
‘ude. I want to answer your question. 
hen there is the jurisdiction over traffic from adjacent foreign 
atries to the United States. There are the additional duties 
ed upon them by virtue of the amendments to the car service 
| It extends now to the supply and movement of cars. In emer- 
ty times the commission will have to step in and act quickly 
disregard the ownership and distribution of cars, and distribute 
‘aas it may deem best and make its own adjudication of the com- 
sation. ‘These are important questions that are going to tax their 
time and thought. 
aen there is the question of the common use of terminals, unifi- 
m of terminals. You have put this great question under the 
sdiction of the Interstate Commerce Commission. 
sw lines and extensions must have their authority before they are 
ected. An old line before it can be abandoned must be investi- 
I by them and a certificate of permission obtained. The ques- 
‘of compelling carriers to acquire new equipment and to investi- 
‘their condition as to whether or not they can afford to provide 
iselves with that equipment is also another big question which 
have unloaded on their shoulders, or are proposing to unload on 
‘Shoulders; and I really am in harmony with these provisions 
tally, you understand. 
ten there is the consolidation and merger of lines; the pooling 
allic and earnings; the question of minimum rates; jurisdiction 
| docks; the enlargement of jurisdiction to hold joint hearings 
the State commissions; the enlargement of the jurisdiction in 
|@ the commission practically complete jurisdiction over divi- 
| between carriers (this is a subject in itself sufficient to demand 
| me and consideration of this commission) ; the regulation of the 
nee of securities. 





















| 
406 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. | 


There are 14 additional subjects that we are heaping upon the con 
mission. ‘The commission is competent to handle all that any set ¢ 
human beings can handle. As I have observed them through the pa 
years, I think they are the hardest working group of public officia 
T have ever had anything to do with; but it is not humanly possib! 
for them to assume all these additional duties and have heaped upe 
them this deluge of cases that are coming and give the individu: 
consideration to all these cases that they deserve, any more than it) 
humanly possible for this little group of six men in the Railroa 
Administration to pass upon every: one of these thousands of cas 
that are being rained in upon them. In lots of cases they do not gi 
mature consideration to them. They make a guess at 1t and go i 
The Interstate Commerce Commission is not going to handle ¢l 
matter that way, but they are bound to leave that to somebody 
judgment in many many cases, because it is not humanly possible fe 
them to do it. | 

Now, then, the question arises as to how this will expedite tl 
services. In the first place, about 60 per cent of the cases filed wit 
the Interstate Commerce Commission are reparations docket case 
cases where shippers are seeking reparation. Now, a very larg 
nuniber of those cases, and I should say practically or nearly @ 
of them, are very simple matters to be handled because they are go 
erned by certain set rules, decisions, and policies of the Intersta 
Commerce Commission set forth in its decisions. Of course, océ 
sionally you have such cases that are tied up with great readjus 
ment questions, and the question of reparations is only an incident 
question; but the bulk of the reparation claims, I would say, ari 
in cases where, we will say, a new industry is created and they wai 
a line of commodity rates to a distributing territory, and they ha 
to pay at present, say, combination rates and they desire a throug 
rate. The carrier promises to give them this rate. There is del: 
in getting the rate in effect, and the shipments start moving. T 
carrier puts the rate in, and then the shipper wants. reparatit 
down to that point. Usually that is a very simple case and is 
matter that the report of the examiner is final on. ‘There is not ai 
dispute between the parties, and the only thing is to prevent and 
protect the public against that being used as an unjust discrimi 
tion or rebate in favor of that shipper. It requires a formal h 
ing. In many cases they make errors in the tariffs filed by the ra 
roads and reparation cases result for the time before the error 
corrected. Sometimes the carriers get in disputes over divisio 
and the through rate is discontinued for a short time and then 
put back into effect. There are reparation cases arising there, @ 
there is no question about the justness of those claims, but they 
to be passed upon by some tribunal, and frequently, in the case 
rate-adjustment cases, the carriers and the shippers will get toe | 
at the hearing or before the hearing and will compose their 
ences and agree upon a basis which is satisfactory to them. nd 
then have to put in the case as a formal matter and if there is 
discrimination, no other party at interest to oppose it, the ma 
may be quickly and finally disposed of; but, as a matter of pract 

under our present system, it can not be promptly disposed of. 





































RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 407 


| I might give you just one example of that: We may learn some 
‘lessons from these district freight traffic committees I spoke of just 
‘a while ago. In many cases, new adjustments have been brought up 
‘for consideration by the carriers, and the shippers and the carriers 
will get together in a conference, and all parties will get together and 
‘agree on the new adjustment. I have in mind right now an instance 
in Missouri where a proposal was made to revise the lumber rates in 
‘that State involving a number of increases and involving some re- 
ductions. When it was first heard of the lumber interests raised a 
big objection to the increases. They got together in a conference 
with the representatives of the carriers and had a committee hearing 
on it and went into the whole business, and as a result, they all agreed 
they would not oppose that. It was agreeable to all parties. I 
do not suppose it will get in before the Railroad Administration 
ceases its operations, but it simply illustrates many cases that arise 
before the Interstate Commerce Commission. When we get together 
and go to airing our differences we find that after all the business 
men and the railroads both want to do the fair and square thing by 
‘the other, and case after case has arisen where during the course of 
a hearing, after coming in and presenting their cases and under-: 
‘standing each other’s viewpoint better, we are able to fairly well 
‘compose our differences. Now, then, those cases do not need to be 
delayed. They can be handled by regional commissions; prompt 
decisions can be given upon them, subject, of course, if any one wants 
to file exceptions, to the right of review by the interstate body. 

|. It will relieve the central body of a great part of these minor cases. 
It will enable the central body to better consider the issues in the 
larger cases that come before it. It will have the benefit of the con- 
ference of the regional commissions on cases that are appealed. 
| There is a whole lot of difference between sending out an examiner 
‘who hears a case and having the case considered by a group of three 
jmen. In rate studies and in rate legislation, as in no other subject, 
it may be said that in a multitude of counselors there is strength. 

| It has been demonstrated on these district freight traffic commit- 
,Cees in instance after instance that by getting together and compar- 
\ing their ideas and conferring over the matters brought before them 
we are able to get a better understanding of the situation than would 
|be had by one man alone. 

_ Then it brings the regulation closer to the people. Now this is 
important. A great deal of fancied dissatisfaction with the Inter- 
|State Commerce Commission is due to the -fact they are so far away 
from a great part of the territory, and that is not altogether fancied. 
Local conditions must be brought close home in lots of cases in 
\order to enable the body to most efficiently determine those cases. 
With the State commissions frequently the State commission will go 
‘pon the ground where the controversy has arisen. For instance, 
take a terminal question: They may go and there examine the con- 
ditions and frequently they get the parties together there, and in an 
old-fashioned way they settle the questions in dispute. 

_ It will eliminate a great deal of lost time and motion in having to 
tome to Washington every time you have anything done. 

_ (The committee thereupon took a recess until 2 o’clock p. m.) 


~ 


408 RETURN OF THE RAILROADS TO PRIVATE OWNERSH:?P. 
| AFTER RECESS. 
At the expiration of the recess the committee resumed its cecil 
STATEMENT OF MR. R. C. FULBRIGHT—Resumed. | 


The CrarrMan. Mr. Fulbright, you may continue your statement. 

Mr. Fursrieut. At the time of the recess I was discussing the 
fact that regional commissions would, in my opinion, bring regula- 
tion closer home to the people. You take, for instance, the matter of 
the fifteenth section applications, those are applications where a 
carrier desires to increase a rate and under the existing law he has 
to file an application with his proposed tariff with the Interstate 
Commerce Commission. As to whether the commission will permit 
it to go into effect or suspend the operation of the tariff pending 
the hearing depends oftentimes on some preliminary or informal 
hearing. Unless some shipping interest protests, why, the increases 
are usually permitted to go into effect, but if the shipping interest 
files a protest the commission then must look into the tariff and see 
if there is any reasonable ground for the protest, and if it decides 
there is it will suspend the tariff pending the hearing. Those things 
may be very vital because the tariff may make a radical change, and 
it mav affect one man’s business very greatly, and frequently the 
shippers have to come from the Pacific coast, the Southwest. and 
Northweg#-here on short notice to support an informal protest. The 
time is exceedingly short, and it very greatly inconveniences and 
creates a gory great expense to them. The regional commissions can 
handle thé-fifteenth section applications in all cases except where 
it involves a general readjustment over a large territory outside 0 
their territory. In those cases, anyway, it is usually understood 
that the matter will be taken up with the body here in Washington, 
and the interests over the country given a chance to appear here and 
have an informal conference. Frequently it is understood before- 
hand that when the tariff is filed it will be suspended. I have known 
eases where the carriers have prepared tariffs with the understand- 
ing that they would be suspended when filed, pending the determina- 
tion of other cases. These matters could be handled by the regional 
commissions and certainly that will greatly conserve the interests 
of the shippers in the remote sections of the country. | : 

Another matter, the commission has had so much business that it| 
has had to follow the policy of discouraging oral arguments before 
the commission. In fact, a man who has a comparatively small case 
is ashamed to ask for an oral argument because he feels that their 
time is so occupied that they can not afford to give oral arguments, 
in all cases. Not infrequently an oral argument on both sides ofa 
case is more illuminating than anything that is contained in a printe¢ . 
brief. Regional commissions can hold oral arguments. They have) 
a rule now that you can orally argue a proceeding at the close of the! 
taking of testimony before the examiner. I have never heard of 
anybody availing themselves of it. They do sometimes, I am told, 
but that is not the time to argue your case. The time to argue your 
case is when you have had a copy of the record and have had @ 
chance to study it and analyze it and know what the effect of the 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 409 


se of your opponent is. Then, to get an argument, you have to 
ose oral arguments, of course, will be made to the Interstate Com- 
Commission wherever there is any appeal, but it will cer- 
imly conserve a great deal of time which is taken up that way. | 
iy after day the commission has to sit there and hear oral argu- 
mts when their time could be devoted to analyzing important mat- 
’s, and the regional commissions could take care of most of the 
alarguments. It would enable a better presentation of the case in 
at way. I believe that the regional commission system will enable 
etter presentation of the cases. <A present rule of the commission 
that briefs must be filed within 30 days after the closing of the 
dng of testimony. Those of us who live down in Texas do not get 
‘copy of the record until about 15 days have elapsed. We have to 
il our 25 printed copies of our brief at least five days before the _ 
't day in order to insure its being here in Washington. It takes 
» printer about three days to get the brief printed. The result is 
‘it you have only a short week within which to prepare and brief 
iw case. That has, of course, necessitated the commission to extend 
s time in many cases. While the commission is not responsible for 
ase delays, the regional commissions could save part of that time. 
fourth, it will secure greater efficiency in the determination of 
cases. The differences in transportation and traflic conditions 
‘different sections of the country are enormous. I hear a lot. 
talk, from theorists mainly, as to a scientific rate structure to fit 
whole country. Some people think that they can make rates 
a yardstick, but the complexity and difference in the conditions 
h im commerce and in traffic and in the conditions affecting the 
riers’ operations are so great that they have to be taken into 
‘Sideration in every section and upon different: lines in a given 
ion. It requires many years of study for any man to become 
erally well versed in the traffic conditions in any single district. 
quently men undertake to handle cases who have not had those 
rs Of experience and observation in a given district and, however 
ent they may be, they can not very well handle their cases. 
’ the regulating bodies to be stationed in different sections of 
country, they will be enabled to study the various conditions 
re, some of them only indirectly and remotely affecting the cases. 
t 1s true that the commission is bound by the record that is pre- 
sed before it in every case, but frequently there are matters which 
ild occur to a regional commissioner familiar with conditions in 
| district which he could bring out and which otherwise would 
+ be brought out at all. That is clearly in the interest of the 
)yper. A great many shippers come before the commission with 
| plaints and they havé not sufficient traffic to hire competent 
jie managers, and really competent traffic help is very hard for 
ja to get. Those fellows have to be helped by the court some- 
/3s—that is, a line of inquiry may be suggested to them. I do not 
)m by that that the regional commission should be the advocate 
| the shippers any more than the Interstate Commerce Commis- 
4s, but I do believe that it would enable a wider consideration 
subjects, a better consideration, and a more efficient handling 
| 1aving men to consider those subjects who were familiar with 
| conditions then applying in the territory. 














410 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


At present the commission has a system of examiners. They a 
sent out all over the United States. A man takes a tour to the Pacil 
coast this autumn and in the winter he takes a tour to New Englan 
and in the spring to Texas. He finds conditions so materially diffe 
ent in those different sections that he is handicapped. The commi 
sion has of late, however, followed rather the policy of keeping o1 
examiner largely in a given territory. That has been efficient, by 
still it will not bring the benefits that would come from a body locate 
in that territory as a permanent proposition. 

It will secure a better understanding and cooperation between tl 
shippers and carriers and between the State commissions and tl 
Interstate Commerce Commission. It would be my thought ti 
these regional commissions could operate more or less in conjuncti¢ 
with the State commissions. The great mass of cases they wont 
have, however, would be more or less local. The same power shou 
be accorded them to sit with each of the State commissions of the 
respective districts as is accorded in this bill to the Interstate Cor 
merce Commission to call in and sit with a State commission. 

I stated before the Senate committee that I thought the day | 
fighting between the Interstate Commerce Commission and the Sta 
commissions was past. I think-we had about the nearest a fight” 
Texas that has happened anywhere, during the progress of @ 
Shereveport case, and yet I know that the Texas commission to-day 
anxious to cooperate with and work with the Interstate Commer 
Commission. The regional commissions will come a little clos 
and have a little better measure of cooperation than can be secur 
by the Interstate Commerce Commission at Washington, we Wi 
say, with the State railroad commission of Montana. 

Mr. Raysurn. Do you know how the Texas Railroad Commissi 
stands with reference to the regional system of commissions? 

Mr. Fuuerient. I talked with the chairman of the commission t 
other night. He did not express himself one way or the otlx 
Some mention was made of the Shreveport case, and he said, “Ia 
not worried about the Shreveport case.” He said, “ You can just ] 
that alone. The State commission of Texas and the Interstate Co 
merce commission can handle that situation. We will not have al 
of trouble in handling the situation so far as the future is co 
cerned.” | 

That indi¢ated to my mind the thought that I had expressed pi 
viously and just here repeated. I will say this: He made no sugg 
tion of opposition to the idea of the regional commissions. | 

Mr. Raysurn. You do not know just what their judgment is. 
understand that they do have an objection. 

Mr. Futericut. They may have an objection, Mr. Rayburn, tot 
effect of the law depriving the State commissions of certain regi 
tory functions. I do not think they quite understand the law. 
have not really had an opportunity to discuss this feature with the 
but, for example, in your regulation of car supply and compellt 
carriers to make extension of lines, you do not go into the matter 
industry tracks, depot facilities, and such as that; you merely pl 
vide here that the commission may, after hearing, authorize or! 
quire a carrier to provide itself with safe and adequate facilities, f 
performing as a common carrier its car service as that term is uf 










RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 411 


in the act and to extend its line or lines. As I interpret that clause, | 
it does not go as far as I think the Texas commission thinks it goes. 
I can not conceive that they should have very much objection to it. 
I will say this, however: That in speaking here I am not speaking 
for the Texas commission. 

' We held a readjustment conference in Houston to which we in- 
vited the Texas commission. It was gotten up during the holidays, 
and they did not for some reason have an opportunity for conference 
and did not have an oflicial representative present. I can say it was 
through no desire to ignore the readjustment conference. Ivery 
industrial and trade organization in the State of Texas was repre- 
sented in that conference, officially represented, I might say; we had 
the Cattle Raisers’ Association, we had the Farmers’ Union, both of 
the farmers’ organizations, we had the Horticulturists’ Association, 
we had every class of merchants, manufacturers, and bankers in the 
State; we had the chambers of commerce and the freight bureaus 
of the respective towns, practically all of the important towns in 
the State, and one town which was not represented afterwards sent 
in its concurrence-in our resolutions, 

_ A resolutions committee composed of 17 representatives, taking one 
from each organization, drafted the resolutions which were presented 
to the Senate committee in January, and I gave you the substance of 
them this morning. Those resolutions were also considered by the 
Southwestern Industrial Traffic League, representing the shipping 
interests in Arkansas, Oklahoma, Texas, and Louisiana, west of 
the river. The committee of the Southwestern Industrial Traffic 
League went into detail in many ways to determine the trend of senti- 
ment, particularly of those interested in the question of freights in 
our territory, and I think that the sentiment I have expressed here 
represents practically the unanimous sentiment of that section. 

The Cuarrman. Was Judge Cowan, of Fort Worth, present? 

Mr. Fuusricut. The judge was not present. I think at that time 
he was confining his efforts to the discourse, “ How, then, shall we 
be saved?” However, I think Judge Cowan is with us. Judge 
Cowan is a confirmed State’s righter, and he feels that certain of his 
political traditions do not jibe very well with the surrender of some 
of the regulatory powers to the Interstate Commerce Commission. I 
might say to you that that group of men on the resolutions com- 
mittee, being Texans and they being white, practically represented 
‘one political party. 

_ Mr. Winstow. Which one was that? 

Mr. Furericut. I will give you two guesses. 

We, however, went into this matter in an absolute business way. 
We realize that the transportation problem is a national problem, 
and that’ in its regulation we are necessarily coming to a national 
System of regulation as to the general phases of it. There are some 
local police matters that may be properly handled as local matters, 
but they are so interwoven with interstate and State commerce that 
you have to consider them very closely together. That group of men 
‘recognized the principle of the decision in the Shreveport case. 

‘I might say that I tried one branch of the Shreveport case with 
Judge Cowan on the other side, and it was another case where, after 
‘we got through, we were both satisfied. I was with the railroads at 
that time. 7 








412 RETURN OT THE RAILROADS TO PRIVATE OWNERSHIP. 


_ The question arises as to how these regional commissions should be 
constituted. It is our conclusion that they should be as far removed 
from politics as is possible. We believe that they should be nonpo- 
litical in their character. Second, we feel that they should be ap- 
pointed by the most competent authority to select men qualified for 
the character of work they have to do. We do not believe that any 
idea of political debts to be paid or political preferment should be 
a consideration in the selection of these commissioners. 

We further believe that they should be familiar, or, at least, that 
a majority of such commissions should be familiar with the condi- 
tions in the territory in which they act; and, fifth, we feel that 
their territorial jurisdiction should not be arbitrarily defined by 
statute. Finally, we believe that they should be so created as to 
maintain as nearly as possible a uniform policy of regulation and a 
uniform set of principles, or as uniform as at present maintained 
by having one commission, the Interstate Commerce Commission. 
We, therefore, believe that instead of having them appointed by any 
executive branch of the Government, they should rather be appointed 
by the Interstate Commerce Commission. Not that we do not feel 
that the President would not be able to pick good men or that he 
would not pick good men, but we have thought that in all cases 
where men, you might say, of certain skill and training are required, 
the Interstate Commerce Commission, being engaged in similar work, 
would be the most competent body to select those men. Further- 
more, in order to insure a uniform policy, the Interstate Commerce 
Commission ought to have the right to determine the personnel of 
these commissions, from time to time changing the constitution of 
them as it seems fit, and changing the territorial jurisdiction or the 
territory that they shall cover. It should not be bound to any hard 
and fast rule as to just how far the jurisdiction of these regional 
commissions should go, because traffic questions are so interwoven 
with other traffic questions, and that is the reason we do not think 
that there should be an arbitrary prescription of their territorial 
jurisdiction. I think Mr. Clark made that clear when set forth to, 
you the difficulty of definitely prescribing the territory for the 
regions. I heard the suggestion on yesterday by Gov. Montague to 
Mr. Rich that he thought it would be well if he would frame the 
proposal in some definite form, and I have just dotted down in pencil 
this thought as to how such a body should be created: 

The Interstate Commerce Commission shall divide the United States into six, 
regional districts, or a8 many more as that body shall from time to time 
adjudge necessary to most expeditiously handle the cases coming within its 
jurisdiction, and it shall have power to define and rearrange the limits of such 
districts from time to time; the same body shall appoint three regional commis-= 
sioners for each district, two of whom shall be residents of the district, and 
shall have the right and power to remove or replace any commissioners so) 
appointed when it sees fit. The appointees for each district shall constitute | 
the regional commission for such district, and these regional commissions shall 
have primary jurisdiction of all cases arising in their respective districts: 
Provided, however, That in all cases where the Interstate Commerce Commis= 
sion shall consider the questions involved to be of such general interest and 
importance that they should be considered by more than one regional commis- 


sion, or by the Interstate Commerce Commission in the first instance, they may 
so order and proceed: Provided, further, That the Interstate Commerce Commis 


sion may prescribe rules of procedure and rules to determine which of the, 
regional commissions may be the proper body to consider cases coming before 


such commissions. { 


“ 
a 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 413 


3 (I mean there that the traffic might originate in one district and 
‘be destined to a point in another district, and vet the regional district 
‘ay properly have the jurisdiction.) 

. The members of the Interstate Commerce Commission may from time to time 
‘sit with the regional commissions as and when they shall adjudge proper, and the 
‘regional commissions may hold joint hearings with State railroad commissions 
‘or similar regulatory bodies in the States of their respective districts in such 
eases and subject to such rights and powers as are provided in this act for the 
Interstate Commerce Commission to sit with such commissions, subject, how- 
ever, to the right of review by the Interstate Commerce Commission, as herein 
provided. 

That is a rough draft of it to illustrate what we have in mind 
as to what we would like to have incorporated in this bill. Now, 
the only objections I have heard to this were, first, the objections of 
Commissioner Clark. His first objection—and he was very brief 
about the matter, and I do not think his objections were to his mind 
mmsuperable—his first objection was the difficulty of having a uni- 
form policy. He feared that if we adopted regional commissions 
over the country we would have a lot of different kinds of decisions. 

At this point, I will go back and read a paragraph taken from the 
[ ee proposed by Mr. Thom, and which should be added to the draft 
J have submitted : 

The regional commissions shall have authority to hear and determine all 
‘complaints arising in their respective regions, and to make reports thereon 
to the Interstate Commerce Commission, such reports during a fixed period 
to be subject to exceptions by any of the parties, as in the case of reports made 
by masters in chancery. If no exception is filed within the time limited, and 
iit is not otherwise ordered by the Interstate Commerce Commission, the orders 
and findings of the regional commissions shall automatically go into effect. 
If there are exceptions, or the Interstate Commerce Commission shall consider 
the issues involved of sufficient importance to so order, a hearing shall be 
had before it on such exceptions or on the matters made subject to reconsidera- 
tion by its order, and its orders in Such cases shall have the same effect as now 
orovided by law in respect to its orders. 


I had omitted that. I think that is an important clause and fur- 
sher insures a uniform policy there. In the first place, these bodies 
we created by the commission; the commission has the right upon 
ts own initiative to take a case and hear it in the first instance. It 
as the right after hearing a case to pass upon it, and, although there 
nay have been no exceptions, the commission may still order that a 
vase be given consideration here, or it might modify that order. 
That is not so materially different from the tentative report system 
iow, with the important exception that the tentative report is not 
t final order, and oftentimes we wait for months and months after 
he tentative report is out before we get the final order of the commis- 
ion. I-believe, then, that that proposal will meet Commissioner 
Jlark’s objection. 

_ Now, as to the difficulty of defining the regions, we have simply not 
indertaken to arbitrarily define regions. In the case of these freight 
raflic committees that have been created by the administration, they 
jave jurisdictions, but there has been no trouble in the fact that 
t was on arbitrary lines, for the simple reason that they adopted 
-ertain flexible rules as to traffic originating in one territory and 
‘oing into another. If the freight involved originated in one district 
'T territory and the destination was in other territory, then both dis- 








414 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


trict committees would have authority to consider it, and the Inter- 
state Commerce Commission might properly make a similar ruling. 

Mr. Dentson. It is your idea that by providing that the regional 
commissions might sit together you would obviate the objections 
which Mr. Clark made in regard to traffic originating in one district 
and going over into another district? 

Mr. Fuuericut. Yes, sir. In many cases, while the traffic may 
affect two districts, the real questions at issue will be confined to one 
of the districts. The next objection that has been made is that those 
bodies would be subject too much to local influences or political influ- 
ences in their respective districts. I do not believe that that is an ob- 
jection that: should overcome the advantage of having men who are 
familiar with the conditions in those districts. As a matter of fact 
I have seen case after case in those districts served by traffic commit. 
tees where the representatives of the shipper’s rights, coming fron} 
a given point, would decide the question at issue in a way that was 
apparently against the shipper’s interest in his own section. It has 
been demonstrated that they can honestly decide those cases. I have 
in mind a decision by which certain rates out of Fort Smith wer 
very materially increased, and the traffic commissioner of the For 
Smith freight traffic bureau was a member of the committee that ap: 
proved those increases. Of course, the sphere of influence is an 1m: 
definite one. Some shippers might feel that they might be influences 
by our railroad friends unduly, and some railroad men might bi 
afraid that they would be influenced by the shippers unduly. Now 
I have gone thus far into the proposals. We have made these tribn: 
nals or these regional commissions the creatures of the Interstat 
Commerce Commission, and have given the Interstate Commerc 
Commission the power to remove them from time to time as it ma) 
see fit. I have thus created a good safeguard. Some may have ob: 
jected to the expense of the commissions, but, gentlemen, the tre: 
mendous amount that is involved in the transportation question 1: 
such that I do not think the small matter of the expense of adminis 
tering it should be called at all into question. In fact, personally | 
would like to see a more liberal policy made possible, because it is m) 
opinion that the Interstate Commerce Commission is going to lose § 
number of its very best men quite soon simply because they have 
reached the limit of what they may earn there, and there are to 
many places open in the commercial world that will pay them ¢ 
great deal more than they are getting there. That is aside from thi 
subject that I came to discuss, but it really should be given some con 
sideration. : 

Now, that is all I intended to say as to the regional commission 
and I want to pass to the fourth section. . 

Mr. Dentson. Before you leave that, is it your idea that the a 
Deaeren of these men should be for an indefinite time or for a fix 
time ? 

Mr. Futerieur. It would probably be better to make them for 
fixed time, but, as you will notice, I did not pass on that particul 
question. I rather left that to the judgment of the Interstate Cor 
merce Commission. I believe this, that even though some membe 
of the Interstate Commerce Commission might not favor the princip 
of regional commissions, if such a law be passed, you would find th 






RETURN OF THE RAILROADS. TO PRIVATE OWNERSHIP. 415. 

















’y would most heartily go into the work of trying it out in an 
‘nest and efficient manner. They have never sought to impose their 
Ws on Bec in opposition to the spirit of any of the laws that 
mow of. | 

‘Ma. Denison. Is it your idea that the Interstate Commerce Com- 
‘ssion should define their jurisdictions? 

Mr. Fuuericnt. They have primary jurisdiction of all cases filed 
‘their districts, unless the Interstate Commerce Commission shall 
isider the case to be of such importance that it should hear it in 
» first instance. 

3 Denison. You say, “all cases.” What do you mean by all 
es ¢ 

Mr. Fursrientr. I mean all cases and complaints of the character 
it are filed with the Interstate Commerce Commission. I mean 
tt the informal docket cases would be handled by these districts. 
lo not see why they should ever come to Washington, or why they 
muld hardly ever come here. Then, the special reparation or spe- 
l refund dockets could be handled by the regional commissions, 
1 the formal docket cases could be filed contemporaneously with 
» regional commissions and at Washington. 

Mr. Denison. For instance, if this bill should be enacted the juris- 
tion of the Interstate Commerce Commission would be very much 
‘ended in its powers and duties? 

Mr. Futpricut. Yes, sir. 

Mr. Denison. Should not all of those duties fall to the regional 
nmissions ? 

Mr. Funsrirenr. I see your point. That has not been definitely 
rked out, but I should say that a great part of those powers 
mld. The regional commissions would pass on it in the first 
‘tance, and then it would be subject to review by the Interstate 
mmerce Commission. | 
Mr. Dentson. Why do you not, then, leave it to the Interstate: 
mmerce Commission to define their jurisdiction ? 

Mr. Futsricut. I have done that, practically, because if they 
‘ide that the question is of sufficient importance that they should 
iv it in the first instance, instead of the regional commission, they 
uld settle it. They would have the right to say whether or not 
's a matter that should be brought originally before the Interstate 
‘mmerce Commission. 

Mr. Dentson. You have no doubt about their having the authority 
‘lo that, have you? 

Mr. Fursricut. If the statute specifically so provides. If it spe- 
cally provides that the orders of the regional bodies would be: 
‘de final, that would give them statutory authority to delegate: 
ir authority to the regional body. 

‘Ar. Denison. Is it your idea that the procedure in taking ques- 
(as that are presented to the regional commissions to the main 
‘erstate Commerce Commission should be the procedure that is 
‘lowed on the part of the commission itself when it voluntarily 
es them up, when neither party asks for it? In other words, if 
ner party should go before the Interstate Commerce Commission 
‘ask that the record be reviewed, the procedure would be in the: 
ure of a certiorari or something of that kind, would it not? 


> 


416 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Furericut. That is correct. For instance, take the matte 
of the investigations and suspension docket: The commission ma 
on its own motion, investigate a rate situation without complair 
from either shipper or carrier. I am following that principle. 

The plan for regional commissions submitted by Mr. Fulbright 


as follows: 
SUGGESTED DRAFT OF PROVISION FOR REGIONAL COMMISSIONS. 


The Interstate Commerce Commission shall divide the United States it 
six regional districts, or as many more as that body shall from time to ti 
adjudge necessary to most expeditiously handle the cases coming within 
jurisdiction, and it shall have power to define and rearrange the limits of sv 
districts from time to time; the same body shall appoint three regional ¢0 
missioners for each district, whose salary shall be $7,500 a year, and two 
whom shall be residents of such district. The Interstate Commerce Connn 
sion shall have the right and power to define the term of service for 4 
commissioners so appointed and to remove them for cause when it sees 
The appointees for each district shall constitute the regional commission © 
such district, and these regional commissions shall have primary jur 
diction of all cases arising in their respective districts: Provided, he 
ever, That in all cases where the Interstate Commerce Commission sh 
consider the questions involved to be of such general interest and imp 
tance that they should be considered by more than one regional conmur 
sion, or by the Interstate Commerce Commission in the first instance, tl 
may so order and proceed: Provided further, That the Interstate Comme 
Commission may prescribe rules of procedure and rules to determine which 
the regional commissions may be the proper body to consider cases cont 
before such commissions. : 

The members of the Interstate Commerce Commission may from time 
time sit with the regional commissions as and when they shall adjudge proj 
and regional commissions may hold joint hearings with State railroad comu 
sions or similar regulatory bodies in the States of their respective dist 
in such cases and subject to such rights and powers as are provided in this 
for the Interstate Commerce Commission to sit with such commissions, subir 
however to the right of review by the Interstate Commerce Commission 
herein provided. 

The regional commissions shall have authority to hear and determine 
complaints arising in their respective regions and to make reports thereoi 
the Interstate Commerce Commission, such reports during a fixed period to 
subject to exceptions by any of the parties, as in the case of reports made 
masters in chancery. If no exception is filed within the time limited and if 
not otherwise ordered by the Interstate Commerce Commission, the orders 
findings of the regional commissions shall automatically go into effect. 
there are exceptions or the Interstate Commerce Commission should consi) 
the issue involved of sufficient importance to so order, a hearing shall be 
before it on such exceptions or on the matters made subject to reconsiderat 
by its order, and it may thereafter make such further disposition of the ¢ 
as it sees fit, and the orders of the commission in such cases shall have 
same effect as now provided by law in respect to its orders. , 


Now, as to the fourth section: Gentlemen, you are here endeav 
ing to work out constructive legislation which will enable the 1 
roads to transport the commerce of the country most efficient 
You are striving to frame laws which will insure to those railrot 
a healthy existence in order that they may perform this task. Y 
are also carefully safeguarding the fundamental American princi) 
of free*competition as far as is consistent with efficient operati 
At the same time you are interested in the development and in’ 
building up of our merchant marine. There has been consider) 
said about the coordination of rail and water carriers, and the qu 
tions from you have indicated your interest in that subject. ¥ 


have all of those interests that you have to weigh in the delice 


| 




















= oh 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 417 


jalance of justice in framing your legislation. I think, then, that 
ive might for a few minutes revert to some of the fundamental 
»winciples as applied to the long-and-short-haul clause. There is 
\ popular fallacy that every higher charge for a shorter haul than 
'3made for a longer haul constitutes an unjust discrimination against 
-he community at the nearer point. It is difficult for the layman to 
\2e, for example, why a charge of 45 cents by a railroad to transport, 
_m article from Philadelphia to Petersburg, Va., is not an unjust 
Iscrimination against Petersburg if the same railroad charges 40 
ents to transport the article through Petersburg to Norfolk, a few 
ules farther on. 





| Now, if by forcing a railroad to comply with the fourth section 
ye could enable the receiver at Petersburg to get his article for 40 
_ents instead of 45 cents, or if we could compel the receiver at Nor- 
/ollk to pay 45 cents for his article, the same as the Petersburg man 
oes, then we would have removed whatever discrimination there 
‘tas there, but if that article may still be carried from Philadelphia 
.) Norfolk for 40 cents by another rail carrier or by water what have 
fe accomplished when we deny to that carrier the right to charge 
\0 cents to carry it to Norfolk? You say it may force the carrier to 
‘ywer the rates to the intermediate points. The application of that 
\rinciple would mean a lower level of rates all along the line and 
| general revision downward of the rates, which the carrier in most 
ases could not and would not afford, or it has the option, it might 
orego the traffic at Norfolk. What effect does it have on Peters- 
wurg? If this was a very important element of traffic to the carrier, 
'y having to shut out that traffic it will have practically as great 





‘Spense as it had before and it will have to make up its expense in 
‘2Venues somewhere and it might have to raise the rate above 45 
onts to our friend at Petersburg. In other words, the Petersburg 
‘lan is simply compelling the carrier to forego some traffic and to 
jave some disadvantage without himself gaining an advantage. 
“hat is the principle under which the fourth section is to-day ad- 
‘umistered by the Interstate Commerce Commission. 

| Before going on with that further, I would say this: I do not be- 
| eve that I would favor leaving the fourth section as it now stands, 
aving the Interstate Commerce Commission free to handle it under 
S$ present limited power. I do not believe that I would feel free to 
,0 that were it not for the provision in this bill that the commission 
as the right to fix minimum rates. It is true, gentlemen, that 
jlere are many cases where the carriers have come in and made 
wes so low as not merely to compete with the water lines but as 
) throttle them and to drive them out. We want to be fair to the 
jater lines and at the same time we want to be fair to the carriers. 
(; May not be right to deprive the carrier absolutely from trans- 
orting freight between two great ports; it may cripple that carrier. 
''e want to be fair to the carrier and at the same time we want to 
)) fair to the water line, and we should prohibit that carrier putting 
| rate so low that the water lines can not compete with it. With the 
Wer given to the Interstate Commerce Commission to prescribe 
‘Inimum rates and the power to use its judgment and discretion 
)\ to how far a carrier may go in departing from the fourth-section 
| quirements, I believe that you have there sufficient provision of law 
id that it will be properly and efficiently administered. 


152894—19—-vor, 127 








1 


418 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP, 


The general policy of the railroads under former conditions has 
been to preserve as much as possible free competition to the indus- 
tries located on the line of the railroad and in the various consuming 
territories. The railroads want to see the industries on their lines 
prosper. They want to see them move traffic, and they want to see 
them distribute over a wide territory. At the same time the greatest 
benefit to the consuming public is for the consuming public to have 
a wide range of markets in which they may buy their goods. Wide 
distribution is the main advantage in preserving free competition. 
in the general lines of commerce. The carriers have pursued that 
in many ways, and I mean to give you a few examples. I gave one 
example before the Senate committee and I am going, at the risk 
of repetition, to mention it here. 

The southern part of the United States constitutes what is known 
as the yellow-pine belt. A great part of that country was formerly 
largely a pine wilderness. The great consuming market for yellow- 
pine lumber is north of the Ohio River and east of the Mississippi. 
Rates were made, blanketed, from various parts of the territory 
‘n the Southeast to that territory. Rates were made by the carriers 
‘nthe Southwest which did not quite, but almost met the level of rates 
over a wide scope of territory. In cases they violated the fourth 
section technically, but what was the result? It enabled a develop: 
ment of the timber, the cutting away of the timber not merely in 
Mississippi, which stood near to the consuming territory, but in 
Texas and in Louisiana and in Florida, a widely distributed terri: 
tory. That gave to the northern markets a wider range of terri: 
tory and a wider competing market. It enabled the South to be 
transformed from a wilderness into a garden spot. If they had a 
straight mileage scale there, Texas would still be a wilderness, 
Louisiana would have been undeveloped, and the pines would have 
been denuded from Mississippi and Alabama. | : 

That policy of meeting the competition sometimes by the longer 
line, because of the competition of much shorter lines, has bee 
necessary in carrying out this policy which has resulted in the devel- 













Take sugar. The beet-sugar industry out on the Pacific coast 
could never have been developed but for the fact that the railroads 


Co, 


that were at the Atlantic seaboard and at the Gulf ports. 
Not long ago I had the good fortune to attend the National Con: 
ference of the State Manufacturers’ Associations. I believe there 
were 16 States represented. They represented every manufacturing 
State in the Central West as well as New England and the seaboarc¢ 
terrrtory. The interior manufacturers were Just as much interestec 
in preserving the fourth section as it is to-day as were the New Eng 
land men. Why? Because it enables them to compete at poin 
where otherwise they could not compete. An Ohio manufacture: 
may want to distribute goods at Savannah, Ga. He may want t 
compete with a manufacturer in Boston, Mass. If the railroad 
enable him to do it, is the public hurt? Not unless the railroad 









RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 419 


parry that freight at an unreasonably low rate—at such a low rate 
fis not to be compensatory. I will come to that in a minute. These 
jnanufacturers were unanimous in their opinion as to the matter. 
} ‘The shippers in Oklahoma and some of those in Arkansas have 
een rather in favor of an absolute fourth section provision. We had 
, meeting of the Southwestern Industrial Traffic League on the 8th 
| f this month at Dallas, Tex., at which time there were present repre- 
entatives from Oklahoma, Arkansas, Louisiana, and Texas. We 
iyent into this and we analyzed the situation. They came to the 
\Manimous conclusion that the fourth section should be left as it is. 
) Another reason why a great many of the small manufacturers are 
/nsistent upon the fourth section being left undisturbed is because it 
‘vill put them at relatively small disadvantage as contrasted with a 
wig industrial concern that has a number of plants scattered all over 
he country. A manufacturer who has a plant at only one place 
\yvants to distribute over as wide a territory as he can. He is natu- 
jally at a very great disadvantage, any way you figure it, with a 
jaanufacturer who has plants in different sections of the country. 
| he policy of the railroads—as, for example, in the Beet Sugar case— 
jas been, and I think wisely, to protect these small men and give 
‘hem wider markets to go to. The public has gotten the benefit from 
't, because frequently on a given commodity the freight rate would 
e such that they would have a monopoly in some parts of the coun- 
|ry, and the consumer would pay the bill. So I believe it is for the 
/aterest of commerce, the interest of the manufacturers, the interest 
| f£ the producers and of the consumers that this be left to the adminis- 
‘ration of the Interstate Commerce Commission, as it is now admin- 
jstering it. 
| The Crratrman. That is, with the right to fix the minimum? 
| Mr. Fursrienr. With the right to fix the minimum; yes, sir. It is 
'0 the carrier’s interest, as I suggested before, and I am going to 
pive you an illustration. From New Orleans to San Antonio it is 
; #1 miles by the Southern Pacific line. That is a direct route over 
‘n old, well-established, profitable line of road. Some 10 years ago 
‘he Gulf Coast lines were constructed from New Orleans west. 
/arough Houston and thence southwest to the Rio Grande border. 
| hey were small lines which had been operating independently for 
)ae last few years and, of course, they had those difficulties with 
hich weak lines are usually confronted. San Antonio was an im- 
‘ortant consuming and producing community and so was New Or- 
ans. One hundred and thirty-three miles south of San Antonio 
/ nother independent line—the San Antonio Uvalde & Gulf—running 
jut of San Antonio, crossed the Gulf Coast lines. It was 716 miles 
‘tom New Orleans to San Antonio via the Gulf Coast lines, the San 
ntonio, Uvalde & Gulf; we call it the “ Sausage ” down there. With 
authority to meet that competition the Gulf Coast lines participated 
/1 that traffic and put on a service from New Orleans via these other 
‘nall lines which gave better service to the public a good part of the 
me, on the average, than had been rendered theretofore by the 
outhern Pacific line. They went into the competition and they 
ot a share of the traffic. It became an important element of traffic. 
)2 order to do that they had to charge a less rate at San Antonio than 
ney charged at intermediate points on the San Antonio, Uvalde & 















42.0 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Gulf or, going in the opposite direction, at intermediate points on 
the Gulf Coast lines. It did not hurt those communities. The San 
Antonio, Uvalde & Gulf was a small line and it was just barely pay- 
ing operating expenses. The bringing of this additional traffic to it 
was like a lifesaver to a drowning man. It enabled them to more effi- 
ciently serve the communities on their line; it prevented them from 
the necessity of demanding from the local communities higher rates 
than they were then paying, and it was a benefit to everybody con- 
cerned. If you want to help the weak lines, a good way to help the 
weak lines is to permit a judicious use of the fourth section, and use 
of the fourth section proviso. When it enabled this line to come in 
and compete with the other lines and to take part in that traffic the 
intermediate communities were better off because they had a line 
which could give them better and more regular service when getting 
more traffic. : 

How could a railroad afford to do that? An increase of a given 
percentage of traffic does not mean an increase of the same percent- 
age of expenses. In the first place, one of the largest elements of 
expense is the expense of maintaining the right of way and strue- 
tures of a railroad. That is constant. Of course, an increase of 
traffic may increase it, but it will be slight, and. similarly, main- 
tenance of equipment does not increase in expense with the increase 
of traffic, and the increase of train operatives does not, because you 
get a better train efficiency if you haul 100 per cent efficient instead 
of 90 per cent efficient. I just at random opened up, day before yes: 
terday, a volume of statistics for 1914—the commission’s statis- 
tics—and one for 1916, and on the first page I took the Erie Rail 
road. I found in 1914 their operating revenues were $52,000,000-- 
I have the exact figures here but I will only use the round figures— 
and in 1916 they were $65,000,000, or 25 per cent more. The increase 
in operating expenses was less than 15 per cent greater, and the 
maintenance of way expenses were practically the same. In fact. 
it was a few dollars less in 1916. The maintenance of equipment 
was 16.1 per cent greater, although they handled 25 per cent more 
traffic, and I verified that by looking up the tonnage, and saw that 
they did handle 25 per cent more traffic. The traffic department 
expense was less in 1916 than in 1914, and the general expenses were 
2.8 per cent greater in 1916 than in 1914. The general transporte 
tion expense, which includes materials, supplies, all of the labor 
cost, the wage cost, had increased 22.9 per cent. That element of it. 
you see, increased nearly in the same proportion as the increase iP 
traffic. : 

Mr. Srus. An increase of 22 per cent? 

Mr. Foursricutr. That was contrasting 1914 with 1916. The br 
crease in traffic had been 25 per cent, but in no element of expensé 
had their increased expenses been 25 per cent. . 

T took another road, the Chicago & North Western—taking a west 
ern road that is not quite so prosperous as the Erie—it does not have 
the same density of traffic, and I found 10 per cent increase in thos 
two years. I found that the increase in the expense was less than ¢ 
per cent to take care of the 10 per cent increase in the traffic. 

One of the small weak lines in the Southwest a few years ag 
made a calculation as to how much it would increase their operatins 


























RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 4921 


‘expences to have a 20 per cent increase in traffic. I was connected 
with that line. We were figuring on the proposition of getting in on 
some additional traffic. We had to take a rather small division to get 
some of the traffic and we were wondering if we should take that 
division. We made an analysis of our conditions. We found that 
our freight trains were about 80. per cent efficient, that is, handling 
‘bout 80 per cent as much as they should handle, that our mainte- 
lance of way expense would not be increased, that a number of ele- 
‘ments would be increased slightly, and we came to the conclusion 
‘hat with an increase‘of 2 per cent in operating expenses we could 
‘ake care of 20 per cent additional traffic. Needless to say, we profited 
oy taking on some more traffic. That is exactly the case that you have 
detween these ports. You may have a case where the line has to 
(forego some traffic. If it can add that traffic and thereby economi- 
tally perform the service it can afford to do it at a lower rate. So 
far as the Interstate Commerce Commission does not permit that 
oad 
_Mr. Sims (interposing). The railroad was carrying that freight 
it simply out-of-pocket cost? 

| Mr. Fursricut. No; we were carrying that freight at a lower 
sate than it was being transported generally on our line, but at the 
same time it was being carried at more than the out-of-pocket cost. 
We simply took a division which would not be attractive to us under 
other conditions. 

Mr. Srus. Under the law they had a right to make a rate which 
vas just equal to the out-of-pocket cost? 7 

| Mr. Fuericut. The out-of-pocket cost is an exceedingly elusive 
erm. 

Mr. Sims. So we understand. 

Mr. Futprient. It all depends on what the operating and trans- 
ortation conditions are on the line. A great deal depends upon 
vhether it is adding some traffic or taking the traffic as a whole. 

The Interstate Commerce Commission in adjudicating the fourth 
ection in the early days—I do not believe that the policy of the In- 
erstate Commerce Commission was at all times the best. I think 
hat the commission themselves realized that that was true. That is 
nade manifest by the fact that they have changed their policy. In 
he first place, the original fourth section, of course, was not worth 
mything because it contained the words, “under similar circum- 
tances and conditions,” and the commission could not do anything. 
n 1910 it was amended and was left to the discretion of the commis- 
ion. There were some 5,000 fourth-section applications filed within 
he time prescribed in the original order, and of those the commission 
tas been working away and has finally disposed and adjudicated 
ome 38,000. It is still at work on them. It is a tremendous task. 
t will not be performed in a day or in a year or in five years, but, 
jentlemen, they are performing it in such a way that they do not by 
‘ne fell swoop arbitrarily disturb the conditions of industry. That 
8 what an absolute fourth section would do. Originally, they used 
‘0 consider potential water competition as. justification for a carrier 
0 put down a rate, and if the actual water competition came into 
xistence they did not have the authority to say what the minimum 
ate should be. They have now come to the policy of not only re- 





4922 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


quiring that the possibility of water competition be shown but that 
it be shown actually to exist and in sufficient volume and importance 
to constitute an element which the railroad must reckon with in the 
controlling of traffic. So far as that policy is adopted, I submit that 
it should not be disturbed. They have in connection with that at 
all times considered the matter of unjust discrimination, as to 
whether or not any community is put at such a disadvantage by 
reason of this that they are crippled in the performance of their 
functions. 

_ I think the present policy of the Interstate Commerce Commission 
is really gravitating toward an absolute fourth section, but at the 
same time there are many cases where the commission can propertly, 
and does properly, permit one carrier to compete with another car- 
rier by lowering the rate to meet the competition and thereby help 
that carrier when otherwise that carrier might be crippled. That 
certainly does not hurt the man at the intermediate point, but it 
enables him to get better service, and he could not get a lower rate 
anyway at that point. That is usually the case. 

Now, the commission makes analyses of these cases. It does not 
arbitrarily decide them. They go very carefully into them. I spent 
nearly two weeks in submitting evidence and taking part in the tak- 
ing of testimony in one fourth section proceeding. That gives you 
some idea of how thoroughly the commission goes into the individual 
cases. 

I believe it is proper for you to leave the fourth section as it is. I 
trust, gentlemen of the committee, you will endeavor to see to it that 
the Interstate Commerce Commission is permitted to go ahead and 
administer it just as its judgment shall dictate. 7 

That is all on that point. I have a few other remarks I would like 
to make. . 

The Cuairman. Very well, Mr. Fulbright. How much more time 
will you need to finish your statement 4 

Mr. Furericut. I do not think I will be more than 20 or 30 
minutes, Mr. Chairman. | 

The CHairmMan. You may proceed. 

Mr. Fursricut. I will try and hurry through, Mr. Chairman. 

I dwelt at some length on these two points because I had not had 
opportunity to talk to you about the fourth section. I know you have 
had a great deal of information on the subject, but I wanted to @x 
press the sentiments of our section. | 

On the Esch-Pomerene bill I stated I trusted the provision giving 
the commission jurisdiction over the rates of water carriers would 
be eliminated, that it be left as it was before in that respect. 

Mr. Rich stated, in a general way, our feeling on that question. 
The sea is a public highway; anybody can run his boat over it any- 
where. A large shipper, handling a tremendous volume of a given 
traffic, can have his own fleet of boats and operate them as a private 
carrier. I have in mind one instance of a company located in my 
town, Houston, that is contemplating owning a fleet of boats to make 
shipments to Boston and seaboard points—just its own shipments 
That, of course, is a natural advantage which they may enjoy. Now 
if the Interstate Commerce Commission fixed a rigid scale of rate 
they would have to be published rates, they must be published, no 








RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 493 


between certain limits, but you have got to publish exactly what the 
‘rate is. If that rigid scale of rates is fixed that scale is going to be 
higher than is oftentimes available to the small, independent ship- 
“pers; but this concern I speak of will not be hampered by that and 
‘they will get a greater advantage over the small concern than they 
would get if they were left free to have competition in ocean rates 
“and in water rates. | 
| The Cuarrman. But the other concern is not a common carrier. 

Mr. Fursricut. What is that? 

The Cuarrman. The private owner is not a common carrier. 
_ Mr. Fursricut. I know it is not a common carrier, but that com- 
pany can not put a trainload of goods on a railroad track and trans- 
port it from Texas to Boston, or vice versa. It can not have a private 
train to transport the stuff at its expense. Therefore they can not 
‘get an advantage by rail transportation, but in water transportation 
there is always an advantage to the big shipper. This advantage will 
be augmented in my opinion if the regulation of water rates is placed 
under the jurisdiction of the interstate act. I believe that question 
ean be left properly with the Shipping Board, which deals with water 
transportation subjects. 
' The Cuarrman. Have they dealt with it? 
Mr. Fursrient. No; they have not. As you know, the Shipping 
Board has not got very much organized. There has been a war on, 
‘and so many things, that they are still in the formative stage. 
“We speak of coordination of rail and water transportation. Gen- 
tlemen, there is a certain kind of coordination that certain of our 
‘railroad friends would like to see. They would like to see rates put 
‘Upon a straight all-rail basis between all ports, thereby giving them 
‘absolute Fourth Section with the rates all at the highest level. Some 
‘of our railroad friends would like to see that; but we believe the 
shipping public should be considered in that connection and that 
‘competition should be left free on the water. Then there is the 
tramp-steamer competition that you are not going to be able to con- 
trol. Some Swedish steamer will roll into Boston with a schooner 
of lumber from the Gulf coast, and it is going back to Florida, or 
some other place—any place to which it can get a cargo. It will bid 
for that traffic and get a certain amount of that traffic. We are not 
able to control and effectively to regulate a set basis of rates in the 
case of water carriers as we are in the case of rail carriers. I do not 
feel that the jurisdiction should be extended to water carriers under 
the interstate commerce act. I believe the Shipping Board, as its 
policies are formed, will not endeavor to run the country or destroy 
the good work the Interstate Commerce Commission is doing. I see 
no reason why these two governmental bodies, both under the juris- 
diction of the Federal Government, may not work harmoniously and 
May not coordinate the transportation systems. As to coordination 
in the-way of providing sufficient terminal and dock facilities, that 
ower is conferred upon the commission in the Esch-Pomerene bill. 
_ There is one other feature of the bill I want to mention. On page 
12 of the bill it is stated: 
- The commission may require the terminals of any carrier to be open to traflic 
»t other carriers upon such just and reasonable terms and conditions, including 


just compensation to the owners thereof, as the commission, after full hearing 
pon complaint or upon its own initiative, may by order prescribe. 












424 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Gentlemen, that is a very broad power. JI have had great difficulty 
in bringing myself to agree with any part of it. That may be because 
of my former training. But I would say this, when it comes to 
freight depots, team tracks, and facilities of that character, I do 
not believe you should endeavor, even with a just compensation clause 
hung on it, to force a carrier to give up the use of those kinds of 
terminals that it has provided for the public it serves. 

What I primarily want to reach there is the difhculty we contra 
where an industry is located—it has to be located on some railroad’s 
track—we will say, on the Rock Island, where the Rock Island is 
serving that point where it is situated, we will say Des Moines, and 
also serving Chicago; and the Burlington serves both points. Nov, 
the Burlington will not switch that fr eight, on a through rate, to this 
industry, and an industr y located on the Burlington tracks would be 
similarly dealt with by the Rock Island. I believe in the power to 
fix divisions the commission should have authority to give to° m- 
dustries which are located on an industry track the right to get ship- 
ments from other lines, thereby giving the industry greater “jatitude 
in routing shipments. 

Now, it is hard to distinguish in principle between that and the 
objection I have just made. I should say it is one of degree, but there 
is still a difference. The industry on the industry track has its own 
track; it can not be crowded out; it is only going to use the shipments 
that it receives and sends out anyway. But the team track, over here} 
has to give space that that carrier has acquired in a city for the pur; 
pose of servin g its patrons and if you are going to turn the other road 
in on that too, it may run out the owner of that track and cripple it 
in the use of its own facilities; it may be inadequate to serve theni 
both. I think they should be compelled to furnish their own freight 
facilities for the use of the general public. 

There are some other distinctions which I will not go into or dis- 
cuss now, but I really feel that should be qualified to some extent so 
as not to apply to team tracks and general public unloading tracks, 
depots, and facilities of that character in a city; and for private 
spurs, sidings, and so forth, I believe it would really be good poliey 
to leave the jurisdiction as it now stands in the proposed bill. 

I want to say this word further about the weak lines. Under the 
provisions for fixing divisions by the Interstate Commerce Commis- 
sion you are there enabling the commission to very effectively assist 
the weak roads; also under the car service amendments you are assist- 
ing the weak lines, and in the provision I have just mentioned, if the 
weak line has inadequate facilities and does not serve many industries 
im a given NR it may have the right to have its shipment 
switched over to industries on these other tracks, you are giving it 

very material aid right there, because while it pays due compensation 
therefor, you are placing it where it can get more traffic. Those 
things are very effective measures to help solve the weak line problem. 

Then your provision for consolidation and merger is also a ste 
in the right direction and will permit, in many cases, these wea 
lines to be tied in with systems to which they will really be of some 
benefit, whereas standing alone, without affilations, they can not do 
very much. 

The Cuarrman. Mr, Fulbright, we can perhaps give you 15 or 
20 minutes in the morning. 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP.’ 425 


Mr. Sms. Mr. Chairman, in the morning I would like to ask Mr. 
ulbright some questions bearing on the fourth section. 

The Cuairman. We will have another witness in the morning, 
at we can probably give you half an hour, Mr. Fulbright. The 
»mmittee will adjourn until to-morrow morning at 10 o’clock a. m. 
‘(Whereupon the committee adjourned until to-morrow, Friday, 
‘ugust 1, 1919, at 10 o’clock a. m.) 


CoMMITTEE ON INTERSTATE AND Forrr¢N Commence, 
Houser or Representatives, 
Friday, August 1, 1919. 
The committee met at 10 o’clock a. m., Hon. John J. Esch (chair- 
an) presiding. 





STATEMENT OF MR. R. C. FULBRIGHT, OF HOUSTON, 
TEX.—Resumed. 

The Cu4rrman. Mr. Fulbright, I think there was to be some cross- 
amination this morning. 
Mr. Fourericur. Mr. Chairman, before that I would like to say a 
w words with reference to some suggestions made by Mr. Rich. 
The people in our section are decidedly not in favor of the con- 
imation of the Government guarantee of compensation after the 
ads are returned to their owners. We believe if they are turned 
\ck they should be turned back and not put in control and in the 
'nds of their owners with the Government, either for a year or a 
nth or any period, stating that the compensation agreement will be 
tried out and continued while the roads are being operated by their 
ners. 
|Mr. Rich’s plan has some things that appeal to me. In the first 
)4ce it is a plan that looks to the future. My idea is that your 
oblem in any reconstruction legislation is a problem to provide 
\¢ the future and not to disturb investments or conditions as they 
| ve 
\U do not believe that his plan, if adopted, would be very generally 
jailed of; in fact, the less it is availed of the better 1 would be 
jisfied with it, as this would indicate little necessity upon the part 
| the lines to avail themselves of it. Of course, we are always going 
| have some weak lines. We will always have some lines that do 
> have the most efficient management. We have the principle of 
)) Survival of the fittest applying to the carriers just as it applies 
‘any other business. Some of them have been built in the wrong 
ce; some of them have been built for the wrong purpose. Those, 
/ Vever, are comparatively a small percentage of the mileage. They 
. Sporadic instances. 
‘As a matter of fact, as I suggested yesterday, the Esch-Pomerene 
_ will, to a large degree, take care of the troubles of the weak 
is. In the matter of regulating divisions, in providing for access 
‘industries on the terminals of competing lines at their competing 
| nts, and in preventing depressed rates being put into effect by the 
| te authorities, for as I interpret the bill, an investigation of dis- 















496 ° RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


crimination between State and interstate rates can be made by tl 
Interstate Commerce Commission upon its own motion. The bi 
says that in any proceeding in which the issue is raised that there 
a discrimination between interstate and intrastate rates the commi 
sion shall follow a certain procedure. To my mind that is importa 
now. Some of our adjustments are not what they ought to be. Son 
further increases may have to be made before the roads are turng 
back, but it would certainly be disastrous, if the roads should | 
turned back to their owners, and overnight the State commissions ( 
the various States of the Union should say that the rates “ that y 
prescribed ipso facto go back into effect.” If by putting those rat 
back into effect, they create a discrimination against interstate con 
merce, the Interstate Commerce Commission can put a check to it, 

The Cuarrman. Under this bill it would become unlawful. 

Mr. Fursricutr. It would become unlawful, and as I conceive th 
bill, the Interstate Commerce Commission can step right in_then. 

Now, as to the rates that are in effect upon the termination \ 
Government control, I do not believe there should be any legislatp 
provisions making those rates continue as reasonable rates. ‘Tho 
rates, I believe, should be recognized, however, until set aside | 
some regulatory body, either upon its own motion and investigati 
or upon complaint. In other words, it would be disastrous to the ea 
riers to turn them back with the contention open that the old bas 
of rates thereby went back into effect. 

We all know that the conditions of transportation and the ¢ 
penses of operation have vastly increased. 

The CuarrMan. Would not the intrastate schedule of rates as & 
isted prior to Federal control become practically unlawful und 
the terms of this bill? 

Mr. Fuuerrient. I should think so, on the theory, Mr. Esch, th 
to put that old schedule back into effect would create a discriminatio 

The Cuarrman. The spread would be so big. 

Mr. Futpricut. Yes; it would be a rank discrimination on the sa 
of it. Asa matter of fact, I do not believe that is the principle or t 
policy that will be followed by the State commissions, for they ¢ 
tainly have realized that conditions have changed immensely, @ 
they have, as I see it, come to realize that the day has come for the 
to cooperate and work with the interstate regulatory body. q 

Now, as to the Rich plan, I am not in favor of a Governme 
euaranty whereby there is a possibility of the holder of obligato 
putting his hands into the United States Treasury and taking 
of there money that has been collected by taxation from the peop 
of the United States. 

I believe that if a plan of assistance is worked out whereby, und 

vise guidance of some body such as the Interstate Commerce Co 
mission, perhaps with the advice and consent of the Secretary 
the Treasury, they could assist in the financing of new undertakin: 
or improvements upon roads along the lines suggested by Mr. Ru 
and let the excess payments made out of the excess earnings 
other lines be considered as a guaranty fund, and the guaranty 
the Government be not a guaranty of the Government but 

guaranty confined to that fund. We would then avoid what 
conceive to be the most serious objection. I do not think it is nec 







RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 427 







ary to guarantee the principal of the obligation. As a matter of 
act, that is the way I originally understood that plan—that it was 
‘guaranty of the interest payments upon the bonds that would be 
sued under the authority of some regulatory body. : 

_ We have some precedent and some reason, I believe, for requiring 
f the carrier some division of its earnings above a given return; 
iat it be paid into the Government, to be expended by the Govern- 
‘ent as the Government sees fit, for while that is the earning of 
at carrier, which, say, has earned 15 per cent on its stock during 
given year, at the same time that is collected for a public service 
nder the order and direction of the Government in approved rates 
iat have the effect of law. The money is taken from the public. 
ow, the difficulty, of course, comes that in making a distribution 
f that and by putting it in this guaranty fund, if it be applied 
) pay the interest payments on the bonds of some weak lines, one 
mamunity is paying in money to help out another community and 
’ ° it a more efficient transportation service. 

| Of course, you can reduce that argument to an extreme, and you 
ill find that as a matter of fact one community to-day is paying 
i vast sums of money to our Treasury to finance and assist the 
/overnment in undertakings for the benefit of other communities. 
|hat is the effect of the Federal assistance in good roads and in 
‘her matters that we might mention. 

‘Mr. Denison. The income tax does that, does it not? 

| Mr. Fursricur. The income tax does that. So, I do not see that 
iat 1s an insuperable objection. My thought is, however, that if 
(iat division of earning above a certain return be collected from the 
litriers, that that stands solely as a guaranty fund and that the 
overnment not be held responsible beyond the fund that is so 
} eated. 

| There are some difficulties about this plan, however. Some of them 
jere suggested yesterday. Suppose a road goes into the hands of a 
ceiver and has outstanding certain bonds upon which the interest 
turn is guaranteed by the Federal Government; that is, by this 
jlaranty fund. What would be the status of the claim on the earn- 
\gs of that road? Now, that will have to be given thought in any 
|gislation that is provided. Of course, the ordinary bondholder has 
\first claim upon the earnings of that road which have accumulated 
‘lor to the receivership, subject to the equity rule of priority for 
pplies and labor furnished within a reasonable period prior to the 
te of the receivership. Then, during the receivership, what is 
/ ng to be the status of the claim of the Federal Government on the 
|rnings during the receivership ? 

‘It seems to me that whatever plan we adopt we have got to pro- 
le that the Government has some claim upon the earnings of that 
‘ad in order that it may apply them to the payment of the interest 
\1on the bonds which stand under this guaranty. 

I have not gone into it carefully, but I suggest that those are dif- 
ulties that might be worked out upon some basis; at least, the plan 
‘Il have this effect: It will free weak lines from what is some- 
nes a very undesirable domination, we say, of the bankers, but it is 
nerally of some promoters and speculators. But sometimes bank- 
)z houses and trust companies provide most unreasonable require- 






428 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


ments for weak lines. Sometimes it may be to the interest of othe 
interests in connection with that house that this weak line be cripple 
so that it can be easily taken over bv some other line. There is a pos 
sibility of those kinds of manipulations. Now, if it be known that. 

road in need of improvements to perform its public service, and wit 
a reasonable hope of earning a return upon its investment by thes 

improvements being put in, can go to the Government and get t 

Government to ouarantee the interest or apply this guaranty fund ¢ 
the interest on “its bonds, that will have a very salutary effect au 
give to the weak road a little bit of independence, which they do n 
now have when they go to the financial markets. 

The greatest problem of the weak road is in financing; it is In 4 
ting money to help it along. Mr. Rich was correct in his analysis 0 
that problem. Now, since this looks only to the future, as I conceiy 
there could be worked out some plan that would be of material assis 
ance to them, and I have decided to ask Mr. Rich to give thought t 
some of these points and suggest to the committee a form of bill 
that you may have something definite before you to consider in cor 
nection with it, because I really believe he is hitting upon a a 
important point, with those safeguards. 

I believe that is all I care to say. 

Mr. Sims. Mr. Fulbright, you have brought in this morning a mat 
ter which I wish to ask some questions about that I did not thin 
yesterday I would ask you about. You are familiar with what 

called the Cummins bill, are you not? ; 

Mr. Fuuericut. Yes, sir. 

Mr. Sus. That provides that the power of suspension withou 
limitation be restored to the Interstate Commerce Commission upo 
the approval of that bill. What have you to say as to whether 6 
not the roads should continue further under Government control i 
the Cummins bill should pass? In other words, why should not th 
roads be returned immediately to their owners as soon as we give th 
Interstate Commerce Commission the power to suspend rates initiate 
by the Government. 

Mr. Fursrient. Really, the general shipping public in my ter 
tory would feel like the sooner the roads were returned to thei 
owners the better they would be satisfied. My personal opinion © 
that, though, Judge, would be that some more general form of legii 
lation should be enacted before the roads are turned back into # 
hands of their owners. 

Mr. Sims. That would not prevent legislation from following. — 

Mr. Fursricut. No; it would not prevent this very bill, and eve 
the suggestions that have been made here by the various advocates. 

Mr. Sus. And there is a demand from all over the country f¢ 
the immediate return of the railroads just like there was for the | 
turn of the telephone and telegraph lines. 

Mr. Furpricut. Yes; that is very true. 

Mr. Sims. If you take the power away from the Governmaltll 
protect the Government from further possible deficit by maki 
rates, and put that in the hands of a body that is not responsible f¢ fc 
the deficit, and does not in any way have to provide against it, is n 
that of itself dangerous and bad legislation. 

Mr. Futericut. I think the Interstate Commerce Commis h 
come to realize, as never before, the need, however, of protecting t 

| 







| 
| 









RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 4929 


ulroads against what might become disastrous and cripple them in 
jeir efforts to perform their public function. 
Mz. Sims. Then to put it another way, the failure to pass the Cum- 
‘ins bill, although generally desired and generally acceptable to the 
yuntry, pending Government control, would possibly be fraught 
ith much danger of the continuation of a deficit or with greater 
anger of a deficit than would be the case not to pass it during Fed- 
al control. In other words, as long as the Government has the rail- 
vads and has to operate them and does operate them, and the country 
rough the taxing power is responsible for the deficit, if any is 
ade, if you take the power away from the Government, through 
ie director general or the President, of initiating rates which -are 
yt subject to suspension, but subject to existing law, to be finally 
issed on by the Interstate Commerce Commission, is not that pref- 
able to passing this Cummins bill without also putting the respon- 
bility somewhere else than where it is. In other words, the rail- 
| ads or the security owners, if they are getting the standard return, 
|@ contract return, from the standpoint of income, they would be 
)riectly indifferent as to whether the rates were suspended or not. 
hey are not responsible, and it is not their fault. I take it the In- 
‘tstate Commerce Commission and the State commissions would 
+ so flooded with demands and requests to suspend every rate made 
‘ the Government hereafter that it would make it practically impos- 
dle for them to refuse to do so. 
| Mr. Forsricur. I think that is a fancied difficulty rather than a 
jal one, for this reason: The Railroad Administration’s policy has 
idergone a marked change, and there is not now a desire to make 
; Many general readjustments. We may have a further general in- 
jease. It may be considered necessary before the year closes, and 
| at question is now being studied out, of course, but you are not 
|ing to have numerous pet theories and numerous readjustments of 
|dividual rates to carry out the desire of some railroad traffic man 
were floated in upon us during the first year, because the policy 
8 changed in respect to that. I really feel that it would be a salu- 
ty thing to go ahead and pass the Cummins bill and let the return 
| the railroads be set for December 31 under this bill, or whatever 
\ll you desire to have. It should be done under this bill with some 
anges in it or amendments. 

Mr. Sims. Then the Government would have to be responsible for 
: y deficits that occurred during that time? 

Mr. Furzricur. That is true. 
| Mr. Sims. You would have the railroads and their owners in the 
jnds and power of the commission, and they would be getting 
}3 fruits or the results of their action. If it was good, it would 
| luce the deficit, but if it did not reduce the deficit, then the gen- 
ul taxpayers would have to make it up. They would have to 
ike up the mistakes made under circumstances wherein there 
mld be no possibility of the Government getting any benefit. I 
‘not opposed*to the return of the railroads, and I am not opposed 
‘the Cummins bill, provided it is coupled with the return of the 
slroads, but it seems to me that the power to make rates or suspend 
es ought to go with the responsibility for the result of that 
“lon, whatever it might be. I feel that there would be pressure— 












430  RETUKN OF THE RAILROADS TO PRIVATE OWNERSHIP: 
and, in fact, I am getting letters all the time myself in regard to the 
Cummins bill, but without discussing anything about the result 
that might come to the Government 

Mr. Fuxnpricut. The reason they want the Cummins bill passed 
quickly is simply, it seems to me, that rate readjustments may vir- 
tually destroy some industries. I mean if it is passed overnight 
without mature consideration. It is not the fault of the Railroad 
Administration officials so much, but it is the fault of the system 
under which they run through it without giving it mature consid: 
eration. 

Mr. Sirus. You think that it is prudent and fair and just the 
thing to do for Federal control, or those in charge of the railroads 
now, to increase rates, not with reference to protecting the Govern: 
ment, but in order to have a system of rates or a scale of rates im 
existence when the railroads are taken back that the railroads would 
feel would guarantee them against immediate and, possibly, ulti 
mate loss? 

Mr. Furerieur. You are getting at my real reason for wanting 
the Cummins bill. I am afraid that might occur. It may be that 
conditions would warrant the Interstate Commerce Commission in 
feeling that there should be a further general increase. 

Mr. Sims. If they make it, well and good, but my idea is to offer 
an amendment to the Cummins bill, and I have so stated to the com 
mittee, providing that the railroads now under Government control 
shall be returned to their owners, and that when that is done furthe 
Government liability shall cease. I say that, because it will create 
a storm all over this country if the Federal control officials, hae 
the power to increase both intrastate and interstate rates, shoul 
put into effect a general increase just a month or two before the rail- 
roads went back to their owners, and of which they would have the 
benefit. If that were done, we would have a storm of protests. 
indignation, and denunciation from all over the country, and Mem 
bers of the House would not like to bringsabout that condition 1 
they can help themselves. | 

Mr. Furpricur. I think if it were presented to the Interstate 
Commerce Commission, and the Interstate Commerce Commissior 
thought that the conditions warranted some further increase, you 
would not have a storm of protest on the part of the shipping publie 
The country realizes that there is impending some necessity {01 
further increases 3 1 

Mr. Sims (interposing). Then we would be placing the respons! 
bility of initiating rates or increasing them in the hands of a body 
in which all of them have so much confidence that there would be 
no complaint. Therefore if the commission made the increase, 
country would accept it and put up with it, and would not be ae 
cusing a lot of former railroad officials, who are now acting for ths 
Government, of having done something primarily for the ultimat 
benefit of themselves. So I think that the return of the roads ough’ 
to go contemporaneously with the return of the power—that 1s t 
say, when you return the railroads to their owners, at the sam! 
moment return to the commission the power to suspend rates or a¢ 
upon those initiated by the railroads. Then they will be responsi!) 
and we will be doing exactly what those who approve so strongl 














RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 431 


8 passage of the Cummins bill want. That is important, and I 
ought you would come to that subject. | 

Mr. Forsrienr. You may be correct in that, and I am not going 
take any violent issue with you upon that proposition | 
Mr. Sims. You realize the importance of that? 

Mr. Fursricut. Yes, sir. 

Mr. Sims. But that could be done without being inimical to this 
posed legislation. 

Mr. Fuxsricut. I think so. 

Mr. Sims. Now, you discussed the fourth section: I had reached 
» conclusion that the Interstate Commerce Commission had been 
isidering what should constitute special reasons for suspending 
» rigid application of the fourth section, and whether it ought to 
‘somewhat limited by amendments. The act does not prescribe 
} circumstance authorizing the exception. There is no guide or 
ndard as to what the commission might consider as sufficient to 
tify the allowance of a lower rate for a longer haul in the same 
‘ection on the same class of freight and on the same railroad. I 

“y be wrong about it, but I do not think that water competition, . 
|l or potential, present or prospective, should constitute an ex- 

tion within the meaning of the fourth section. You illustrated 
vy taking the haul from New Orleans to a certain point in Texas, 

n Antonio. Where there isa route both by rail and water, or even 

‘ere a part of it was by rail, or where a part of it was by rail and 

yart by water, the water part of it, I think, should be eliminated, . 
far as the special case is concerned, because in that way the city 

it had water transportation that it might resort to or could resort 

should have every opportunity to do so, because that is the nat- 

thing todo. The service can be rendered in that way at a much 

s cost than it-ought to be rendered by an all-rail route going in 

Same direction or to the same destination. Another thing, al- 

ang the fourth section to apply to water competitive points like - 
; Angeles, San Francisco, Portland, and Seattle on the Pacific, 

l, of course, to ports on the Atlantic, and permitting the trans- 

tinental railroads to carry the freight at a rate so much below 

at they could possibly do if they were required to carry all of 

ir traffic at the same rate, thereby preventing traflic from going 

ough the Panama Canal or by the all-waterway route by which 

freight would otherwise go, is not good financing and is not 

d policy. It does not permit these water points to make use of ’ 
actual water service that is given them. Do you not convert a 

er line into a rail line in effect by permitting the railroad to. 
ra rate that enables it to get commerce that would otherwise be - 
er-borne? For instance, let us take the case of Memphis and_ 
\v Orleans: Testimony was given before this committee at the 

| Congress or the Congress before, when we had a long hearing - 
‘the Rayburn bill, and when Mr. Davant, who represented a- 
| ght association, appeared before the committee 

iy. Fursricur (interposing). He is in charge,of the traffic de- . 
‘tment of the Memphis Freight Bureau. 

‘ly, Stus. There is a railroad from Memphis all the way to New - 
eans on the west side of the Mississippi River and ‘another rail- 

1 line on the east side of the Mississippi River-all the way to. 


° 

















432 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


New Orleans, and they were permitted to take cotton and othe 
freight at such a rate that there was not even a through boat run 
ning between those points. There was a great deal of traffic divertec 
from the river in that way that would naturally take the river route 
Then, there was in this way a considerable unprofitable burden pu 
upon those carriers for from 300 to 400 miles of their lines. Then 
on the other hand, as I gather it, because potentially or possibly yor 
could ship cotton by way of New Orleans by way of the Gulf anc 
Atlantic to Boston, New York, Philadelphia, Baltimore, and Nor 
folk, the railroad companies were permitted to carry cotton fron 
Memphis by way of Cincinnati and Pittsburgh, and otherwise, t 
those ports at a rate substantially the same as the water rate. I 
was argued that you should permit those railroads to carry the cot 
ton at such a rate as would enable them to take the cotton or a par 
of the cotton shipped from Memphis to the eastern seaboard port 
where it would otherwise go by water. ey 

The railroad companies, on the other hand, made a blanket rate 
which, I think, you indorsed, or established blanket zones or blanke 
districts. This division runs north and south about on a line witl 
Denver. They make a rate from Los Angeles and other Pacific port 
to Denver on certain articles. As I remember distinctly, they mak 
a rate on lemons and oranges, on which the carload rate was $1.15 
Yet, if that same carload of freight is shipped at the same time fron 
Los Angeles to Boston, it will go from Los Angeles to Bosto 
through Denver for $1.15. It will be carried to New York or Phila 
delphia at the same rate, and it will be handled by several railroad 
for practically three times the distance. In taking it to these easter 
points, it will be carried three times as far practically as it would b 
carried in taking it to Denver or to points of similar distance. Now 
if that was a reasonable rate, and only a reasonable rate, from th 
terminal ports on the Pacific to this Denver line—if, I say, that wa 
a reasonable rate, good heavens, what kind of rate is the $1.15 fo 
nearly 3,000 miles, and that. rate to be divided up between all th 
carriers that participate in the performance of that service? Now 
do you think that such a rate as that ought to be permitted unde 
any circumstances ? 

Mr. Fuusricur. Judge, I dislike very much to disagree with you 
but I disagree with every point you have made. 

Mr. Stus. That is a fair way to put it. ; 

Mr. Fuuericut. In the first place, and beginning with the beg! 
ning of your suggestion, if you are to deprive the rail carrier fror 
handling any of the traffic where it might be moved by water in orde 
that the merchant marine may be built up, you are necessarily goin, 
to seriously cripple some rail carriers, because you will take a lot 4 
traffic away from them that, added to their present traffic, will enabl 
them to handle all of it at lower level of rates. On the other hanc 
T do not agree with you in this, that the railroad operating betwee: 
Memphis and New Orleans should not have been permitted, an 
under this proposed law they would not be permitted, to fix ther 
rates at a level that would destroy water transportation. We wall 
to preserve both. We want the railroads to be efficient and the wate 
lines to be developed efficiently. We want to see traffic go back 0 
the Mississippi River like it was in days long ago. The rates shoul 








I 


* RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP 433 


aot be reduced to a point where the lines can not profitably operate. 
For example, there was a rate of 12 cents on sugar from New Orleans 
to Memphis, and a boat can not handle it for that. You can not have 
any water transportation at that rate. You should put up the rate 
‘om sugar to whatever the differential should be over what would be 
ireasonable water rate, or up to a point where it would enable the 
water transportation to be developed. The railroads then ought to 
de permitted to go into that traffic and not be shut out of it. Other- 
wise you will seriously cripple the railroad by taking away a large 
yulk of its traffic, which, spread out over its entire service, helps it to 
nove the local traffic at less expense. You can not point out an inter- 
nediate community in the country that requires an absolute fourth 
ection. 
Mr. Srus. What have you to say in regard to the proposition of 
lowing them to absolutely prevent the development or building up 
f interior markets or industries?) Manufacturers, for instance, must 
‘o where they are served to the best advantage. The result of that 
yolicy is that you are over-developing certain favored points and 
nderdeveloping other points that are in competition with them. That 
true, because you would not, I would not, and nobody else would 
ovest in a manufacturing enterprise at a point so discriminated 
gainst. If you had $1,000,000 to invest in such an enterprise you 
rould not go to Reno to make your investment, although the local 
onditions might be desirable. You would not do it, because vou 
ould get so much better service and so much better rates at San 
/rancisco, Seattle, or some other seaport. The result is that you are 
reventing the development of interior points. For instance, take 
1e case of Jackson, Tenn., where there are two railroads running 
rom the Lakes to the Gulf, or from St. Louis to the Gulf, passing 
ough there. A Jackson manufacturer can not compete with a 
lanutacturer at Memphis, Tenn., which is only 80 miles away, be- 
vse they do not get the benefit of this discrimination in favor of 
le manufacturer whose factory is situated where there is actual or 
ossible competition. Now, why is it that Jackson should not be 
armitted to build up according to its natural surroundings and con- 
itions? Memphis is by nature, of course, more favored, but why 
iould you permit the railroad to take from Memphis that natural 
mdition and give them in place of it an artificial one? At the same 
me, every town on the Illinois Central Railroad or on the Mobile 
Ohio Railroad gets less favorable consideration, because the rail- 
ads have got to make revenue or reasonable earnings on their en- 
te investment out of all of their operations. How do you justify 
thing like that? 
Mr. Foutsricur. You do take away traffic that would move on the 
ississippi River, but so long as you have real competition on the 
ver, or boats going up and down the river, that is proper. Other- 
ise you would cut into the amount of traffic that the Illinois Cen- 
ul Railroad is handling, and Jackson, Tenn., would have to pay 
high a rate, or, maybe, higher rate in order to enable the Illinois 
mtral Railroad to pay a fair return on its investment. On the 
her hand, Memphis and New Orleans, having boat competition, 
ould still get a lower rate. They would still have all the advantage 
/ey ever had. 


152894—19—vor. 1 











( 


28 





434 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. ~ 


Mr. Stms. But you give Memphis a rate so low that a boat car 
not live. 

Mr. Fuupsricut. I agree with you there, and if this minimum rat 
provision is put in there, that condition will be stopped; but do not 
undertake to lay down a hard and fast rule. 

Mr. Srus. I do not see any use in taking money from the publi 
or the taxpayers’ pockets by the millions of dollars in order to maki 
the Mississippi River at least, theoretically, a navigable stream, an¢ 
then permitting an artificial carrier to render absolutely null an¢ 
void the appropriations that have been made by Congress to improyé 
that river. 

Mr. Futsricut. Judge, Jackson gets sugar at a lower rate frou 
New Orleans because there is a depressed rate from New Orleans tt 
Memphis. : 

Mr. Sirus. That policy simply adds to the congestion of point 
that are already congested. It adds to the congestion in the enor 
mous cities that are already overcrowded. Those centers have thei 
housing problems, and there is also the problem of the increases 
cost of living. There is the congestion of factory operatives in thost 
large cities, while other places with a lower cost of living and bette 
health conditions can not survive. In other words, they can not 
build up. They are rendered stagnant by reason of the unreason 
able and unjust discrimination. practiced in favor of places that ar 
already favored by nature. I do not see how you get away fron 
the natural effect of it when you allow a railroad to say that it i 
reasonable to have a rate of $1.15 from San Francisco to Denvei 
and, at the same time, have that same rate of $1.15 for the sami 
freight from San Francisco to New York or Boston. If that is no 
putting a postage stamp on a carload of freight and sending it # 
a uniform rate, I do not know what it is. 

Mr. Futsrrenr. You have a cotton mill at Jackson, have you not 

Mr. Sims. We have a cotton bag factory there. 

Mr. Furzricut. There is also one at Savannah, or I think ther 
is one. Now, that cotton bag factory wants to sell bags in Balti 
more, or in the markets along the seaboard. That is where the 
sell most of their stuff in the East. Now, should not that factor 
be permitted to reach that market, and should not the railroad bi 
permitted to enable that factory to sell its product at Balimor 
by giving them a rate that would be lower than the rate to sou 
intermediate point? It seems to me that it would be better for th 
man buying the bags and better for the man manufacturing thi 
bags, so long as that rate is not so low as to constitute a burden upol 
commerce. The manufacturer at Jackson gets a distribution marke 
which he would not otherwise get, because he gets two markets f0 
his products instead of one. | q 

Mr. Srus. The effect of your argument is that because the rail 
road is entitled to a return, it should give this low rate in order 
compete with the other rate from Savannah. You had just as wel 
let these people put that as a part of the charge on the bill 0 
lading: i 

Mr. Fursricur (interposing). The answer to that argument } 
that by giving them a little additional traffic which they would no 
otherwise get, you are giving them additional earnings without ma 


| 
4 





RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 435 


mially increasing their expense. If you took that away from the 
jad, you might make the shippers pay more for their. service. 
“Mr. Sms. We want to develop and we ought to develop all sec- 
ons of the country just alike. Artificial conditions should not be 
tven to a place that under natural conditions it would not have. 
‘Mr. Fotericur. Why do the manufacturers of Tlinois, Ohio, and 
Klahoma oppose this absolute fourth section bill? They want 2 
ider distribution market. That is the only way this country has 
en developed, and it is the only way its development can continue. 
therwise, you will have a few concerns that will be forming here 
id there into trusts and driving the little manufacturers off the map. 
Mr. Sims. As you know, wool can be shipped all the way from 
ustralia by water to Boston, and the rate is $18 per ton. Now, 
ustralia is a foreign*country, and it is not near the coast of our 
muntry at all, but, in order that the transcontinental railroads may 
Try some wool from the Pacific seaboard to the eastern markets, 
ey allow these railroads to carry that wool at $18 per ton, while 
ano and some other interior points have to pay $38 per ton on the 
me commodity, and with a shorter haul. If that is not protection, 
serimination, and artificial maladjustment, I do not know what 
Is. 
Mr. Forerient. I do not believe that we can get together, Judge. 
Mr. Sanpers of Indiana. Referring to the Cummins bill, what 
‘you think of the advisability, in the event that the Cummins bill 
sses, of providing that during Federal control the Interstate Com- 
sree Commission should have power over all the rates, intrastate 
d interstate ? 
Mr. Fursrienr. I think that would be all right. 
Mr. Sanvers of Indiana. After Federal control is over, and we get 
‘0 this legislation, the power given here to fix minimum rates be- 
mes a very important and far-reaching power, does it not? 
Mr. Fuxsrieut. I so consider it. 
Mr. Sanvers of Indiana. Do you not think that that power given 
the Interstate Commerce Commission makes it almost absolutely 
sessary to give to the Interstate Commerce Commission, and such 
ier Federal regulatory bodies as shall be provided for, complete 
trol of the transportation rates of the country ? 
Mr. Furerieut. I could not say that. Occasionally you will find 
ituation that is a purely local one or one involving purely intra- 
te commerce; but, generally speaking, that would be true, and 
it would be the practical effect of it. For instance, take the State 
Texas, nearly every commodity handled in our State moves in 
erstate commerce as well as in intrastate commerce. The rates 
those commodities are virtually controlled by the decision in 
hreveport case, except on such commodities as had already a 
el of rates fixed by the State commission as high as or higher 
‘n the rates of the Interstate Commerce Commission. As a mat- 
of fact, the Texas commission had made some rates that were 
her than those of the Interstate Commerce Commission. They 
tht to be given credit for that by some people who decry them. 
fr. Sanvers of Indiana. My point is this, that there is a different 
lation with reference to the necessity of having control of the 
°s when you have the power to fix minimum rates, because if you 














436 RETURN OF THE RAILROADS TO PRIVATE OWNERS™:P. 


fix a minimum rate for interstate commerce, then it is very important 
that you also have the right to control the minimum rate for the 
intrastate movements which might move freight under very similar 
conditions. 

Mr. Futericur. You have that if the intrastate rate is such as to 
create a discrimination against interstate commerce. 

Mr. Sanpers of Indiana. But that is a roundabout method, and 
you have to wait until the situation presents itself and then show 
those facts. Don’t you think that if the regional commissions were 
established so as to relieve the Interstate Commerce Commission of 
such a great amount of work, and there were formed a proper tribu- 
nal with sufficient personnel to take care of the situation, it would be 
better to have unified control of the rates? 

Mr. Fursrieut. I think that is where we are going. We are 
drifting to that. I believe that the regional commissions constitute 
a step in that direction, and that ultimately we shall come to that. 
I would regard it as revolutionary to go to it all of a sudden. 

Mr. Sanpers of Indiana. What do you think of the constitutional 
ower ? 

B Mr. Fuusricut. I have very serious doubts of the constitutional 

power to take jurisdiction of intrastate rates. 

Mr. Sanpers of Indiana. What do you think of the constitutional 

power to take jurisdiction of all of the intrastate rates of any of the 

carriers that engage in interstate commerce to any extent? 

Mr. Furpricut. I am of the same opinion. It is simply attempt- 
ing to do by indirection what you can not do directly. If the Fed- 
eral Government owned the railroads it could control the rates; un- 
der the war power it can operate them and it can do that. I gave 
this illustration before the Senate committee. The Federal Govern- 
ment owns the post office in my town, and it has jurisdiction over 
acts committed on the premises, even though they have nothing to do 
with the Federal Government, and a misdemeanor under our State 
law would be under the jurisdiction of the Federal Government, be- 
cause it owns the property. That is where I make a distinction, I 
believe that progress in this country and economic necessities are 
driving us irresistibly toward one unified system of control of rate 
making, and sooner or later we shall arrive at that point. My own 
personal belief is that it will be a good thing when that time comes, 
but, as representing the interests in the section where I live, they do 
not feel that that time should come yet, and I doubt if it should be 
put in by legislation at this juncture. In other words, I think we 
should try out the regional commissions. I think you will find that 
the regional commissions will cooperate more closely with the State 
commissions and achieve unified control better than if you had one 
body at Washington having to pass on every question of a local na- 
ture that affects interstate commerce. 

Mr. Sanpers of Indiana. The question of credit I think you said 
was a big question ? 

Mr. Fuusricut. Yes, sir. 

Mr. Sanpers of Indiana. Do you not think that if we had unified 
control in the Federal Government of rates that that would stabilize 
credit? . 

Mr. Funsricut. I do; yes, sir. 















bd 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 437 


' Mr. Sanvers of Indiana. Do you not think that the fact that we 
jaye so many regulatory bodies would be a great factor in frighten- 
‘ng investors / | 

Mr. Fuusricut. It would; certainly. 
| Mr. Watson. I think you stated that you would divide the United 
States into three regional districts ? 
| Mr. Fuusrient. Six. | 

Mr. Watson. Six, rather. What powers would you extend to the 
egional commissions from the Interstate Commerce Commission ; 
vould you give them any supreme power ? 

Mr. Fuusricur. They would have primary jurisdiction of all com- 
ylaints filed except in those complaints where the Interstate Com- 
merce Commission considered the subject to be of such importance 
hat it would hold the primary hearing instead of the regional com- 
mission. Their report would have the effect of a report of a master 
nchancery and would become a final order unless excepted to within 
1 given time or unless the interstate body should demand that it be 
vertified to it for consideration of certain matters in it. 
| Mr. Watson. In every case the report of the regional commission 
vould be subject to appeal to the Interstate Commerce Commission ? 
Mr. Furericut. Yes, sir. 

Mr. Watson. Would not the Interstate Commerce Commission 
hen be obliged to sit and listen to those hearings ? 

Mr. Fuiericut. The situation would not be materially different in 
hat respect from the present system. We have an examiner who 
foes out and takes the testimony and makes a report on the testi- 
nony, a tentative report. The Interstate Commerce Commission 
vould have before it the tentative report upon all the questions 
rought before it, it would have the record already made, and they 
vould review it in the same manner that they review the tentative 
‘ports of the examiner under the present system. I think it is a 
‘ery good system. — 

Mr. Watson. Would not that increase the number of hearings to 
|, very great extent and eventually would not there have to be a 
pecial court to sit and hear all of these appeals, because in a. few 
ears there would be a good many of them? 

Mr. Furericutr. No; because the regional commissions would 
nally dispose of three-fourths of the cases, in my opinion. 

_ Mr. Watson. But a great many cases would be appealed ? 

Mr. Furericur. Yes, sir; but they would be cases of a more gen- 
ral character. | 

Mr. Watson. Would this not take a great deal longer for the 
ases to be heard than where they send out an examiner ? 

Mr. Fureriaut. No, sir. The regional commission could make its 
eport in practically the same time that the examiner makes his 
=ntative report. The commission has to review that. We virtually 
ave that system right now. 

Mr. Watson. I think you stated that you’ were not in favor of 
aving the railroads returned to private ownership—-that is, you were 
-ot in favor of Dr. Rich’s plan in which the railroads would be 
bliged to pay to the Government certain taxes over’a certain per- 
entage that they earned ? 

Mr. Futsricut. Dr. Rich’s plan? 








Be 
ft 
438 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Watson. Yes, sir; I mean that one point, not all of his plan 
Do I express myself clearly to you? 

Mr. Fursrrent. I do not understand just exactly what you hay 
in mind. 

Mr. Watson. You believe that the railroads should be returne¢ 
and be permitted to operate under the law of the survival of the 
fittest ? 

Mr. Furpricut. Yes, sir. 

Mr. Watson. As they exist to-day, not the stronger road to take 
care of the weak road? 

Mr. Fuusricut. No, sir. I feel that some plan of division 61 
earnings should be made and used as a:fund, but probably only 2 
percentage of the return above some figure that you fix. That pre- 
sents a great deal of difficulty. I said there were some elements it 
Mr. Rich’s idea that, appealed to me very much. 

Mr. Denison. Do you think it would be possible or workable for 
Congress to constitute the State commissions a branch of the Inter 
state Commerce Commission for Federa] purposes ? 

Mr. Fursricur. No, sir; I do not. There is no unified form oj 
policy or unified control of the State commissions. The State com: 
missions, as you know, are for the most part elected by popular vote 
they are chosen in an entirely different manner. They oftentime 
have an entirely different viewpoint. To my mind it would be 
illogical for those men, so elected, to be an arm or a part of a sub 
ordinate tribunal, even to the Interstate Commerce Commission. ] 
believe that would delay matters and that you would have a lot 0! 
lost motion there in bringing matters up before the State commis 
sions and appealing from them to the interstate body. 

Mr. Drentson. You know that the Federal Government uses the 
State courts for certain purposes, and I wondered if the other woul¢ 
be workable? 

Mr. Fursricut. But the situation is not analogous. 

The Cuatrman. You believe in the coordination of rail and watel 
transportation ? th! 

Mr. Fuusricut. Yes, sir. 

The Cuarrman. You have stated that you did not think that thi 
bill should contain the provisions which it contains with reference t) 

water transportation ? P 

Mr. Furpsricutr. Yes, sir; that is correct. 

The Cuatrman. If this eommittes does not have it, it will go to the 
Committee on the Merchant Marine and Fisheries, which has juris: 
diction of the shipping act. Is that right? 

Mr. Fuxsricur. I so understand it. 

The CuarrmMan. Some committee has to have jurisdiction if we an 
to have coordination, Is that right? 

Mr. Fuupricut. Yes, sir. 

The Cuatrman. This committee has assumed that jurisdiction ir 
the hope that we may reach coordination, but now our jurisdiction it 
questioned. © 

Mr. Fursricur. I do not question your jurisdiction. I questior 
the policy of obtaining coordination by placing subject to the act 
regulate commerce ally water transportation except tramp carriers, } 
believe that coordination is going to come by the Shipaaia Boare 

















7 






RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 439 


looking to the peculiar conditions that surround water transporta- 
tion and arriving at some basis for working out a system of rates, 
rates that are flexible and not rigid, as under the interstate-commerce 
‘act, and when they get at some level you will have something that 
will be at least recognized as the best, and then the Interstate Com- 
\merce Commission may fix a differential if it wants to permit a rail 
‘fine to compete. The important coordination, to my mind, is in the 
control of docks and terminal facilities, so that the traffic may be 
expeditiously handled. 

_ The Cuartrman. As to those, you have no question ? 

| Mr. Fouusrient. I rather think that it is better to leave the docks 
and terminal facilities under the jurisdiction of the Interstate Com- 
merce Commission, because they are used in the loading to and from 
ithe rail carriers. 

The Cuartrman. As I understand, the Shipping Board act did con- 
|template giving control over deep-sea traflic, but not inland water 
| transportation ? 

Mr. Fuxrsricut. I do not recall that it was specifically stated. 

| The Cuarrman. It may be there is some question as to our juris- 
\diction of traffic in the coastwise trade, and I admit that original 
question, but in order that something may be done looking toward 
\coordination we have ventured upon this field. In regard to the 
|very illuminating discussion which you have given to us with refer- 
ance to regional commissions the act of August 9, 1917, giving the 
/commission power to act by subdivisions never really has become 
|\operative. Is not that right? 

|| Mr. Fursricur. It has become operative to a certain extent. 

The CuHarrmMan. The act of August 9, 1917—-war had already 
seoun and the Federal-control act followed just immediately after 
\that, and, of course, that suspended everything, so that the act of 
|August 9, 1917, has not really borne its full fruit? 
| Mr. Fouuerient. I think that you will be piling a great deal more 
im the commission by this bill than you will save in the handling 
‘ad expedition of cases by providing that they may sit in three 
‘lifferent bodies. 

The CuHatrman. You will admit that that will greatly expedite 
the disposition of cases ? 

Mr. Fursricut. It was absolutely necessary and they have, in fact, 
}deen operating under it to a considerable extent. 

' The CuHarrman. The commission has recently begun to operate 
| mder it. Do you think that even outside of the creation of the 
epional commissions that we should increase the Interstate Com- 
/nerce Commission, having in mind the added powers over stocks 
ind bonds contemplated in this bill? 

Mr. Furerieut. I think it would be desirable. 

The Cuarrman. You do not think there would be any general op- 
| 0sition to increasing the commission, say, by three? 

| Mr. Futericut. I do not think that you should have an even num- 
der on the commission; it should be an odd number. 

_ The Cuatrman. Then, two or four? 

_ Mr. Foutericut. Yes, sir; two or four. 

_ The Cuarrman. You think that increasing the number of commis- 
jtoners, together with the act of August 9, 1917, would enable the 


| 











Sn 


440 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


et to take care of its business and the duties added by this 
oil 2 

Mr. Fursrieut. No, sir. I feel that there are a great many 
duties in this bill, as I stated before the Senate committee, which 
could probably best be handled by a different character of boards. 
These are questions that deal purely with operation. A railroad 
corporation would not dare to put its operating matters in the hands 
of its traffic manager or the rate making in the hands of the general 
manager. They get men who are specialists in these branches. 

The Cuarrman. Do you concur in the recommendation of the War- 
field plan and of the railway executives’ plan, of a board of trans- 
portation? ‘They have somewhat abandoned the idea of a substitute 
board of transportation. | 

Mr. Furprient. Yes, sir. 

The Cuairman. Is it your idea that there should be such a board 
created, giving it administrative powers? | 

Mr. Furprieur. Yes, sir; such matters as the administration of 
embargoes, permits, and the pooling and diversion of traffic to pre- 
vent congestion and the unification of terminals. Questions of that 
character are purely operating questions, and while those things 
inay become involved in a question of discrimination, yet primarily 
they are operating questions. It seems to me that those matters 
might best be administered by obtaining a board made up of men 
who have had years of expert experience in the operating depart- 
ments of the railroads. Of course, they should be divorced from the 
railroads and should be purely Government officials and paid by the 
Government, but we would get the benefit of their years of experience 
obtained in railroad administration. 

The Cuarrman. You believe in a board of transportation and also 
the regional commissions ? 

Mr. Fuxsricnt. Yes, sir. I think they are separate. I think 
there should be an entire separation of matters just as suggested by. 
Mr. Thom before the Newlands committee. | 

The Cuarrman. He made that suggestion, I think. This bill con- 
templates that when a rate is established by the commission it shall : 
have indefinite existence, repealing the two-year limitation that ex- | 
ists in the act to-day. That would tend to lessen the business that | 
would come before the commission ? | 

Mr. Fuuericut. No, sir; I do not think so. ae | 










The Cuarrman. Why not? | 

Mr. Fursricur. Because they can raise the question almost any, 
time they want, and in the same manner. As a matter of fact, at the 
expiration of the two years you do not have a lot of litigation 
started. I think it wise to take out the two-year provision, and to 
make it indefinite, but I do not think that that will have a material | 
effect on the amount of questions before the commission. 

The Cuarrman. If made indefinite, would it have that effect? | 

Mr. Furzrieur. It would permit a carrier whenever conditions — 
changed to come before the commission and ask that the changed 
conditions be considered. I think that a carrier ought to be per- 
mitted to that. I do not think that a rate should be fixed for a | 
definite period upon a carrier. 

The Cuarrman. This bill takes off the limitation ? 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP, 44] 









Mr. Forsrienr. By taking off the limitation it makes it so the car- 
‘ier may, under changed conditions, request a reconsideration of the 
point at issue; it does not make it permanent. That is, it is perma- 
sent until raised in question. 

/ The Cuairman. The committee thanks you for your very illumi- 
aating statement, Mr. Fulbright. 

. Mr. Forsrienr. I certainly appreciate your patience in listening 
ome. 


The Cuarrman. We will now hear Mr. Martin. 


TATEMENT OF MR. JOHN MARTIN, SPECIAL REPRESENTATIVE 
OF THE RAILWAY INVESTORS’ LEAGUE, CARE OF JOHN MUIR 
& C0., 61 BROADWAY, NEW YORK, N.Y. ; 


~The Cuarrman. Mr. Martin, please give your full name and whom 
ou represent. 
Mr. Marrin. My full name is John Martin and I am the special 
»presentative of the Railway Investors’ League. 
| Mr. Sims. You represent those who are interested in railway stocks 
ad bonds? | 
| Mr. Martin. Yes, sir; the individual investors. 
_ Mr, Chairman and gentlemen of the committee, I come before you 
t the interest of a unique organization, the Railway Investors’ 
eague, 
‘Tt is composed of the real owners of the railroad properties of this 
yuntry. Its membership does not include a single bank, trust com- 
amy, or insurance company; we have no proxies. 
Its membership is a medley one. It includes a very few bank 
licials, but many persons in all walks of business and professional 
tivity, and men and women whose vocation we do not know. There 
"e Several guardians for widows and orphans and there are several 
otblacks and many other small wage earners. 
The position of these men, women, and children as railroad own- 
S is fundamentally different from that of the banks, trust com- 
mies, and insurance companies. Very few, if, indeed, any of our 
embers can be classed as “ plutocrats” or “trust owners ”: their 
vestments, made in good faith on their part, have been earned by 
|@ sweat of their brow. Indeed, there are many of our members 
10 have every penny they own invested in railroad securities and 
ey possess no other asset. Disaster in their railroad investments is 
ferefore a most serious problem to them. 
These railroad owners have shuddered at the harrying and hurtful 
stics that have been leveled at their properties by the National 
wernment and the sundry State and municipal governments. They 
ve suffered through the influence that has been brought to bear 
on these governmental bodies by the several groups of their or- 
nized patrons who have influenced legislation in their own inter- 
\» without regard to the interest of the owners of these properties. 
jtey have noted the. offer of labor to come in and relieve them of the 
}tden of running their properties, and have also learned what bank- 
/; and economists without number think about how it should or 
‘uld not be done. 






J 


442 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


These railroad owners, living and breathing men and women and — 
children, represented by the Railway Investors’ League, now ask 
that they be heard. They, too, require food and raiment. Their’ 
interest in these properties is more vital than the interest of labor, 
ea ineem ae and the economists, and others whose money is not at 
stake. : 

In the handling of commodities from the door of the producers to 
the door of the consumer the handling charge of the railroads is the 
only handling charge that is controlled by law, yet their handling 
charge represents but 4 to 6 per cent of all of the total intermediate 
charges paid by the ultimate consumer. 

Mr. Sims. What per cent? 

Mr. Martin. Four to six per cent, as ascertained by responsible 
bodies, governmental and otherwise. 

Furthermore, their handling charge is the only one that bears any 
definite relation to the service performed. , 

If it is meet and proper that the handling charges of the other 
intermediate handlers, i. e., the several groups of shippers, specu- 
lators, brokers, jobbers, wholesalers, and retailers should not be con- 
trolled by law, then, we ask, since we are not permitted to control 
our handling charges as they are permitted to control theirs, should 
not the governmental bodies that thus discriminate against us then 
guarantee to us at least a fair return to us on our investment made in 
good faith on our part, but in effect confiscated ¢ 

As servants of the public, in what respect do we differ from the 
several groups of handlers?) They are just as truly servants of the 
public as we are. After all is said and done the competition between 
all of us handlers of commodities of products for consumption is a 
competition per se for a demand that already exists. | 

We feel that the railroads have been most unjustly discriminated | 
against in the interests of the other groups of handlers. They have | 
influenced legislation through the organized activities of seemingly 
most formidable associations and clever propaganda. The railroads 
have been convicted before the jury was impaneled. It seems to be a 
case of visiting the sins of the fathers upon their children. Promo- 
ters have unquestionably done much mischief, but the present owners 
put up their perfectly good cash for these properties and very few 
of them can afford to have their properties confiscated or experi: | 
mented with. | 

Why single out the railroads whose handling charges paid by the | 
ultimate consumer are so insignificant compared with the total? Ave 
all of these uncontrolled groups of handlers as necessary as are thie 
railroads? 


a 





—— 






the other very well-organized public servants—the other groups of | 
handlers of commodities. | | 

I will read to you, not the Railway Investors’ League plan, or pre | 
sented as such, but its plea for a square deal—its plea that its single | 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 443 


/ organization receive at least the same potential consideration as does 
_ the combined pleas of labor, of our cohandlers, the economists, and 
others whose combined arguments and theories for experimentation 
with our properties should not weigh against our cash. 
_ It may occur to you that it is strange that a large body of indi- 
_ vidual investors scattered all through the country, as are the mem- 
bers of the Railway Investors’ League, could have come to an agree- 
ment on all the various details of a definite plan. Right here at the 
very outset I should like to say that, while the Railway Investors’ 
League does offer a definite plan for the solution of the question as 
to what is to be done with the railroads, it does not offer that plan in 
any hard and fast form and with any idea that any such plan, 
worked out in every detail, can be presented and accepted. Rather 
| do we seek to state the broad principles—worked out, of course, into 
a definite plan—on which the great mass of individual holders of 
/ railway securities believe that any satisfactory solution of the rail- 
| way problem must rest. The statement which I am about to present, 
_ in other words, has not been put in the form of a bill offered for 
adoption, but is rather a setting down of the principles on which a 


ee EE 


| great and representative body of individual railway security holders 

consider that such legislation ought to be based. The working out 
of the details, once we arrive at the basic conclusions, will be easy 

enough. 

| The following paper is prepared upon the oral and written pre- 
'sentments of our members who ask of you that they, whose money is 
at stake, be permitted to coordinate and cooperate with your com- 
mittee in the formulation of such a course as will constructively 
meet the best interest of all concerned: 


PLAN OFFERED BY THE RAILWAY INVESTORS’ LEAGUE FOR THE RETURN AND REGU- 
LATION OF THE RAILROADS. 


[Presented to the House of Representatives Committee on Interstate and Foreign Com- 
; merce, August 1, 1919.] 


After the various plans for the solution of the railroad problem had been 
brought forward last spring the Railway Investors’ League, an organization 
composed of many thousands of individual owners of railway securities scat- 
tered all over the United States, began circularizing its members and holders 
of railway securities in general for the purpose of ascertaining exactly what 
were their views on the question. No attempt was made to submit to the 
Members of the league or to the many thousands of other investors who were 
approached anything in the nature of a definite plan for approval or ratifica- 
tion. The entire effort was directed toward finding out just what sentiment 
did prevail among the real owners of the railroads—the many individual hold- 
ers of railroad stocks and bonds scattered all over the country—as to what 
should be done about returning the railroads to private control. 

Because the campaign was carried on as above and because while it was 
being carried on there were received at the offices of the league a vast number 
| of letters stating the views of railroad investors, large and small, the results 
of this plebiscite may be regarded as truely indicative of sentiment throughout 
the country, and so decidedly worth while. While the Railway Investors’ 
| League numbers among its membership many large holders of railway securi- 
| ties, it is not an organization of banks, life insurance companies, or other 
' institutions merely representing the investor. The Railway Investors’ League 
does not speak by proxy. Its voice is actually the voice of the individual 
' holder of railroad securities—the investor large and small, who has put his 
money into railroad stocks and bonds in good faith, who, in a surprisingly 
large number of cases, has given careful thought and attention to the subject 
| and has perfectly definite ideas as to what ought to be done, 








444 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


The Railway Investors’ League speaks not from ‘the standpoint of labor,.of — 


the directors in charge of the railroads, of the shippers of freight, or of the 


large banking institutions whose funds have been largely invested in railroad 


Securities, but the interests of whose officers are by no means limited to the 
railway industry alone. It speaks from the standpoint of the million or more 
individual holders of railway stocks and bonds who in good faith have put their 


money into these securities, and who, now that the matter is to be settled, 


think it ought to be settled once for all, and want it to be settled in a fair and 
equitable manner. 

At the very start of the process of ascertaining the sentiment prevailing 
among railroad investors in general two things at once became apparent: (1) 
That the_security-holding public in general was dead set against Government 
ownership; (2) that it was everywhere realized that when the railroads were 
returned to private ownership it couid not possibly be under the old conditions— 
that if anything in the way of real progress was to be accomplished, a totally 


different relationship with the Government than that previously prevailing — 


would have to be established. Cooperation between the railroads and the Govy- 
ernment, it was everywhere realized, would have to take the place of the former 
condition of continuous friction. In all quarters of the country, indeed, there 


appears to exist a feeling that, in view of the extent to which the railroads © 


have become publie utilities, the relation of the Government to the railroads 
must inevitably be that of a partner, and that consequently a much closer 
degree of supervision and direction must prevail. , 

No less clearly was the fact brought out that if this new relationship be- 
tween the railroads and the Government is to be developed, if there is to be 


this closeness of supervision and regulation, if the Government is, so to speak, 
to be a partner in the enterprise, then it is only right and proper that the - 


Government should guarantee a fair return on the amount of the property in- 
vestment. A fair return, it is to be noted, on the amount of the property 
investment. Your property, the idea is, is worth so-and-so much. You are 


going to be allowed to charge just so-and-so much for the service you render, — 


In return, you are to be guaranteed earnings of so-and-so much on the actual 


amount of capital represented by the value of the property, What you do with 


it, whether you pay it out in the form of bond interest or of dividends on 
stocks or for improvements, is no one’s concern but your own. 

It is on the two principles stated above that the Railway Investors’ League 
asks that legislation be based—close Government supervision and regulation 
as described herein, and, as a logical concomitant, the guarantee of earnings 
of a minimum amount on the actual value of the properties. 


NEW MACHINERY NECESSARY. 


It seems hardly necessary, in view of the very full exposition which the case 
has had, to take up in this place the deficiencies of the system under which 
the railroads were operated prior to the period of Government control, or to 
show the necessity for a complete change in the methods of Government super- 
vision and regulation. We are not among those who condemn unqualifiedly 
the Interstate Commerce Commission and all its works, but it is the unmis- 
takable sentiment of security holders throughout the country that the commis- 
sion as constituted has entirely outlived its usefulness and must be superseded 


by a regulating agency of a radically different nature. Whatever may haye 


been the usefulness of the Interstate Commerce Commission in the earlier 
days, that usefulness, through complete change in industrial conditions, has 
been entirely outgrown. The idea of a body of commissioners on which the) 
Owners are not represented sitting in Washington, and, by itself, attempting 


to regulate the operation of a quarter of a million miles of railroad seattered 


over a territory of 3,000,000 square miles is in itself an anomaly. The railroads 
of the country long ago entered a stage of expansion making impossible any- 
thing like satisfactory administration through such an agency. As Mr. War- 
burg says “Such a‘body can hardly be expected to act promptly and success- 
fully in carrying out some of the administrative features involved in any plap 
of the future, contemplating greater unification of operation, consolidation, 
pooling of contracts, use of joint facilities and direction of distribution of roll- 
ing stock amongst the several railroads.” 

What, then, are we to have in the place of the Interstate Commerce Commis- 
sion? The railway executives have suggested an entirely new Government 


- 


RETURN OF THE RAILRUADS TO PRIVATE OWNERSHIP. 445 


‘department headed by a “secretary of transportation,’ with plenary powers, 
‘regulative and administrative. While certain advantages of such unified con- 
e are patent, there nevertheless attach to it certain grave dangers from 
‘the political side which the country has been quick to recognize, and whieh 
‘have resulted in the development of opposition to any such plan. Everywhere 
it seems to be recognized that any such proposition would be certain, sooner 
or later, to bring the question of politics into the administration of the rail- 
‘roads. To be sure, we had a’ wonderful example during the war of the sub- 
Inergence of party spirit for the common good, but the war is over, and Cabinet 
‘members being human after all, would be likely in the long run to take a 
partisan point of view. Would it be possible, for instance, for any such secre- 
tary of transportation to free his mind from consideration of the effect upon 
the millions of voters involved in any policy which he might adopt? 

_A far more reasonable solution of the problem of what is to take tbe place 
of the Interstate Commerce Commission would seem to lie in the creation of 
what might be called a Federal railroad board, composed, as is the Federal Re- 
‘serve Board, of five members dealing with the railroads through regional 
‘boards, just as the Federal Reserve Board deals with the banks all over the 
country through its various branches. The functions of this Federal railroad 
‘board would be part administrative and part judicial. Through the various 
regional boards it would be in that intimate daily touch with the pulse of busi- 

hess which engenders constructive thought. Not being overloaded, as is the 
‘present Interstate Commerce Commission, with a mass of detail, it would be 
im a position to handle the question of the railroads in a really big and con- 
‘structive way. 
The constitution of these regional boards would not be difficult if the vari- 
ous territories were made large enough to be inclusive of interests of varied 
character, so that there could never be any question as to their becoming sub- 
servient to any local or one-sided point of view. The present rate-making dis- 
‘tricts would be a logical division. As to the number of members on each re- 
‘gional board, that should be kept down to five and made possibly as low as 
‘three. If the members of these regional boards were selected half and haif 
)from two leading political parties, the last vestige of danger of politics getting 
into the matter would be obviated. 

What we should have when an organization such as the above was perfected 
would be a Federal railroad board sitting at Washington and six regional 
boards sitting in some suitably located city in their respective districts, each of 
them in the closest touch with every phase of the transportation business in 
that particular district, and, so, able with intelligence and dispatch themselves 
to dispose of most of the problems which would arise, and to present for speedy 
‘Settlement to the Federal railroad board at Washington such problems as they 
found themselves unable to handle. 


THE QUESTION OF A GUARANTEE, 













Up to this point, it will be noted, with the exception of the substitution of a 
Federal railroad board for the present Interstate Commerce Commission, the 
plan of the Railway Investors’ League is somewhat in accord with the plan 
offered by the National Association of Owners of Railway Securities. Pro- 
gressing from this point, however, toward the question as to how railroad 
investors’ rights are to be safeguarded, the two plans widely diverge. The 
Warfield plan provides that the Interstate Commerce Commission shall be 
directed to fix such rates in each of the various territories as will allow earn- 
ings of 6 per cent on the combined property investment accounts of all the rail- 
‘roads operating in that territory. With any such idea, the many security 
holders with whom the Railway Investors’ League has been in touch have 
‘Shown themselves to be entirely out of sympathy. In the first place, how could 
‘it be determined what rates would allow earnings of 6 per cent on the combined 
property investment account, the proportion of gross income which any railroad 
‘is able to turn into net earnings, depending as it does upon the efficiency of the 
yManagement and the physical condition of the property? 

) How, we say, could the rates ever be determined in the first place, and, in 
the second place, if it were possible to determine them, would not constant 
changes be necessary in order to meet shifting conditions? Furthermore, 
| would not such a plan be unfair to the weaker roads—those unable to turn 
€ross income into net with the same efficiency as those more ably officered and 
(possessed of better physical facilities? The idea, it is stated, is to “level” 





446 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. | 


rates. Is it not very much of a question whether any such leveling process 
could be carried out without working a very great injustice and hardship? 

Instead of attempting to guarantee freight rates which will produce a certain 
amount of income on the property investment, it would seem much more rea- 
sonable at the outset to guarantee that income on the property investment and 
then to go ahead and fix rates which would allow earnings equal at least to the 
amount of the guaranty. In that way there could be no question of injustice 
to any property. The value of each property having been determined, it would 
be simply a case of guaranteeing so and so much on that valuation and then 
fixing freight and passenger rates which would allow earnings of at least the 
amount of the guaranty. 

The amount of such a guaranty should be fixed at not less than 43 per cent 
on the property investment. Everything that a road was able to earn above 
that amount up to 6 per cent it should be allowed to keep. Above 6 per cent 
earnings would be divided with the Government. 

Such division of earnings above 6 per cent would take care of the question 
of what is to be done about those roads, which because of superior physical 
condition or more able management would be able to show substantial profits 
as a result of freight rates not sufficient to enable the weaker roads to earn 
more than the bare amount of their guaranty. Inevitably this principle must 
be recognized, that whatever form the regulation of freight rates takes there 
are bound to be some roads which can make much greater profits out of what- 
ever rates are established than can other roads operating in the same territory. 
That is a condition right and as it should be. Do anything to destroy it and 
coincidently you destroy all initiative and all incentive toward better and more 
economical operation. If rates are to be granted which will allow every road 
to make a fair return on its property investment—which is what has got to be 
done—it inevitably means that some roads as a result of those rates are going 
to earn greater profits than others. The logical thing under the circumstances 
and the way to keep up the incentive is to let the roads which are able to show 
those greater profits benefit from them at least to some degree. . 


CONSOLIDATIONS. 


Because of this question of strong and weak roads and of the difference in their 
ability to earn profits from identical freight rates, the members of the Railway 
Investors’ League are heartily in accord with Mr. Hines’s plan for dividing the 
railroads of the country into from 12 to 20 large systems. In this way competi- 
tion for business can be retained as it is at present, but the great problem of 
the weaker roads continuously struggling for their very existence—and in so 
doing constantly menacing the entire rate structure—is done away with. But 
it is not to be thought that this combination of the weaker with the stronger 
roads can be effected merely through recommendation—it stands to reason, oD 
the one hand, that the weaker roads will not be found anxious to be swallowed 
up by the stronger ones, while, on the other hand, the stronger roads will not. 
as Mr. Hines says, be anxious to dilute their prosperity by taking in the less 
successful properties. It will not be a case of merely “ recommending ” that 
these mergers take place. It will be a case of scientifically determining what 
roads logically should be grouped together into this smaller number of systems. 
and then compelling the mergers by due process of law. There will, in the 
opinion of the members of the league, be found considerably less opposition to 
such a plan on the part of the holders of securities in both the weaker and the 
stronger railroads, than might be imagined. 

With the present large number of railroads, big and little, thus divided mu) 
into a smaller number of big systems and with these big systems guaranteed # 
fixed amount of return on their property investment account we shall have all the 
advantages of privately conducted enterprise backed up by Government guar- 
antee. There will never, in all probability, be any occasion for the Government 
to have to make good on its guaranty because the rates that will be fixed under 
the supervision of the various regional commissions will be such as to allow 
the amount of the guaranty to be fully earned. There will be, on the other 
hand, all the efficiency of management and quality of service which comes froni 
private operation, because, while a certain minimum on the property investment 
account is guaranteed, the earnings of any railroad are limited only by the 
efficiency by which it is run. The one-half of all earnings above 6 per cent whie! 
the railroad is allowed to retain will be quite enough to draw forth the best 
efforts on the part of its management. 


3 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 447 


'The only provision which the Railway Investors’ League would like to see 
nade with regard to the half of the earnings above 6 per cent on property in- 
‘restment account earned by the railroads, is that such excess earnings shall not 
ye turned back into the properties and capitalized.. Were that to be done we 
hould, of course, have a condition of earnings on earnings which, in view of 
he Government guaranty, would be highly undesirable. 


VALUATION. 
It is true, of course, that the whole proposition of a guaranty of earnings om 
yroperty investment account presupposes to begin with a valuation of railroad 
jroperties, and that such valuation presents very great difficulties. In our opin- 
on, however, and in the opinion of the ablest minds which have studied the: 
juestion, the difficulties in the way of such valuation are by no means insur- 
nountable. On the present basis of valuing the railroads we shall, of course, 
ret nowhere, but that is by no means saying that if the determining of the fair 
value of the railroads were put into the hands of some expert and impartial 
yody, working under a law which laid down for them the broad rules of ap- 
woach, the thing could not be done. It would be the duty of such a body, acting 
ike a court of justice, to determine the fair value of the properties without the- 
ed tape or delays connected with judicial proceedings, and to establish that 
value with due regard for all circumstances affecting not only the properties. 
hemselves but their prospective earning capacity—for which, by the way, in. 
gany cases considerable sacrifices have been made without as yet showing a 
fisible return. Thus to value the railroads of the country—not driving the 
iardest possible bargain, but getting at the matter in a spirit of fairness and 
ooperation—would be a great undertaking and one that would take time and 
aoney, but the thing is something which everyone knows must eventually be: 
one, and might as well be done now in time to make it the basis of a fair and 
‘quitable solution of the railroad question. 


f RAILROAD CREDIT. 


The supervision and regulation of the railways provided for above, coupled’ 
rith a guaranty of 44 per cent interest return on the amount of the property 
avestment would, in the opinion of the members of the Railway Investors” 
eague, go a long way toward effecting that rehabilitation of credit without 
‘Thich no further development or progress in the country’s transportation sys- 
2m can be made. For practically 10 years now the railroads have found 
> impossible to interest the investor as a partner—that is to say, to sell 
tock—and have been able only with the greatest difficulty to interest him 
S$ a creditor—that is to say, to sell even a part of the bonds that they ought 
') have been able to sell. Assured that whatever money he puts in will 
arn at least 43 per cent, and that under favorable circumstances it may 
arn very considerably more, the investor is bound to take an entirely different 
ew of the matter. Freed of the fear which has been hanging over him 
9 long that some sort of confiscatory legislation will be passed, he will be 
ir more willing to listen to the appeals of the railroads for the capital which 
1ey so badly need and to open his purse strings for the sake of purchasing 
le new securities they have to offer. Nor will the fact that the Government 
‘$s guaranteeing a minimum amount on property investment in any way dilute 
‘’ spread thin the Government’s credit in the matter of its own direct 
bligations. Through the proper fixing of rates earnings of the railroads can 
je kept at such a point as to make it absolutely unnecessary ever to take any- 
ling from the National Treasury in order to make good the amount of the 
laranty. 

‘If it is objected that in this presentation of the views of the members of 
1e Railway Investors’ League certain important points have not been touched 
‘a—supervision of the issue of new securities, for instance—it may be 
“plied that that question and the others are automatically taken care of 
rough the creation of a central Federal railroad board and six regional 
OMmissions. Supervision of security issues, regulation of intrastate rates— 
‘ese and other questions are, of course, important, but with adequate and 
omMprehensivé machinery created to take care of them, will be properly taken 
wre of. If, indeed, we provide a proper regulatory and supervisory machinery” 
e shall find that we have struck effectively at the source of many of our 
‘oubles and effectively cleared the way not only for the restoration of railway 














448 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


credit but for that expansion in transportation facilities which must inevitabh 
accompany any new forward movement in the country’s industry in general. 

Mr. Chairman and gentlemen of the committee, I was asked t 
represent the Railway Investors’ League only 24 hours before leavin; 
for Washington. 

It appears that members of the league had seen a recent inter 
view with me in the New York Times wherein I pointed out a larg 
economic waste in the perplexing terminal situation and offered : 
solution which they believed was practical as well as constructive 
and this concurrence in some of my premises, together with the fac 
that it was not convenient for another representative of the leagu 
to appear before you, caused them to ask if I would appear in hi 
place. 

Their plan just presented to you had already been concurred i 
by its advisory committee and printed. I have never met severa 
of their committee and have not the slightest idea whether they eve 
heard of or would approve or disapprove my viewpoints, but beliey 
ing them to be factors that bear a vital relation to the subject yor 
have under consideration and in harmony with the understanding 0 
those members of the league that asked me to come, I ask you 
indulgence for a very few minutes longer for the purpose of pre 
senting them to you in the concrete, not in connection with th 
presentation just made for the Railway Investors’ League, but o 
my own initiative. 

In order to illustrate the importance of congressional action tha 
includes the country as a whole, I will cite the situation in Ney 
York City. | 

Increased terminal facilities in New York City are absolutel: 
necessary under the present procedure, yet the present facilities wil 
handle from 40 to 100 per cent more freight than it can now handl 
if the shipper to consignee pick-up and delivery system were orgail 
ized upon an efficiency basis. 

And this can be accomplished without the slightest element 0 
experimentation, but it must be accomplished by Congress. Thi 
railroads, however anxious, could not themselves correct the situa 
tion, for the reasons I pointed out in my remarks preliminary to ti 
presentation of the plan for the Railway Investors’ League, namely 
The associations representing the railroads’ cohandlers—but wli 
incidentally control routings—would’ bring such pressure to bea 
that no road or group of roads could afford to take chances 01 
offending them. 

The railroads are in no position to finance new terminal facilities 
and even if they were, why should they when their present facilitie 
are adequate through the adoption of the same elements of efficien¢ 
and economic operation that their cohandlers employ in the condue 
of their own business ? . 

Now, aside from making the unnecessary investments and asid 
from the waste forced upon the ultimate consumer through the rail 
roads as involved in the existing uneconomic procedure, let us tak 
a peep at the additional uneconomic waste involved. 

The waste in drayage in New York City is $662,760 a day, 0 
$205,455,600 per year. | 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 449 


'This estimate is predicated upon the registration in New York 
‘ity in 1918 of 31,561 commercial trucks, not including buses and as- 
ining that of these trucks only 23,670 of them are employed. 
| The average load carried one way only is about 35 per cent of 
oe: 
The average load carried both ways is about 20 per cent of capacity. 
Twenty-eight dollars per day per truck represents an exceedingly 
‘odest profit above cost, including depreciation and maintenance. 
_Many believe this efliciency could be increased to 80 per cent and 
wme even higher than 80 per cent, but the most conservative agree 
don 40 per cent efficiency or a saving of $28 per truck per day. 
Now the only criticism I have heard against this presentment is 
‘at it is too low, but I so planned it not caring to appear in the spot- 
‘ght of disputations. Indeed, I did not take into consideration the 
1,000 horses that are similarly employed. 
/ Well-informed transportation men have asked why I did not base 
y estimates upon the full registration of commercial trucks instead 
‘only three-fourths. 
Others have asked if I thought capital should be raised for such a 
‘ayage system on the basis of the truck earning only $28 gross per 
uck per day, but I again answered that I wanted to avoid argu- 
ents and therefore preferred to be safely conservative. 
The plan I propose to meet the situation with is this: 
A through fixed handling charge from the door of the shipper to the 
or of the consignee, the drayage company to collect the railway 
mpany’s charges as well as its own. The drayage charges should , 
assessed according to: zones. Those zones at the point of origin 
|e, of course, figurable, while those zones at the point of destination 
n be corrected and adjusted just as erroneous billings are now cor- 
cted and are adjusted. 
‘IT would stabilize these drayage-handling charges with a safe “mar- 
| of safety” and issue to each patron a purchase unit (receipt) for 
ch drayage charge paid and periodically distribute between the 
trons pro rata out of the margin-of-safety fund, based on the ag- 
|egate of their purchase units, the differences between the estimated 
\3ts as collected and the actual costs as disclosed by the books. The 
|sts to include such fair net interest yield to the drayage company 
| will attract the necessary ability as well as capital. 
|The patron would thus lose interest in the automatic increase or 
| crease in the handling charges made to meet the changing condi- 
ms and he would furthermore not demand an unreasonable service 
»S he now does) for the reason that he would pay for that service 
| the identical proportion that he patronized it. In other words, 
; would take the drayage company into consideration instead of 
\Uxing unreasonable demands as he otherwise would do as long as 
|) drayage company pays the bill. . 
The advantages of operating these drayage systems on systematized 
\iedules of time similar to the railroads and passing the freight 
\20ss the platforms both ways without delay are obvious, and when, 
| the due course of prudent business procedure, the zones can be 
ended to include the residential districts, thereby replacing the 
plications by retailers of deliveries made to the homes of the con- 
mer, the aggregate saving involved is well worth consideration. 


_ 152894—19—vor, 1——29 




















450 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


I see no reason why the fixed handling charge as stabilized with : 
safe margin of safety can not be just as practically extended to the 
railroad situation in the collection of its freight and passenge 
charges and to other public utilities with perhaps the exception 0: 
the street car lines, assuming that an agreement could be reache 
upon a net interest yield to them based upon a fixed valuation. Th 
natural criticism to this proposal would be that the managemen 
would lose interest in initiative and efficiency. While I believe thi 
can be assured through efficiency standards, it is possible to work oui 
a plan for a division between the patrons and the owners that woulk 
insure the incentive for initiative and still maintain the two vitally 
important factors with the patrons, namely, (1) the automatic in 
crease or decrease of handling charges without friction, and (2) 
avoid the demands for an unreasonable service. 

But, reverting back to my subject about terminal facilities, let m 
point out still other vital factors. 

The railroads, already burdened with troubles akin to those oi 
Job, are now confronted with competition in intercity haulage bj 
motor trucks. A readjustment of the terminal drayage pick-up an¢ 
delivery system would eliminate this factor almost, if not indeed, t 
the vanishing point, as indeed it should, for thus far at least the} 
are not, generally speaking, a financial success. 

The automatic increase or decrease of rates without friction from 
patrons would not involve governmental guarantee, and neithe1 
governmental ownership or control could promise more than some 
‘such plan would yield. 

Why should the railroad patrons along the thickly settled countr} 
pay deficits for the railroad patrons along the sparsely settlec 
country, for, generally speaking, this factor of population along 
this route is, in the main, the primary factor that constitutes the 

prosperous railroad, and may at least relatively be referred to as tli 
weak roads or the strong roads. A railroad’s greatest asset lies in the 
development of the country contiguous to it. 

Why should not each road stand on its own foundation, in so fal 
as asking aid from the Government or from the stronger roads’ 
Why should not its rates and its service be adjusted to meet the situa 
tion—its own situation—squarely in the face, so to speak; in othe 
words, on its own merits or demerits; and would not the patron: 
along these weak roads under the plan here suggested coordinatt 
and cooperate with their road, meeting the exigencies of the situation 
instead of asking help from the Government or persons living 0 
another section of the country. 

At yesterday’s session I was pleased to hear Judge Sims say tia 
every Member of Congress was vitally interested in_reducing th 
cost of living expenses, and he asked Dr. Rich, of Boston, if hi 
railroad plan included such. 

This is a subject that I am deeply interested in. I contemplit 
the ultimate promotion of such a plan, but am persuaded that 
reorganization by Congress of the terminal drayage pick-up an 
delivery system and constructive measures that will save the 40 
60 per cent of perishable farm products that now rot in the field 
and which measure will at the same time lead to more general plan 
ing of garden truck and fruits for the daily market as the first ste 
to be taken. J will submit this suggestion after a moment. 









RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 45] 
+ 1 will not intrude upon your time by taking up the distribution of 
commodities, important as the subject is at this time, since it is not 
germane to the subject you have under consideration. I am, however, 
willing to go on record by saying that the situation can not be met 
by any piecemeal proceedings. There are a number of factors that 
constitute the existing waste, and they must be taken up in their 
entirety along broad and constructive lines. The terminal waste, 
large as it is, is only one of the factors of waste involved, and really 
a relatively small factor in its relation to the whole. 

_ A deficient rural population has resulted in at least a relatively 
amie production in grains, live stock, raw fabrics, woods, and 
metals. 

Consumption is disproportioned with production because of the 
shifting of population from the farms to cities and towns. <A con- 
siderable portion of this population consumes without producing. 

If surplus supplies were stored, thereby stabilizing the costs in the 
interest of consumer and producer instead of in the interest of the 
intermediate groups of handlers, the saving would constitute a 
worth-while item on every meal eaten every day by every man, woman, 
and child. 

The cost of once-used bottles, cans, and cartons, and the once-used 
sontainers in which these products and fruits and vegetables are 
shipped is a factor. 

_ The standardization of farm products and the standardization of 
standard products of manufacture by the sundry manufacturer of 
the brand or trade-mark of each is a factor. 
| The public’s unreasonable demand for service and for credit and 
ts ever-increeing “ high living” standards are factors. 

We have decidedly too many intermediate handlers between pro- 
eer and consumer. The “lid is off” of their handling charges; 
here is no staying hand as in the case of the railroads handling 
tharges, yet comparatively few of them succeed. Most of these ° 
andlers are hard-working and honest merchants. The main trouble: 
s that there are too many members in too many groups in the chain: 
hat leads from producer to consumer. ; 

As each group multiplies, the volume of business of each member: 
4 that group, potentially at least, decreases and in the exact propor- 
ion that their volume decreases does their handling charges increase, 
vith the inevitable result that they must either quit or organize 
;mong themselves for self-protection. 
| They are, as a class, all right. It is the system or rather the lack 
if system that is wrong. 

I am firm in the conviction that the controlled handling charge 
|.0w compelled of the railroads must be extended to include all the 
\ther handlers from the door of the producer to the door of the «m- 
umer and that established and provenly efficient handlers be utilized, 
ut decidedly fewer of them. 
| That their handling charge include such profit td them as will attract 
rovenly efficient men who have ample capital to discount their bills 
'$ Well as the ability to conduct an efficiently managed business, and 
hat such handling charge be stabilized with a safe margin of safety 
1 the identical manner proposed for the terminal drayage pick-up. 
nd delivery systems, the railroads, and other public utilities. 














. 





452 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


The plan I have in mind is a simple reorganization of the existing 
system and elimination of the waste involved by throwing it into 
the discard. No elements of radical departure from established pro- 
cedure is contemplated and the pretty well intrenched (and not 
easily changed) habits and customs of the public met in a construc- 
tive manner. 

Many persons advocate the building of municipal markets as a 
cure-all, but I fail to see how they could correct the waste caused by 
the several factors I have enumerated. 

Profiteering is a factor, gentlemen, but it is not the only one nor the 
large one by any manner of means, and may I add that the distribu- 
tion of the Government’s surplus store supplies at a price that will 
enable us all to eat a square meal at a price we can afford to pay is a 
most praiseworthy procedure, but what are we going to do when 
we get hungry again after these supplies have been exhausted. 

In conclusion will you permit me to suggest a procedure that goes 
hand in hand with the proposed reorganization of the drayage pick-up) 
and delivery system? It is one that should save the 40 to 60 per cent 
of perishable farm products that now rot in the fields and should like- 
wise result in the general planting by the masses of farmers in all 
sections of garden stuff and fruits—not merely for their own con- 
sumption, as is the case with the great masses of farmers—-but for 
the daily markets. | 

What I have in mind is such coordination and such cooperation 
between the farmers and the town and city people as will, during 
the planting, cultivating, and harvesting seasons, facilitate the taking 
to the farms of surplus help daily and back to town and cities like- 
wise daily. It must, as a rule, be done daily, for few farmers are 
prepared to take care of this much needed help, at least in the way 
the town and city people would naturally expect. | 

The farmer must, during the planting, cultivating, and harvest- 
ing periods, work against the sun and the seasons. His problems are 
not generally understood by many of the city people or even the 
people in towns and villages. The farmer does not consistently co- 
ordinate with the city people in the improvement of their streets and 
the city people do not consistently coordinate with the farmers in thie 
improvement of their highways. 

Some sort of closer cooperation and coordination is needed here as 
well as in supplying help to the farmers in the manner named. 

Congress and the various States have done much for highway con- 
struction but is not there a missing link in the lack of coordination 
and Opel in the construction of city streets and country high- 
ways! 

Farmers are already grouping together and buying motor trucks 
and if a closer relationship can be established in the construction of 
city streets and country highways, would it not logically lead to that 
coordination and cooperation which would save the 40 to 60 per cen 
perishable farm products that now rot in the field and at the same 
time lead to a more general planting of garden truck and fruits 
These two factors are both worth-while ones that mean much to the 
producer as well as to the consumer. 

The employment of trucks by groups of farmers for the daily mar 
keting of their products and for the purchase of their supplies is 








RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 453 


‘ong step ahead but the dream can not come true in a really worth- 
while manner without better roads and stronger bridges. 

a ery seems confirmed that the law of economics is the law of 
dfe, 

_ The differences that have failed in reconciliation during every 
deriod of unrest are seemingly traceable to a lack of equilibrium of 
the economic status. 

_ It seems clear to me that the present tension can not be relieved 
xcept through such broad comprehensive and constructive proce- 
lure as will embrace all of the factors involved, and that aside from 
dasing wages upon the cost of living plus an increment, we can not 
issume a policy that is too paternalistic or even socialistic, which has 
‘or its aim a return to the farms of our surplus populations in cities, 
jowns, and villages, not merely the soldiers of war, but the soldiers 
af misfortune as well. 

I have rather hurried with this, gentlemen, knowing that it was 
aear your lunch hour. 

_ The Cuarrman. The committee thanks you for your presentation, 
Moy. Martin. 

| Mr. Situs. I want to ask some questions that will be not theoreti- 
‘al questions, but questions to elicit information about this organi- 
‘ation. I understand, Mr. Martin, that your league is composed of 
‘he actual owners of securities. They are not mere representatives 
many sense? 

Mr. Marrrn. No, sir. 

| Mr. Stus. What proportion of the volume of such ownership is 
‘epresented by bonds and what percentage is represented by stocks? 

Mr. Marrin. I am sorry that I can not answer that question for 
7Ou. 

Mr. Stus. About what is the value of the stocks and bonds held 
yy the individual owners? 

Mr. Marin. I should be glad to get that information for you and 
send it to you by mail. 

Mr. Sms. What is the par value or face value and what is the 
narket value of those securities ? 

Mr. Marrrn. I will be glad to furnish that information. 

Mr. Sims. Would the members of this league or organization have 
my objection to selling their bonds and stocks at what they are 
ctually worth ? 
| Mr. Martin. As I said, I came into this matter only 24 hours 
)efore leaving for Washington, and there are many points such as you 
1 just brought up that I am not in a position to answer. How- 
jver, I shall be glad to answer them by mail. 

_ Mr. Sims. Are they a class of bonds and stocks that, under present 
sonditions, are desirable property for permanent holding? 

| Mr. Martin. Obviously, from the reading of this, they are not as 
lesirable as we would like to have them. 

_Mr. Sims. You are trying to increase the value of what you have 
y legislation, are you not, or are you simply trying to provide that 
n the future such investments shall be taken care of ? 

Mr. Marrin. We are trying to save our investments. That is the 
nain aim. 


| 







454 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Sims. To prevent a further decline? 

Mr. Martin. Yes, sir. 7 

Mr. Sims. And not to try to market them at their realizable 
value? 

Mr. Martin. No, sir; there is no such idea as that. 

Mr. Sims. Would not the parties be willing to sell them for legal- 
tender money and then invest that money in different securities? 

Mr. Martin. That would depend upon the price to be gotten for 
them. 

Mr. Sims. I mean, to sell them at what they are worth. 

Mr. Martin. Possibly that is true. I regret that I can not answer 
your questions as fully and intelligently as I would like. 

Mr. Stms. I thought they might be willing to sell them to a hold- 
ing company, the banks, or to the Government for their actual value 
on the market. 

Mr. Marrrn. I shall be very glad to submit that statement in 
writing. - 

Mr. Sims. I would be glad if you would do so. Of course, there 
are other questions I would like to ask, but under the circumstances 
T will not ask them now. 

[Norr.—-In a letter dated Aug. 7, 1919, Mr. Martin states: “ No 
attempt was ever made to ascertain from members of the Railway 
Investors’ League the information desired by Judge Sims.” ] 

(Thereupon the committee proceeded to the consideration of exee- 
utive business, after which it adjourned.) 


PART 4. 
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


_ComMITTEE oN INTERSTATE AND ForREIGN COMMERCE, 
Housr or REPRESENTATIVES, 
Tuesday, August 5, 1919. 
_ The committee met at 10 o’clock a. m., Hon. John J. Esch (chair- 
nan) presiding. | 
The CHarrMAN. The committee will hear this morning Mr. Wim- 
vish, of Atlanta, Ga. 


{STATEMENT OF MR. WILLIAM A. WIMBISH, REPRESENTING 
THE SOUTHERN TRAFFIC LEAGUE, ATLANTA, GA, 


The Cuarrman. Mr. Wimbish, give your name and address and 
hom you represent. 

Mr. Wimsisu. Mr. William A. Wimbish, of Atlanta, Ga., appearing 
or the Southern Traffic League. 
Mr. Chairman and gentlemen of the committee, since I have pre- 
ared what I had intended to submit to you here, developments have 
‘aken place very rapidly, so that to-day we are confronted with a 
ituation that differs from that of ten days ago, or even a week ago. 
| Before I begin my presentation, may I be permitted to comment 
ery briefly upon those recent developments and indicate, as nearly 
s l can, my views and the views of those whom I represent, on the 
undamentals of these new propositions. 
TT have not had time to read and study the plans proposed by the 
vbor organizations, nor have I had an opportunity of studying the 
ill introduced by Representative Sims, but I think I am familiar, 
1a general way, with what those measures propose. 

Now, unless you are going to consider the return of the railroads 
0 their private owners for their control and operation, I have little 
Osay to you that would be of any value, because that is the assump- 
ion upon which I appear before you. 

If Congress—and pardon me for speaking plainly, Mr. Chair- 
an 

Mr. Sims (interposing). Mr. Wimbish, the bill which I introduced 
ras introduced by request and is not a personal measure of my own, 
nd I am at liberty to act just as freely on any other matter as if I 
ad not introduced that bill. 

Mr. Wreisu. I am sure of that, Mr. Sims, and I only mentioned 
aat to say that I am not familiar with those bills. 
| Mr. Sms. I introduced it just as I would introduce a bill offered 
'y anybody else, by request, so that we may have something concrete 
\efore the committee to discuss. Mr. Esch has introduced a bill here 
od we will discuss that in the proper way. 
| Mr. Wovesisu. I am very glad to know that, Mr. Sims. 
Now, if you are going to adopt governmental ownership, or if Con- 
tess is going to surrender to the demands made upon it; 1f-—and it is 
455 











456 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


unthinkable to me that you will—but if you are going to lie down 
supinely and let any class or any interest in this country dictate to 
Congress what it shall do and what it shall not do, and when it shall 
do it, then, gentlemen, I am not in a position to be of any help to you 
at all. I do not believe that you are going to do it. I think that 
there is enough courage, and I am sure enough patriotism and intelli- 
gence in this committee and in Congress not to be stampeded and not 
to be intimidated into doing those things that do not meet with the 
approval of Congress and yourselves. I think that. Indeed, I can 
not believe that these extremely radical propositions that have been 
advanced represent even the thought of intelligent workingmen. 

I know that during the war labor was patriotic. I know that the 
American citizen who is a member of a labor organization is none the 
less a patriotic American citizen; but I know also that you gentlemen 
are infinitely better prepared to consider and determine these ques- 
tions than organized labor or organized anything else; and if you 
should surrender your function and if you should be stampeded into 
doing those things that do not meet with the approval of your judg- 
ment, I think your constituents will condemn you and the thought of 
the country will condemn you. : 

If we have to meet an emergency, let us meet it. There is no 
middle ground. If what you do is going to be received with con- 
tempt, then it is just as well to look the situation squarely in the face ; 
and I want to say to you that the only way to deal with this proposi- 
tion is calmly, uninfluenced by any threats, in order to determine 
what is the best thing to do for the country at large. 

Mr. Sms. Mr. Wimbish, if it will not interfere with your line of 
thought—— . 

sah Wimsisu. Not at all; I will be very glad to have any questions 
asked. 

Mr. Sms. What do you think of this mandate made by capital; 
that is, by the representatives of the owners of the stocks and bonds, 
on page 6 of the document just sent in and signed by the attorney 
of the Warfield plan. It says: 

To meet these conditions (which they have just referred to) the fundamentals ol 
the association’s proposal are: 

_ First. That Congress shall deliver a peremptory mandate to the commission requir 
ing it to consider the result of rates in the aggregate and never to permit the rate 
structure to reach a level where the rates would produce a net return of less than 
6 per cent on the combined railway investment. 

If that is not a mandate, what is it? 

Mr. Wiaisn. I am as firmly opposed to that as I am to the other 
demands. | 

Mr, Sims. In other words, labor has submitted its mandate and 
capital has submitted its mandate. 

r. WimepisH. I have treated that in what I have to present to 
- you; but this other development, this statement of labor, I have not, 
and I say you should not surrender to the demand of capital, if you 
choose to call it that, any more than you should surrender to tlie 
demand of labor or any other demand, except the demand of th 
best interests of the people of this country. Here you have these 
contending forces, you have capital seeking its own interest, as it 
naturally would, on the one hand; you have on the other hand labo 
seeking what it conceives to be its own interest, which is only natural; 
but you gentlemen are the tribunal to determine between these two, 


















RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 457 


and I would no more surrender to the one than I would surrender to 
‘the other, because we must remember that no matter how patriotic 
and intelligent men may be they have all of the infirmities of human 
nature, and that ‘‘when self the wavering balance shakes, ’tis rarely 
right adjusted.” 

| Now, with that preliminary statement, I want to begin my pre- 
sentation, but perhaps I may be asked, ‘‘ What will you do about it?” 
\This is an emergency condition that confronts us. Let me say in 
the beginning what I think you ought to do about it, and that is to 
sit tight; to proceed with this investigation just as you would other- 
wise have proceeded, and undertake to determine what, upon the 
‘whole, is best for the people as a whole. 

Mr. Monracur. May I ask, before you proceed, what is the 
Southern Traffic League? I may know, but I think the record 
should show that. 

_ Mr. Wirusisu. The Southern Traffic League is a union or league of 
trade and traffic organizations, and its membership also includes a 
large number of corporations and firms who are large shippers 
throughout the South. The officers of that league are present, and 
ie it is desired, can put in the record exactly what the league is and 
who its constituent members are. : 

_ Mr. Monracur. Those interests are the interests which you speak 
for here to-day ? 

Mr. Wimpisu. Mr. Montague, yes; to this extent: With such a 
wide and varied constituent membership, I could not undertake to 
say that I represent the views of all of the members of the Southern 
Traffic League. I do represent the views of the Southern Traffic 

League as they have been expressed by those attending the meet- 
ngs of that league. Naturally, you will find some, I do not know 
10w many, who take different views from those I am going to express, 
md I think it fair to make that statement to you. What I am going 
10 say to you is largely a presentation of facts which speak for them- 
selves and certain comments which, if they appeal to you, will com- 
nend themselves whether they come from the Southern Traffic 
Jeague or from wherever they come. 

Now, before discussing the remedy, it may be well to briefly review 
he situation and see if we can ascertain the evils that have been 
somplained of. 

The public has been led to believe that much injustice has been 
lone the railroads as a consequence of public regulation; that their 
Teatment has been niggardly;.that they have not been prosperous; 
ndeed, that they have been driven to the verge of bankruptcy, 
argely because of public regulation. The charges are that public 
‘egulation of railroads had proven a failure; that under public 
egulation the railroads were starved and were being driven gradually 
sut surely toward bankruptey—— 

Mr. Srus. What page are you reading from? 

_ Mr. Wimetsu. Page 2, under ‘‘The evils complained of.’’ I am 
ot going to read this in detail, Mr. Sims—and that the policy of 
hese regulatory bodies was so unfriendly and inconsiderate as to 
‘eprive the railroads of the ability to secure sufficient revenue to 
Jamtain their physical properties in good operating condition and 
arn a decent return upon their investment; and that as a result of 
‘his harsh treatment the transportation system of the country 



















458 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


had broken down physically and was only saved from utter wreck 
by the intervention of Federal operation and control. 

Now, as you all well know, prior to 1906, when the Hepburn 
amendment was adopted, the Interstate Commerce Commission had 
no power to prescribe rates, either maximum or minimum or other-. 
wise. Not until the amendment of 1910 did the commission have 
power to suspend proposed rates by the carriers. So that if public 
regulation by the Interstate Commerce Commission, to which T am 
now particularly referring, has been adverse to the interests of the 
carriers, you would find it reflected in the condition of those carriers 
since 1910. You would expect to find a reduction in their earnings, 
if they have been treated niggardly and not given adequate rates. 
You would expect to find deterioration in their physical properties 
and their operating efficiency. 

But when we look to the record we find just the reverse to be true, 
because never in the history of American transportation or any other 
transportation, so far as 1 know, have rail lines been so prosperous 
as they have been during this period from 1910 to 1917, when private 
operation was suspended; and never have they been so efficient for 
operation; never have their physical properties been more adequate 
or better maintained than they were in 1917 and as they had gradually 
become since 1910. : 

I am not going to detain you by going into figures, which are always: 
wearysome things, but will merely state results. | 

Taking the railroads of the country as a whole, we find that during 
the three years, 1915, 1916, and 1917, that the earnings upon the 
entire capitalization, both stock and bond capitalization, exceeded 
5 per cent, and in 1917 approached 6 per cent. 

We find that if it be true, as was stated by Senator Cummins in 
an article in the American Review of Reviews, in the July, 1919, 
issue, that three-fifths of this capitalization is represented by bonds 
bearing an average rate of 4} per cent interest, and if from the net 
railway operating revenue you deduct the payment upon these 
' bonds of their interest and other charges upon income, you will 
find that upon the remaining capital stock, for the average of the 
three years, the railroads of the country earned slightly more than 
6 per cent, and that during the year 1917 they earned about 7 per 
cent upon their total stock capitalization after payment of all expenses 
and charges of whetever character. 

A statement has been made by Commissioner McChord, of the 
Interstate Commerce Commission, a published statement, in whicli 
he shows that during this period from 1910 to 1917, inclusive, the 
dividend paying railroads of the United States declared and paid 
dividends in excess of 7 per cent. 

Mr. MontacuE. The average. , 

Mr. Wrmsiso. The average for that period. It further appears 
that this dividend was greater than the average for any preceding 
year, the highest mark in the past, excepting the year 1908 in which 
the dividend of these roads exceeded 7 per cent; that the average 
income per mile of road—of course you understand that is net-— 
was greater than in any preceding year, and that the accumulated 
surplus of these roads had increased more than 90 per cent withia 
that period. 
















RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 459 


/ A similar statement has been submitted to this committee by 
‘Commissioner Clark in his testimony before you, and he has filed 
‘with the record certain exhibits that bear out and confirm the state- 
‘ment | have just made to you. : 

So that it can not in fairness be said that the railroads were being 
so harshly treated as to deny them the opportunity of progress and 
of a fair return upon their investment, and that is the only point I 
wish to stress here; that is, that public regulation, so far from proving 
sa failure, has resulted in greater earnings to the railroads than they 
ver enjoyed before in their history, not only for a similar period, 
gut for any single year, marking the highest they ever attained in 
he past, and so I think that is a complete refutation of that argument. 
: Mr. Winstow. Pardonmeamoment. Did yousay public direction? 








Mr. Wimsisu. Public regulation. 
| Mr. Monracue. You do not mean Federal control since the war, 
ut regulation prior to taking over the roads and operating them by 
he Government ? 

_ Mr. Wimsisu. Yes; I am referring to figures up to and including 
917 under private operation. I will touch on Federal control in a 
moment. 

Besides that, the idea that the railroads had broken down physically 

n 1917, which itself necessitated or justified seizure by Federal 
\wathority, is a heresy and is a misapprehension of the facts. The 
ailroads were never in better operating condition than they were in 
he year 1917. 
_ Let me speak in the language of those who are most competent to 
‘peak on that subject. Mr. Daniel Willard, president of the Balti- 
eee & Ohio Railroad, in his testimony before the Senate committee 
ast February, and Mr. Ernest Kruttschnitt,.now chairman of the 
Joard of the Southern Pacific Railway Co., but for many years the 
‘eneral manager of that company, both referred to and testified on 
‘his subject. Mr. Willard said: 


| It has frequently been asserted that the railroads under private ownership had 
‘token down, and that it became necessary on that account for the Government to 
uke possession and assume control of the physical properties. I can not agree with 
,iose who hold that opinion, nor can I find anything in the record of performance of 
le carriers under private control and operation, or in the record of performance during 
? months of Federal control and operation, that gives support to that assertion. On 
le contrary, the record of actual performance under [Federal control of the same 
toperties, with almost exactly the same facilities and with substantially the same 
ficial staff, is the best and most convincing evidence that the railways, both as to 
aysical properties and personnel, had not only not broken down, but were in fact 
| ost efficient agencies of transportation. 


_ Mr. Kruttschnitt, in his statement before the same committee, on 
anuary 22 last, declared that competent critics, both home and 
reign, had heretofore characterized the service of the railways of 
te United States as the best in the world; and he asserted that 
/Merican railroads under private management never broke down or 
led to render the service expected of them. He further declared 
lat with the plant provided by private owners the railroads gave 
| rvice that has never been equaled in the history of transportation, 
jad that with legislation permitting practices heretofore prohibited, 
le railroads by combining the good and eliminating the bad can and 
ill give a service better than any that has ever heen given in the past. 
















460 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Frank H. Fayant, assistant to the chairman of the Associatior 
of Railway Executives, who has made a recent and careful study 
of European railway systems, particularly those of France, in a pub: 
lished statement says: * 

While before the war our system of public control had its obvious faults, under y 
was developed the most perfect transportation machine in the world. The best rail 
roads of Europe are many years behind ours in engineering development and operating 
efficiency. 

Gentlemen, I take the liberty of calling your attention to a situatior 
with which, perhaps, you are to a large extent already familiar, bui 
I want to get away from the assumption that you will find probabl} 
in every article that you read in the newspapers or in the highes 
type of magazine, the assumption that the railroads have beet 
unfairly treated, that they have broken down physically—I want t¢ 
get that out of the way for the purpose of my discussion; that is no: 
true. 

Mr. Montracur. Would it interrupt you if I asked a question ? 

Mr. WimepisH. Not at all. 

Mr. Monracur. There are constantly stated two or three thing: 
that are assumed to be facts; I am just stating them as they ar 
assumed, namely, that in 1917 the rolling stock, the engines, and th 
tracks of the American railways as a whole were in a very defective 
condition; second, that the railroads could not borrow any money 
had not been able to do so for a good while to keep up their roads 
and, third, that there had been no extensions or building of new rail 
roads proportionate to the needs or the necessities of the Americal 
people. What do you think of that? : 

Mr. Wmptsu. I think that is a false assumption. 

Mr. Montracue. Do you think that the engines, the roadbed, anc 
everything were in good condition in 1917? : 

Mr. Wimeisu. Far better than ever before, and, in the language 0 
the gentlemen whom I have quoted, adequate to render the Servic 
demanded of them. That is demonstrated, Mr. Montague, by sub 
sequent facts. The Federal Railroad Administration took the sanu 
equipment, they took the same rails and the same locomotives aie 
did relieve the acute congestion that was existing at the time an 
have operated the railroads up to this hour without any substantia 
additions to the transportation facilities either in equipment 0 
roadbed or otherwise. In other words, they moved the heavies 
traffic that the country has ever seen with these facilities. {1 am no 
referring to economical operation, but to the physical fact. 

Mr. Monracur. You think that they moved the traffic efficiently 

Mr. Wimpisu. Efficiently from an operating standpoint, yes; bu 
not efficiently from an economical standpoint. ) 

Mr. Monracur. Were the stocks and bonds of the railroads goin 
up or down prior to 1917? 

Mr. Wimpisu. I undertook to make some comparisons along th 
line, but I found such fluctuations that I could not predicate an, 
generalization at all. j 

Mr. Monracus. Do the statistics of the railways show that the 
were ying aside any adequate money -for betterments or obsole: 
cense ? 

Mr. Wimeisn. It showed this: Including the money that ha 
been expended in improving their facilities and creating them 2 
they were in 1917, they had within that period of eight years increas 










RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 461 


‘heir accumulated surpluses a little more than 90 per cent in addition 
‘o dividends paid. In other words, they had added something like 
| billion dollars or more to their accumulated surpluses. 

' Mr. Montacue: Do the statistics show that any new capital was 
sequired for building new roads? | 
. Mr. Wipisu. I think not to any great extent. 

_ Mr. Montracue. How long had that been so prior to 1917? | 

‘Mr. Wimeisu. My own view is that there has been very little new 
ailroad corstruction for a long series of years. My own judgment 
‘3 that in the eastern territory, and by that I mean all of this country 
ast of the Mississippi River, we have, perhaps, more railroads to-day 
han we need; and that eventuates in one of the problems which you 
lave to consider: What are you going to do with the superfluous 
imes, the weak lines? I do not look upon the extension of railroad 
aileage as indicating anything of value at all in this investigation. 

' Mr. Montacue. I beg pardon. I felt that that was pertinent to 
he discussion you had immediately in hand to ask those questions. 
_Mr. Wimpstsu. It does not at all interrupt me to ask questions. 
fl can be of any help to the committee and can answer any questions 
vhich I am competent to answer, I shall be very glad. I should like 
0 have you ask me freely at any time; it will not interrupt me. 

The CuarrmMan. Col. Winslow would like to avail himself of that 

)pportunity to ask you a few questions. 

_ Mr. Wimpsisu. Certainly. 

Mr. Winstow. Would it be fair to assume that the business of 
913 and 1914, up to the time of the declaration of war in Europe, 
lad tended to reduce the open market credit of the railroads as well 
s other institutions ? 

Mr. Wriusisu. I think that is undoubtedly true. 

Mr. Winstow. Would it be fair to assume that quite likely the 
avesting public, bankers, and others that control funds, would have 
ad more or less doubt-as to the continuance of the activity in 
‘ailroads, which came on in 1916 and 1917? 

Mr. Wimsisu. Yes; and capital could be employed at higher rates 
f interest elsewhere. 

Mr. Winstow. And that all tended to arrest the development of the 
‘ailroads or the replenishment of equipment, did it not ? 

_ Mr. Wimsisu. Yes, sir. 

Mr. Wrinstow. When the Government took them over it took 
hem over for a period of four years, which tended to keep the railroad 
evelopment on a low level? 

Mr. Wimsisu. So far as the time you mention is concerned, I do 
ot think that the railway earnings were materially affected; that 1s, 
Yuriously affected. | 
_ Mr. Winstow. In what years? 

_Mr. Wreusisu. In the years that you were talking of. 

Mr. Winstow. 1916 and 1917? 

Mr. Wimsisu. They were the highest. 

_ Mr. Winstow. And 1913 and 1914 were quite the reverse ? 

‘ Mr. Wiusisu. For the year ending June 30, 1913, the earnings were 
ery satisfactory; they were on a pretty high level. 

Mr. Winstow. And for 1914? 

Mr. Wmpisu. For the years ending June 30, 1914 and 1915, they 
vere on a lower scale. 

' Mr. Winstow. Your fiscal year ends June 30? 


462 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Wiupisu. Yes, sir. That has now been changed. Since 1916 
we take the calendar year. 

Mr. Winstow. During the years ending June 30, 1915 and 1916, 
business was light ? 

Mr. WimsisH. Yes, sir. 

Mr. Winstow. And did not promise very well. In the next two 
years they had the benefit of the impetus of business created due to 

foreign warfare ? 

Mr. Wistsu. Yes, sir. 

Mr. Wrnstow. But that tended, did it not, to arrest the use of 
money in the development of railroads, either through the dull busi- 
ness of one part of that period or through the uncertainty of the 
continuance of good business during the other part? 

Mr. Wimeisx. Yes, sir. I think there was another thing; money 
was in demand and could be employed more advantageously in other 
fields than in railroad investment. 

Mr. Wrnstow. You mean for temporary purposes ? 

Mr. WimersxH. Yes, sir. This is a remarkable fact which has 
occurred to me in my study of the situation, that after each period 
of depression the railroads, shortly thereafter, have been able to 
recoup their losses both in the volume of traffic and in the earnings 
from it. You will find that that goes back to the lean years in the 
nineties. You will find that condition in 1898 and 1899, that the 
volume and traffic earnings were upon a higher level; but the most 
striking illustration is the years 1906 and 1907, when the railroads 
had a very large traffic which would be comparable to that which 
was moved in 1912 and 1913. In 1907 the panic came, and of course, 
during that year the volume of traffic fell off a great deal and railroad 
earnings were affected, but the year following, 1908, was the high- 
water year prior to this period from 1910 to 1917. These temporary 
depressions do not seem to affect the averages even for short periods. 

Mr. Wrnstow. Is it your purpose to refer again to the operating 
feature of railroads ? 

Mr. Wiusisu. No. 

Mr. Wiystow. May I ask you a question or two ¢ 

Mr. Wrupisu. I shall be very glad to have you do so. 

Mr. Winstow. Do you think that the railroads have been unduly 
exploited through financial institutions or individuals handling the 
finances of the railroads ? | 

Mr. Wimeisn. That is rather a large question. If you take the 
history of railroads and go back to 1870 there have been very many 
such illustrations. If you go back to the time of public control, say, 
1887 or 1888, since that time there have been some, such as the: 
Chicago & Alton, the New Haven, the Rock Island, the Frisco and. 
others, but if you refer to the period, we will say, since 1910, I should 
say no; there has been relatively little exploitation of the railroads 
since 1910. 

Mr. Wrxstow. Since 1910 would you feel that the railroads have 
been obliged to carry the burden of dividends, etc., on a greater 
amount of stock and bonds issued than were justified in the light of 
conservative business ¢ : 

Mr. Wreisu. That is true in some cases, and not true in others. 
Take an illustration. The Southern Railway, as you know, was 
organized by bringing together a large number of corporations, the; 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 463 


Richmond & Danville, the East Tennessee, and various large systems 
inthe South. At the time of the organization—I think I am speaking 
correctly when I say that no fresh capital as a contribution to the 
stock went into that reorganization at all. In other words, there 
were $60,000,000 of preferred stock and $120,000,000 of common 
stock issued, for which, so far as I can find, there was no payment 
either in money or in money’s worth from stockholders who got the 
stock. The Southern Railway has developed into a magnificent 
operating property. It is a large system which has greatly developed 
the South, it has served its needs admirably, and in 1917 under 
private control earned on its capital stock, after the payment of all 
operating expenses, fixed charges and other charges, over 23 per cent. 
That stock has value. I do not think in that case that that is an 
andue burden for the Southern Railway to carry; but there are 
others where that is not true. 

Mr. ‘Wrnstow. In considering the problem far and wide, what 
would you say? 

Mr. Wimpisu. I should say this—I do touch upon that a little 
ater—that railroad stock which has a value back of it, whether that 
walue is due to original contribution of the stockholder or whether it 
S due to the value added out of the earnings of the corporation 
which may or may not be earned increment; but wherever it has 
that substantial value I think it should be recognized, and if it has 
10t I think it should not be recognized, no matter how the stock 
wriginally was placed. In other words, I do not think that a man 
should be protected against an unwise and improvident railroad 
Myestment any more than a man should be protected against a bad 
yusiness investment. | 

Mr. Winstow. I have not quite made myself clear. I want to 
set your judgment as to whether or not the financing of roads as a 
whole has been wise and conservative ? 

Mr. Wipisu. I would have to answer that in the negative; on 
ihe whole, I hardly think it has been. 

Mr. Winstow. We are hearing a lot these days as to efficiency of 
yperation as affecting great industrial institutions. Have you any 
pinion as to the thoroughness in managing railroad properties as 
‘ontrasted with the ordinary first-class industrial institution, the 
Jnited States Steel Corporation or the Standard Oil Co. or any of 
‘be others which have been successful and notably so ? 

Mr. Wimpisu. I do not think that there is the same degree of 
)perating efficiency applied in the management of railroads as in 
ther large industries. 

_ Mr. Winstow. Do you think that the directors of the railroads, 
‘aking them as a whole and not going into personalities, have given 
he same careful consideration to the operating expenses and the 
jeneral efficiency of operating that has been given by the ordinary 
ioard of directors in the commercial line ? 

. Mr. Woatsu. I do not. 

Mr. Winstow. Do you feel that there is chance for improvement 
hich would result in savings if the new methods of operating were 
ised and some of the old methods of these institutions were set aside ? 
Mr. Wrmpisu. I am very sure of it. 

Mr. Wrixsrow. If that were true and if the savings amounted to 
: arge sums, there would not be the same occasion for advancing rates 





hat there has been or may be ? 





464 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Wimsisu. There would not. } 

Mr. Montacuer. You say that the railroads have not been man- 
aged as efficiently from a business standpoint as some of the other 
great industrial concerns of the country ? 

Mr. Wrusisu. I expressed that as my opinion; yes, sir. 

Mr. Monracusn. Do you not think that that is somewhat due to 
the fact that the railroads have been in a sense public enterprises as 
contrasted from private enterprises % 

Mr. Wimsisu. No; because for many years while they were 
quasi-public in a manner they were not subject to public control, 
and since public control my own opinion is that the railroads have 
benefited along with and, perhaps, to a greater extent, than the 
public. In other words, under public control they have been per- 
mitted, not only permitted but required, to discontinue practices 
that were harmful and hurtful to everybody concerned and’ I think 
their net savings from those sources very far outrun any Joss in 
revenue from public regulation. 

Mr. Montaque. Perhaps | did not make myself clear. 1 wish to 
suggest this for your consideration: While the railroads were tech- 
nically private enterprises, did not their managers treat them on the 
one hand as private enterprises and on the other as public enter- 
prises, and was there not some lack of coordination and consequently 
financial laxity which resulted ? 

Mr. Wiupisu. There is, perhaps, some psychology in that sug- 

estion. 
: Mr. Montague. Prior to 1910, were not the railroads very largely 
in the politics of America? 

Mr. Wimpisu. Unfortunately that is true. 

Mr. Montagur. Do you think that that was conducive to sound 
business administration of the railroads ? | 

Mr. Wipisu. I do not. 

Mr. Montague. That is all. 

Mr. Wiupisu. I did have some experience in my earlier years as 
counsel for railroads, and at one time had the distinction of being 
vice president of a little line. My observation was that the railroad 
operators and managers endeavored to make the most and best they 
could out of their properties. Of course, all high-minded railroad 
managers realized that they had public duties to perform and they 
undertook to perform them. I am speaking of the better type, but 
with that limitation, which is not a limitation, they undertook to 
make the most they could for their stockholders. 1 do not believe 
as a whole that the same degree of efficiency and ability was brought 
to bear upon railroad management as upon other large industries of 
the country. 

Mr. Chairman and gentlemen of the committee, I desire to call 
your attention to the measure of return upon the stock investment of 
the railroads under private control as shown by returns for the year 
1917. I take this from Poor’s Manual, wherein I find a statement 
showing the item of per cent on common stock. As I understand 
that, you take the operating revenues of the railroad and deduct the 
operating expenses and get the net operating railway revenue; an 
you take also the nonoperating income less the charges against that, 
and then you deduct all interest charges upon funded debt and other 
debt, all joint rents for facilities and car service and things of that 
kind; in other words, every item that is a charge upon income, and 


t 


: 
: RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 465 
‘she remainder is the net corporate income. The ratio of the corpo- 
vate income to the capital stock investment gives you the percentage 
‘which Poor designates as the per cent of earnings upon common 
stock. 


_ Statement of per cent of earnings on common stock for the calendar year 1917. 

































































Per Per 
: cent on : cent on 
oe com- peng com- 
A mon $ ; mon 
stock. stock. 
SOUTHERN LINES. EASTERN LINES—continuéd. 
N@upmern Railway................- 6, 982 23.39 || Philadelphia & Reading........... 1,126 20. 01 
imme ONO sore... ee. 1,160 23016>}| Boston & Maine. 0.0... .2 2... 2, 258 (1) 
(elantic Coast Line................ 4,780 16.02 || New York, New Haven & Hart- 
youisville & Nashville............. 5, 072 22. 89 PUR coe eRe Ne cons eT. Fay 1, 995 Trea 
Jashville, Chattanooga & St. » @ 
NE 1, 236 17. 74 ANGYapC o.oo. a5 See wel tte wet 715 
‘entral of Georgia....... mareecet :‘ 1,918 34. 81 
igamoard Air Line:................ 3, 461 (4) WESTERN LINES. 
a 19.71 || Chicago & North Western......... 8,108 10, 22 
St. Louis & San Francisco......... 5, 207 4,75 
INES OPERATING IN BOTH EAST- Missouri, Kansas & Texas......... 3, 866 1. 36 
| ERN AND SOUTHERN DISTRICTS Minneapolis, St. Paul & Sault Ste. 
. (PRINCIPALLY SOUTHERN). Marie Satya St 6 ese ed ae 3,168 7. 26 
is Chicago Great Western...........- 1, 496 3. 06 
| SOc 4,766 13. OO GI eMissourinPAaCGliGts cle. le cou.. soe 7, 822 6. 49 
thesapeake & Ohio................ 2,412 DI SZOME Oks: eV HelIC Gaia) wees wore ulae 1, 946 7.70 
iam ce VWOCStern...........:.--- 2, 085 14,9651) Chicaeo dc. Altomice. 24 22.2. 2-.-- 1,052 (1) 
Chicago, Rock Island & Pacific....| 8,218 5. 33 
SOS EG o, 13. 29 
NMOL OR ee sbi cau acho ait wae cl eaaeaee 5.11 
EASTERN LINES. Se 
TRANSCONTINENTAL LINES. 
Wamesyivania KR. R............-.--. 4,541 T8i 
jemex ork Central................. 5, 685 105247) Southerm Paciiic cc gale. een 11,136 18. 01 
pete as Ohio. ....-........... 4,723 Bt (Oa! METMOMPACliC la. face odessa sete 7, 986 16. 89 
MES nee ee 2, 258 (1) Atchison, Topeka & Santa Fe..... 11, 294 14. 50 
0 1,442 FieS) i Grea Northern 6 oe eco Se . 8, 232 9, 23 
leveland, Cincinnati, Chicago & INOFLNern PaCinG 125.0. ..0.) ess ot 6, 522 11.91 
MMT St to ee wits nace cio ns 2, 386 10.11 || Chicago, Burlington & Quincy..... 9,373 26. 53 
A Ee 2,519 (1) Chicago, Milwaukee & St. Paul... ./10, 25 (1) 
hicago & Eastern Illinois......... 1,131 12, 29 
oe ee 1, 216 6.55 ANOTOEO oot as oP nt. nentat eens 13. 89 





1 Nil. 


I have attached as an appendix to this paper, which I will leave 
vith you, the stock-earning ratio of a number of the lines individ- 
tally. I wish only to call your attention to this: That I have taken 
ll of the systems operating more than 1,000 miles of road in the 
outhern district, the eastern district, and, broadly speaking, in that 
dart of the western district that is known as the western trunk line 
erritory, which lies partly east of the Mississippi River. I have 
aken all of those systems as operating systems, and I have shown 
he percentage of earnings upon the common stock for those systems 
or the year 1917. I find that the eastern lines earned 7.15 per cent; 
hat the western lines, those in the district north of Chicago, a very 
ongested district, earned only 5.11 per cent. 
. Sms. On what standard ? 
Mr, Wiwersn. Based on the stock. 
| Mr. Sms. After paying interest ? 
_ Mr. Wmpisu. And all charges. Then I took the interterritorial 
ines, the Norfolk & Western, the Chesapeake & Ohio, and the Illinois 
ventral operating between the eastern and southern districts, and 
f find that their earnings were 13.29 per cent. Then I took the trans- 
Ontinental lines, and I find that their earnings upon the common 

152894—19—vor 1 30 








466 RETURN OF THR RAILROADS TO PRIVATE OWNERSHIP. 


stock was 13.89 per cent. I took the southern lines, and found that 
their earnings were 19.71 per cent. Of all the systems in the southern 
district operating more than 1,000 miles, there was only one that was 
_not prosperous, and that was the Seaboard Air Line. ‘The Seaboard 
Air Line earned nothing upon its common stock during that year. 
The return upon the stock of the Southern Railway, as I have said, 
was 23.39 per cent, which was about three times that accruing to the 
Pennsylvania. That of the Louisville & Nashville was 22.89 per cent, 
which is more than double that of the New York Central, 10.24 per 
cent, while the ratio of return to the Atlantic Coast Line was 16.02 
per cent, or more than four times that of the Baltimore & Ohio, 
operating about the same mileage. 

The result of operation under Federal control is a matter to which 
I have given some thought and in which I have been very much 
interested. I have been furnished with the authoritative figures for 
they year 1918.’ I find that during that year under Federal control 
the railroads of the country as a whole lacked nearly $250,000,000 of 
earning the standard guaranteed return which, as you gentlemen 
know, represents the average net railway operating revenue for the 
three years, 1915, 1916, and 1917. The deficit on its face was nearly 
$250,000,000, not an operating loss, but that much less than_the 
standard return which represented the average of the three highest 
earning years in the history of the railroads. 

Mr. Srus. What were the gross returns, comparatively ? 

Mr. Wimpisu. They were larger. 

Mr. Sims. In 1918? 

Mr. Wimsisu. Yes. 

Mr. Sims. And they actually did very much more transportation ! 

Mr. Wimsisn. Very much more; they secured very much larger 
gross revenue from transportation. 

Mr. Sims. And rendered more service to the country ? 

Mr. Wimpisu. Very much greater in volume; but the net return 
was very much less. 

Mr. Sims. The net return ? 

Mr. WimpsisuH. Yes, sir. 

I find in the southern region—as you gentlemen know, the country 
was divided into regions for operating under Federal control—a 
remarkable situation. The roads in that region, taken as a whole, 
not only earned the standard return, but more than $12,500,000 in 
excesss. In other words, the roads in that region were operated at & 
profit in excess of $12,500,000 to the Government, and that much 
more than the average of the three best years ever had under private 
control. I am calling your attention to that region not for the 
purpose of comparing any one region with another, but for illustrative 
purposes. | 

There are reasons why the southern lines did very much better 
under the Federal operation than the lines in other parts of the 
country. ) 

The great trouble lies in the eastern district and in the roads 
serving the territory around and in Chicago in the western district, 
That was largely due to the congestion that began in the summer of 
1917 and became very acute at the time the roads were taken over 
under public control. | 

The causes of that congestion were, first, the great demand for 
export, the great volume of commodities, articles, and munitions that 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 467 
fk 
'were being rushed to the ports for exportation, and the fact that 
‘there were so few ships to receive the goods and unload those cars, 
‘resulting in the cars being sidetracked and remaining unloaded, with 
‘all of the expense and evil consequences that followed. Another 
ontributing cause was that the British Admiralty, when they 
‘undertook to relieve the situation here, sent practically all of their 
‘vessels to New York, thereby accentuating and exaggerating the 
‘congestion along in that district. 

_ Another thing appears to be true —I am only speaking from infor- 
mation—prior to the assumption of Federal control, along in the 
summer of 1917, when this congestion became evident, the Govern- 
‘ment demanded priority orders for the movement of a great many 
‘articles and commodities for war use. My information is that the 
‘American Railway Association, instead of carefully seeing that only 
‘those commodities that should have priority orders that were entitled 
‘to them, gave orders out in blank by the handful to officers of the 
‘Army and the Navy who were equally careless in giving them to 
shippers; and that probably of the volume of traffic that moved under 
‘these priority orders 80 per cent of it was not entitled to priority at 
all. It further happened that most of these sales were either to 
factories or munitions plants in the eastern region or for export, and 
all of that was rushed into the eastern district. Those, as I under- 
stand, were the causes of the congestion. That, of course, very much 
affected the earnings under Federal control. It was evident, to some 
extent, in the vear 1917. That congestion has been relieved. It 
was a transitory matter which, I think, should not occur again and 
I do not think that under proper management it will occur again. 

I only mention that as one reason why the eastern lines have made, 
relatively, such a poor showing. 

The railroads, and the owners of their securities, are most con- 
cerned in earning revenues adequate to their needs. The public 
interest demands that an efficient service be provided under rates 
and charges that are just and reasonable, with due regard to the 
rights and interests of shippers, carriers, and the public. 

The problem is to determine what may properly be done by legis- 
lation to safeguard the railroads in the matter of their net revenues, 
and otherwise enable them to render the most efficient and economical 
public service. 

The railroads will be returned to private control subject to much 
higher operating expenses than they were prior to that time. On 
the other hand, freight rates and passenger fares have been increased 
something like 25 or 30 per cent. Now, the extent to which these 
Increases in rates and fares may compensate for the increased operat- 
‘Ing expenses is one that can be determined only by actual experiment 
alter the roads go back, and it would be foolish for me to venture a 
prediction as to how the matter will finally be determined. 

_ Now, there is a proposition to which I desire to invite your attention 
and which I think is one of the most important that will come before 
you, and that involves the question of a guaranty of return. 
_ It seems to me that a guaranty of return, in any form, or under 
any guise, whether by explicit obligation or legislative assurance, is 
‘only a step removed from government ownership and will inevitably 
lead not only to Government ownership but also to Government 
operation. 
| 





468 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


That, I think, is at least in part recognized by Senator Cummin 
who is an advocate of Government ownership under private operatic 
and who looks with approval upon some form of guaranty. He say: 

I understand perfectly that when the Government undertakes that the return upi 
the capital invested shall be certain; that is, guarantees the return, whether by legi 
lative assurance or by explicit obligation, it may be well termed the equivalent 
Government ownership. 


If Government ownership is to be justified upon the theory thi 
transportation is a governmental function, this would necessari] 
extend to the operation of the railroads by the Government. Goveri 
ment ownership with private operation under a guaranty of retur 
would impose such obligation upon the Government, and so dull th 
incentive of private operators as to leave little doubt in the min 
of any thoughtful man concerning the outcome. 

Without ownership of the property and with «a return guarantee 
to the operating company it must be recognized that small induc 
ment would be offered for the display of energy or initiative and the 
competition in both service and charges would completely disappex 
This would fall into that category of evils characterized by Herbea 
Spencer in his Essay on Overlegislation, wherein he says: 

Exposed to no such antiseptic as free competition, not dependent for existence, : 
private unendowed organizations are, upon the maintenance of a vigorous vital} 
all law-made agencies fall into an inert, overfed state, from which to disease is a sho 
step. 

The objections to a guaranteed return as a practical expedient az 
perhaps as great as the objections that rest upon the principle. 

I find that Mr. Clark, of the Interstate Commerce Commission, i 
his statement has addressed you on this subject, clearly and at som 
length. He says that a guaranty by legislative assurance—that ik 
through rate adjustments or rate manipulation—is impossible. 
says it is impossible and he has, at some length, given his reasons {0 
that statement. I had reached the same independent conclusio 
because I had not read Mr. Clark’s statement until I came to Wash 
ington, and I find I have duplicated a good deal of what he ha 
probably better said, and so I am going to eliminate that. | 

I am going to postulate the conclusions that itis impossible, thatii 
is undesirable, that it is wrong in principle to undertake to arrive a 
_and maintain any definite given return upon any valuation, no matte 
how arrived at, by rate manipulation. 

The bases of the valuation suggested are, first, the stock and bon 
capitalization, or the property investment account or the bool 
value; or what may be termed the ascertained value, based upon th 
cost of reproduction less depreciation. Those are the three sugges 
tions as to the basis of valuation that might be used, upon which th: 
railroads are to be guaranteed a return. 

Whatever basis may be adopted, it is obvious that the values 0 
the different railroads would present great variations and dispro 
portions. If capitalization be taken as the basis, a premium woul 
be paid the overcapitalized roads as a reward for their extraya 
gance, while the conservatively capitalized roads would suffer a cor 
responding disadvantage because of the:. very prudence and go0¢ 
management. The same would be true if the book values of the 
properties be taken as the basis. 

Now, let me give you an illustration, and I give it to you botl 
because it is a situation with which I am very familiar and becaus¢ 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 469 


is perhaps the most apt illustration I could find; and that is, a 
»mparison between the Atlantic Coast Line and the Seaboard Air 
ime railway systems 
‘The Atlantic Coast Line operates 4,780 miles of road, carrying 
je value of its road and equipment at $184,890,432. The Seaboard 
ir Line, operating 3,461 miles, or 1,329 miles less than the Coast 
me, carries the book value of its road and equipment at $193,- 
39,994, or $9,095,563 more than the Coast Line. 
Mr. Sms. $9,000,000 ? 
Mr. Wimsisu. $9,000,000 more than the Coast Line. 
‘Mr. Monracue. And 1,300 miles less road. 
Mr. Wimpisu. With 1,300 miles less road. it carries its road and 
{uipment account at $9,000,000 more than the Atlantic Coast 
me. Now, anyone at all familiar with the situation there knows 
tat the Atlantic Coast Line as a physical property is not inferior 
r mile of road to the Seaboard Air Line, but, on the contrary, is a 
rcidedly better constructed and a better maintained property, and 
t we find that variation in the book value carried by those roads 
‘spectively. 
Mr. Monracur. Might not that excess come out of better con- 
ruction and better equipment of the Seaboard Air Line road ? 
Mr. Wiusisu. I just stated that anyone familiar with the proper- ’ 
's knows that that is not the fact. The Coast Line is a better con- 
eucted property. 
| Montacur. The Coast Line? I understood you to say the 
‘aboard Air Line; I beg your pardon. 
Mr. Wimsisu. No; I said the Coast Line is much the better con- 
‘ucted property. 

€ nearest approach to equality, if it were feasible, would be to 
vertain the physical value of the railroads and their value accord- 
; to other elements that might enter into the proposition. 
In the first place, that is not practicable. The time and expense 
rolved forbids it. We all know that the Interstate Commerce 
mmission has for a number of years been engaged in arriving at 
» physical valuation of railroad properiies. They have completed 
ir Investigation finally only as to a few of the railroads of the 
mtry, and as to those the conclusion arrived at is not of any 
lue as a basis of rate construction or of value in itself, because the 
its of value were taken as they were in the years when the investi- 
lon was going on; in other words, in 1914 or 1913, when costs 
te very much less than they are now. 
50 that the valuation of the roads made according to the formula 
the Interstate Commerce Commission might reflect their value as 
1914, but would be utterly useless as indicating their value to-day ; 
1 the valuation would be such a shifting one. It would vary from 
w to year, and in my opinion would be entirely an unsafe and 
Jertain standard. 
_think these objections have been recognized by those who ask for 
uaranty. I think they recognize that they are unanswerable, and 
‘they attempt to find an expedient to meet the situation. 
‘(he suggestion of some of those who favor a guaranty is that the 
‘roads in each region be grouped into a few large systems, either 
mitting or compelling the strong roads to take over the weaker 
8, thereby ironing out the inequalities on the theory of general 
Tage. It is stated that the values could then be arrived at by 









470 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


taking the aggregate property investment of the combined roads, so 
_ that what the system loses on the one it will gain on the other. Others 
maintain that the few new large systems should be continental rather 
than rogional, and that the value of the constituent properties might 
be arrived at by agreement without employing the long, complicated, 
and expensive method necessary for a physical valuation. 

The merit in the plan for either compelling or encouraging @ merger 
of the weaker into the stronger lines is not readily perceived. All 
averages are obtained at the expense of the superior factor. An 
infusion of anemic blood into a vigorous body can not improve the 
health of the system. , 

Again referring te our illustration, and I am carrying this illustra. 
tion of the Coast Line and the Seaboard throughout for the reasons I 
have stated——— 

Mr. Sims (interposing). As being typical of the whole situation. 

Mr. Wimsisu. As being typical. 

It is pertinent to inquire wherein and to whom any advantage 
would accrue by 2 consolidation of the Seaboard Air Line with thi 
Atlantic Coast Line, with which it is most closely connected physically 
It scems clear that no benefit would flow to the public. No additiona. 
transportation facility would be afforded, while competition in service 
would be stifled or destroyed within that territory, within which they 
are parallel, competing systems, serving the same general territory 
Nothing of value to it would be acquired by the Atlantic Coast Line 
No new traffic would be created, nor any additional source of earning: 
be developed. . 

Should the Seaboard be taken over under its present heavy capi 
talization and book valuation, this would impose a great burden upoi 
the Coast Line without any compensating advantage. The resul 
woul be that the Coast Line, out of its earnings, would have to carry 
the dead weight of the Seaboard in order that the stock and bonc 
owners of the Seaboard should enjoy a return which their property 
did not earn. 

Nor could the Southern Railway use the Seaboard advantageously 
it might divert traffic from the Seaboard to its present lines, but 1 
it had to make good the losses to the Seaboard, nothing would b 
gained. The Southern might feed the Seaboard by diverting som 
of the traffic from its lines to those of the Seaboard which migh 
stimulate the property of the Seaboard but it would detract in 
equal or greater degree from the earnings of the Southern Railway 
and you would have no gain but a loss. 

That consolidation is not the cure for the ills of weak lines 1 
demonstrated by the experience of the Tennessee Central Railroac 
That is a poorly constructed railroad with thin traffic, having line 
both east of Nashville, Tenn., to Harriman Junction, and west t 
Hopkinsville, Ky. Some years ago the Illmois Central took over 10 
operation the line of the Tennessee Central Railroad west of Nashvill 
to Hopkinsville, Ky., where it connected with the Ilmois Centra 
They sought to gain an entrance into Nashville over that line. 1 
Southern Railway took over for operation the Ime east of Nashvill 
+o Harriman Junction where it connects with the Cincinnati Souther 
a::d the Southern Railway System. 

Mr. Sms. You mean that they took over the line west or nortl 
west. You used the word east in both cases. 












RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 471 


_ Mr. Wiupisu. I should have said the Illinois Central took over the 
line west of Nashville, and the Southern took over the line east of 
Nashville. Even the aid of these powerful systems could not make 
those lines profitable to them, although it gave each of these large 
systems—and they are great systems, both of them—an entrance 
into the city of Nashville which, as you know, is a great traffic center. 

Mr. Sims. And which they did not otherwise have. 

Mr. WimsisH. Yes. After a few years of operation that was 
abandoned and the lines were returned to their owners, and so I say 
that consolidation in itself, the mere taking of a weak line and putting 
it into a large system, can ‘have absolutely no advantage and is 
attended with a great many evil consequences; so that it is no remedy. 

Mr. Sms. It did, of course, add some additional traffic to the 
Tennessee Central. 
Mr. Wiupisy. Oh, yes; surely. 

Mr. Sims. But not enough to change the condition materially. 

Mr. Wimsisu. Now, even if a fair valuation can be found, the form 

of the guaranty is of the very essence of the matter. 

A direct guaranty by the Government of a defined percentage upon 
the accepted valuation has at least the merit of being understandable 
in its meaning and effect. It would be plain that any railroad failing 
‘to earn its guaranty would be paid the deficit out of the Treasury of 

the United States. The burden would be distributed among all tax- 
“payers throughout tie country. This, of course, would be a subsidy, 
and would be fraught with the evils that attend all such public 
‘bounties. The payment and acceptance of that which has not been 
“earned is ethically wrong and economically unwise. As applied to 
the service of transportation, it neutralizes the antiseptic of competi- 
tion and paralyzes the initiative and imagination that is indispensable 
to progress. 


Typical rates in official classification territory. 









































Classes. 
: Buffalo, N. Y., to— Distance. | —@——_—_-__—_____———— 
1 a 3 4 5 6 
Miles, Cents. Cents, Cents. Cents, Cents. Cents. 
Montreal, Quebec... .......--.-- 434 74 644 49 35 30 an 
AE Re eee 400 663 58 45k 32 274 224 
Greenfield, Mass. .........------ 405 6E4 58 453 22 re 223 
Memmpenier, Vito. Jos. lee eee ce 425 74 643 49 5 30 25 
New York. N. Y............... 442 40 52 493 29 24} 20 
@umemuic City, N.J....5.....-.-. 473 60 52 423 } 29 244 20 
FS eee 475 60 52 42% | 29 24% | 20 
Memeneton. DO... 5... 438 60 52 423 | 29 244 | 20 
Heaerisonbure, Va...-......-..-- 47! 85 73 59 40 344 27h 
Taneaster, Ohio.......-...----- 350 703 60 473 354 25 20 
cMmis, Ohio. .-..........--- 321 5S 403 39 | 293 204 164 
ES eee 332 674 574 45. | 34 24 19 
Find:ay, a ES 325 f4 543 422 | 33 224 | 18 
Marion, Ohi : 4h 491 Bo 224 8 
Me | er |. |, g7k|. a | 24 i9 
Omewater, Mich................ 385 69 | 59 46}, | 344 244 194 
depen Mich /.<......-5..-.-.- 321 69 | 59 46% 344 243 194 
MueeiCh.... ...........-..--: 44] 703 60 473 353 2 20 
deoeeon, Mich. ................. 327 664 64 453 33 23 19 
Gigawin, Mich................- 490 80 68 53 40 28 224 
Lewiston 2 ea a 560 824 70% 554 413 295 23 
femme MICH... Jo... 2.25. .-2c-e 619 88 15 59s 44% 314 25 
Annapolis, Md...............--- 425 60 52 42} 29 | 243 20 
New Haven;Conn.............. 445 60 52 42h | 29 244 20 
Average...... ye ea ee , 410 683 59 49 | 36 26 21 

















! 
_ Average of the six classes, 43 cents. 


472 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Typical rates in southern classification territory. 




















Classes. 
Atlanta, Gu., to— Distance. 
1 2 3 4 5 6 
oP: ee PSU Bis GS es SS 
Miles. Cents. Cents. Cents. Cents. Cents. 
Roanoke 3Vias =. eb sath og eae 7 99 80 65 54 50 
Danvillay Vaiinite vote atecnceces 99 80 623 54 414 
Raleishe NiC LEM Spo Peo ae se 99 80 624 54 414 
Hayertevillesin, Cecons 8-8 ono ' 109 95 79 64 50 
Myrtle Beach, 8. C......-...-.. 99 80 69 64 524 
MaysvallesK 7% se Perens oat 135 119 100 814 664 
Promtiort ie yer: tal eacenc eee 110 864 + 80 74 69 
Louisvilleaae yoo o0c) aes seers: 115 1014 85 70 574 
Winch ster Kyi ce ae 1313 1163 974 80 4 
Hvansvilie, ind) .c2 2scee stece ss 115 1014 85 70 57 
PRTC AG toes a. pee aire 115 1014 85 70 574 
UnroniCityse lenin. ateccmessee 1063 824 764 70 66 
Dyersburg; UReni.:akeot xe. ase 149 1174 1074 974 763 
IRIGHMIQNG ICY a hee pecan ee 144 1274 104 85 724 
Memphis; (Renn: .2. teeter ee 110 964 69 60 474 
Clarksdale, Misstict eng: ek. 22 114 100 824 664 59 
Gronada.< Missamece asc farm emee 1024 824 7 574 50 
Durante Missi. “ence eee ease 99 7 674 564 50 
Mendeniiall., Miss: oe Ge). fe. mea ce 145 124 100 814 74 
Laurel Migs woe soe ae ne keie ae 1113 94 79 64 54 
Hattiesburg, Miss; .....2.2.....- 1114 94 79 64 54 
GulfportsiMiss. sees see ee ots 110 964 69 60 474 
MowilewAlass set setae se 2 ole 924 724 564 474 40 
Pensacola. o.0b 22. coe odes one Te, oy ODE 72% 564 474 40 
Cottondale: Algo eee. eae: 119 924 864 8 69 
Banama Cityrelawee ets eee oe 154 135 110 94 &C 
Tallahassee cPila a... 2 jesse 122% 110 864 74 6C 
Corinth: Miss s-.02 Jee. Lee. ! 110 963 69 60 474 
Hamptons Sz Oceeac teas cece 1074 924 75 614 56 
Cape Fear, N.C..... SB ote st 109 95 77% 64 50 
Folkston ,/Ga7. 2c seeks 104 99 89 714 564 
JOSUDA Gaee we ey conse’. en taee 973 85 69 54 45 
St. Augustine, Platseho. bores 2 1064 1023 914 78 614 
Palaska. alls fee. teetaee ke shoe 89 85 763 64 aa.) 
Day-Gone. hi las te Se one entae fete ae 1364 125 109 93 75 
Ceala cia 20 00G say! Spee pecs oe 1364 125 109 93 75 
WeGshure Plagaas.. ces verte tiaee 1414 134 114 963 . 
AVOIBRO .) oatub s cpa ees 115 99 824 70 574 





Average of the six classes, 93 cents. 


Legislative assurance of any given return to be accomplished 
through the medium of rate adjustment appears to be even more 
mischievous; and here again I refer to the statement which Mr. Clark 
has submitted to you on that point. 

The proposal is that the rates shall be so adjusted as to yield not 
less than 6 per cent on the aggregate property investment account 
of all the railroads as now operating in each of the classification 
territories. 

The property investment account or book value of a railroad rep- 
resents neither the actual money investment of the stock and security 
holders, nor the present worth of the property employed in the opera- 
tion of the railroad. It is the aggregate of many items of accumu- 
lated costs throughout a long series of years. 

Mr. Robert S. Lovett, president of the Union Pacific System, in 
his recent statement says that: ‘‘The book value includes in probably 
all cases the par value of the stocks and bonds: kept alive and now 
outstanding, regardless of earnings or actual value.’ He refers to 
this as ‘‘the fallacy of book value.’’ In other words, the property 
investment account takes in all stock outstanding at par, no matter 
what was paid for it, and no matter what it is worth. It takes all 
of its obligations of every kind at par. It carries in that account, 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 473 


is I have said, an accumulation of many, many items going back for 
i long series of years, the value of which probably has entirely disap- 
reared, if they had value at the time they were entered. ‘So that 
you would have a most inflated standard upon which to base your 
‘eturn. Now, they want 6 per cent upon that for dividends and 
yayment of interest. In addition to that, they want a percentage, 
‘he amount not named, sufficient to act as an Incentive and induce- 
nent to secure at fair money rates the capital necessary to give ade- 
juate facilities and service, and “to secure in railroad management the 
yest brains obtainable.” In addition to all that they ask that another 
und be provided to meet contingencies and indefinite obligations 

I think it may be said that this plan calls for a net return of some- 
hing like 10 per cent on the entire property investment of all the 
ailroads in the country. 
_I do not think the property investment account has ever been 
ceurately arrived at. The best estimate is that it is something - 
ike $19,000,000,000 and exceeds the outstanding capitalization 
Tobably by $2,000,000,000. Now, to produce 10 per cent upon that 
vould require $1,900,000,000 a year. When you remember that 
his must be net, over and above operating expenses and tax accruals, 
4 would mean that the railroads would probably have to carry 
traffic yielding an additional gross revenue of between four and five 
illion dollars, in order that $1,900,000,000 might be realized as a 
et return. It imposes, then, that enormous burden upon the vast 
mount of commerce moving in interstate channels. To accom- 
lish that would require an advance in rates that I think would be 
onservatively estimated at 50 per cent. I doubt if 50 per cent on 
‘he traffic that moved in any preceding year would yield that much 
loney net to the railroads annually. And you must remember 
‘fis, that when freight rates exceed a certain point, the movement 
T traffic is restricted and limited. 
Mr. Sims. And reduced. 
“Mr. Wimpisu. Yes; and when it reaches another point, the traffic 
easestomove. Thereis aratio which I can not define and perhaps 
as never been defined, between advances in freight rates and limi- 
vions upon the volume of the traffic. They go together, and if 
ou impose anything like 50 per cent in addition to the 25 or 30 per 
*nt advances already imposed upon the commerce of the country, 
ou have got a structure of freight rates so high, certainly in some 
arts of the country, that a large part of the traffic now moving 
anid be destroyed, and would not move at all; and so you go. 
‘ Mr. Sms. And the indirect effect upon the country of not being 
ble to move that traffic is appalling. 
Mr. Wimaisu. Surely, sir. The whole proposition comes down to 
‘us, that such exorbitant rates ought to be exacted from the public 
s would yield admittedly excessive returns to the greater number 
“Tailroads in order that the less favorably situated roads, con- 
ituting a decided minority of the whole, may enjoy a return beyond 
tat which would inure to them under just and reasonable rates 
or the services rendered; and the whole public is to be enormously 
malized to make up for the shortcomings of those railroads that 
ave on unwisely built, improvidently managed, or inefficiently 
erated. 











474 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


It would seem much more just and economical for the Government 
to aid meritorious weak lines by a direct subsidy, or by a loan of its 
credit, rather than impose such vast and disproportionate burdens 
upon the public as would be involved in the scheme proposed. 

Now, I go back again for a consideration of the status of the weak 
lines, and my illustration is the southern region. The only system 
operating more than 1,000 miles in the southern region that failed to 
show profitable returns under private operation was the Seaboard 
Air Line. A study of the situation indicates that the fundamental 
trouble with the Seaboard was not the lack of traffic or of earnings, 
but overcapitalization of the properties upon which it was sought to 
earn the return. 

Taking the year 1917, the total operating revenue per mile of road 
of the Atlantic Coast Line was $9,217 and that of the Seaboard Air 
Line was $8,942, or only $274 less than the Atlantic Coast Line. 

Mr. Sims. Per mile of line? 

Mr. Wimeisu. Per mile of line. The Central of Georgia was $8,351, 
which was $592 per mile less than the Seaboard Air Line. The net 
revenue from operation to the Atlantic Coast Line was $2,989, to the 
Seaboard Air Line $2,542, and to the Central of Georgia $2,594. In 
other words, the net to the Seaboard was only $546 per mile less than 
to the Atlantic Coast Line and was only $52 per mile less than to the 
Central of Georgia. That indicates conclusively that in the volume 
of traffic, in the character of traffic, in the length of haul, and rates 
applied the Atlantic Coast Line, the Seaboard Air Line and the 
Central of Georgia are largely upon a substantial parity. So the 
trouble is not the lack of traffic. The net of the Seaboard Air Line 
is proportionately less than the others, because its operating ratio is 
2 per cent higher than the Central, I believe, and 4 per cent higher 
than the Coast Line, making a difference in the net; but even then 
the earnings are substantially the same. The difference between the 
net earnings per mile of road of the Seaboard and the Central of Geor- 
gia was only $52. The Atlantic Coast Line, as a result of its opers- 
tions, earned 16 per cent on its common stock, the stock investment, 
and the Central of Georgia earned 34 per cent, while the Seaboard Au 
Line earned nothing. 

Mr. Sims. What about the Seaboard Air Line? 

Mr. Wiupisu. Nil; nothing on its capitalization. We then look 
to see why and we find that the Seaboard Air Line is capitalized at 
more than $56,000 per mile of road and we find that the Atlantic 
Coast Line is capitalized at something over $45,000 per mile of road. 

Mr. Sims. In stocks and bonds ? 

Mr. WimetsH. Stocks and bonds capitalization. In other words, 
the Seaboard Air Line is capitalized at more than $11,000 per mile 
of road in excess of the capitalization of the Atlantic Coast Line. 
If you will bring the capitalization or the basis of value upon which 
the return shall be had of the Seaboard Air Line down to that of the 
Atlantic Coast Line, the Seaboard Air Line will cease to be a nom 
earning line, it will cease to be a weak line, and will at once take it 
place among the earning lines of the region im which it is operate 

Mr. Denison. Is there anything in the physical properties tha! 
aie make that difference in the cost of construction, the rate pei 
mile ? : 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 475 


Mz. Wimpisu. I think, sir, that anybody, whether expert or casual 


‘observer, who will go over the lines of the Atlantic Coast Line and the 
‘Seaboard Air Line or gain the information in any other way, will 
necessarily come to the conclusion that the Atlantic Coast Line 


er mile of road is a much better constructed and maintained road 


than the Seaboard Air Line is. In other words, the Seaboard Air 
Line is capitalized on a higher basis per mile of road on a property 


of lesser value than the Atlantic Coast Line. There is the sore spot. 
That is the whole trouble with the Seaboard Air Line. If time and 
occasion admitted I could zo on and take uther lines throughout the 
country and by analysis I could show you that the trouble is due 
to the same thing as that of the Seaboard Air Line, overvaluation or 


_ overcapitalization. 


Mr. Denison. Is there any legislation necessary more than has 
been enacted, in your judgment, to remedy the condition that you 


have described with reference to the Seaboadr Air Line? 


Mr. Wiusisu. I have only one suggestion to make in that connec- 


tion. I think I am fair in my statement that I see very little, indeed 
IT see no occasion for any radical legislation by Congress to meet that 
situation. I have gone over the measures before Congress and the 


lans that have been suggested outside, and my deliberate conclusion 


is that the Esch bill comes nearer being what you need and need now 
than anything else that has been offered or anything that I could 
suggest, and therefore I have arrived at the conclusion that we ought 
to submit no plan to you, but say that we approve at this time in 
principle the Esch bill. 


_ Mr. Sus. I have the same opinion about the Esch bill as you have 
and I am not assuming anything, except that the bill is a good bill. 
Would it have the effect, upon its enactment, as has been claimed in 
a great many quarters, especially financial quarters, of putting all 
the railroads into the hands of receivers ? 

Mr. Wrpsisu. [ think not. 

Mr. Sims. I agree with you. 

Mr. Wrapisu. I can say, after study of the situation, that certainly 
it would not have the effect of putting the roads in the southern 
territory in the hands of receivers. I mean, taking conditions as 
they are. I am not discussing it with the idea that you will submit 
to this $800,000,000 demand for increases in the wages of labor and 


all that sort of thing. If you do, that presents a different proposition. 
Tam taking the conditions as they exist to-day. 


Mr. Sms. What is now known and not what may become known ? 
Mr. Wrupisu. Yes, sir. On that basis I should say that the south- 


ern lines in that region as a whole could operate profitably. I know 


’ 
i 


the transcontinental lines are in the same situation as the southern 


lines. They can operate under private control under existing con- 
ditions profitably. I am sure that the interterritorial lines which I 


have mentioned could operate successfully, and many of the lines 





in the eastern district like the Pittsburgh & Lake Erie, the New York 


' Central, and a great many lines of that kind could operate successfully. 


Mr. Sras. While I have not read the vrocecdings of every receiver- 


' ship, I have never read where the allegations of the proceedings were 

_ based primarily upon the charge of governmental or State regulation 

nor that Federal nor State legislation was the primary cause of the 
demand for the receiver. 


476 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Wiupstisu. I do not think it could have been truthfully so stated. 

Frankness compels me to say this: I think not only is a railroad 
entitled to fair compensation for the transportation service that it— 
renders, but I think 1t is imperative that the railroads should receive 
such compensation. What is a just and reasonable charge for a 
particular service is, of course, a matter always resting upon judgment 
in view of the particular facts. You have a tribunal to pass upon 
matters of that kind, but when the subject gets larger, when you look 
to a region and when you find for a series of years that the average 
road in that region has not prospered or is going down in its net 
earning capacity, there is a disease there which you must discover in 
order to find the remedy. I think that in the eastern district matters 
have been very much aggravated by this congestion which I have told 
you of and given, in my opinion, the reasons for.. I think that is 
transitory and will not occur again. Yet, when I look further it 
suggests to my mind that perhaps the rate level is too low in official 
classification territory. If the rate is too low it affects the roads on 
an average, year in and year out, in their fair compensation for their 
services. Then I began to compare those rates with rates in other 
regions. I have had drawn a diagram taking Buffalo as the center 
and deseribing a circle with a radius of 500 miles and have given 
the rates and distances on the first six classes to a number of points 
within that described circle. We have drawn a similar diagram with 
Atlanta as the center, a 500-mile circle in the southern region operat- 
ing under the southern classification ratings. We find that the aver- 
age distance to the points in the Buffalo circle is 410 miles and the 
average to the points named in the Atlanta circle is 396 miles. We 
tried to get the distances as nearly the same as we could. We find 
that the average rate on the first six classes in the Buffalo circle is 
43 cents a hundred pounds, and we find that the average to the points 
within the Atlanta circle is more than double, 93 cents pes hundred 
pounds. That is, the average of the first six classes, one under the 
official classificaticn ratings and the other under the southern classi- 
“cation ratings. It is not fair or accurate to say that that comparison 
is exact, because the ratings of the official classification differ from 
those in the southern classification, and the character of the commo- 
dities moving under the class rates may differ in the two territories. 

So, I do not wish to be understood as saying that the rates in the 
South are more than double those in the East, but I do say that the 
illustration that I gave you is typical of the general situation and 
demonstrates this, that the rates in official classification territory are 
relatively low, if not abnormally low, and that extends into the 
western trunk-line territory, north and west of Chicago. The 
remedy may be by an equalization. You may increase the level of 
rates in that great territory or you may increase the level in one 
region and lower it in another so that you get a general body of rates 
that will afford adequate compensation for the transportation service 
rendered by the fairly efficient and well-managed railroads within 
those regions. 

I think that the cure for the weak lines does not consist in over- 
feeding the many prosperous lines in order to stimulate the vitality of 
these languid members of the family. The administration of opiates 
or other palliative treatment would, in the end, aggravate the trouble. 
What the case calls for is surgery. In cases like that of the Seaboard 





‘ 


[To accompany pt. 4, Hearings on Return of Railroads to Private Ownership. | 


QTOWER MICH, 











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477 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. ATT 


Aur Line the valuation and capitalization should be cut down to such 
reasonable basis as will permit of a fair return under just and reason- 
able rates for the service rendered. 

| The Cuarrman. How would you accomplish that? 

Mr Winpisu. By a reduction of capital. I have shown that the 
volume of traffic is sufficient compared with the Atlantic Coast Line. 
[he great trouble with the Seaboard Air Line is the overvaluation 
wf its properties. If you cut the Seaboard Air Line $11,000 a mile, 
he same as the Coast Line, the Seaboard will become an earning 
. S. 

_Mr Sims. When a corporation goes through voluntary receiv er- 
ship, that would not be nearly as costly as court receivership ? 

Mr Wrisisu. I know. 

_ Mr Sims. Let them do that voluntarily without asking anybody to 
ielp them out of the trouble. 

_ Mr. Wists. I think some way might be found by the Govern- 
nent which would result in the accomplishment. Perhaps a prac- 
jical plan might be evolved under which the Government would 
‘xtend aid to meritorious lines upon the condition that those which 
ire too heavily capitalized to earn a fair return under just and reason- 
ible rates should voluntarily reduce their capitalization to such an 
umount as would be approved by the Valuation Board of the Inter- 
‘tate Commerce Commission, or by the commission itself. This 
ud might appropriately take the form of a direct loan at low rates 
if interest, with a small annual sinking fund requirement which would 
@ sufficient to retire the principal of the loan within from 20 to 30 
rears, or such other time as the exigency of the case might require. 
yuch a course would find precedent in the State and Hederal aid 
ranted to railroads in the earlier days of their development. and 
vould avoid the evils that grew out of a loan of the credit of the States 
3 railroads which, as we all know, was greatly exploited and 
‘bused. 

Mr. Sims. I wanted to propose an adequate remedy myself, with 
he condition that if the Government guarantee the loan it should 
lave the first lien upon all the assets of the railroads, the physical 
 aberty. etc., but the railroad people suggested that that would 
ust ruin everything. : 

| Mr. Wimaisu. I have not thought it out in detail, but the sug-- 
an seems to me well worth consideration as a method of prac- 
ical relief. 

The Cuarirman. Please put that in concrete form in the way of a 
ction or provision of the pending bill and make it a part of your 
tatement. 

Mr. Wimsisu. I shall take great pleasure in doing so. 

The Cuarrman. It will aid the committee in getting concretely 
our thought. 

Mr. Wrmisn. I shall do so with pleasure. 

/ Now I will hasten to a conclusion. 

| The Cuarrman. It is about 12 o’clock and we will recess until 2 
clock if thet meets your convenience. 

Mr. Wiusisu. Certainly. 

(Thereupon the committee took a recess until 2 0’clock p. m.) 





} 








| 
| 


478 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 
AFTER RECESS. 


The committee reassembled at the expiration of the recess. 

The CHAIRMAN. You may proceed, Mr. Wimbish, 

Mr. Wimsisu. In answering a question this morning from Co} 
Winslow, to which I had not given a great deal of special thought, . 
enumerated some of the railway systems that I thought had bee: 
exploited to the great injury of the public and of the stockholder 
and the security owners of the railroads. Somehow, the most glarin 
illustration of that escaped me for the moment. Doubtless it all o¢ 
curs to you. 

Mr. Wrnstow. Will you pardon an interruption? It was not m) 
purpose, particularly, to go into the detail of the roads so much a 
the general proposition. You can serve your own pleasure abou 
that. 

Mr. WimeisH. This is a large proposition and involves a whol 
territory which I had overlooked, and I want to get it in this record 

Mr. Winstow. You can suit yourself, so far as I am concerned 
about giving the roads by name. 

Mr. WimsisH. I will just say then in a general way 

Mr. Winstow. And in that connection, Mr. Chairman, may wi 
have stricken out reference to special roads before the conclusion © 
the statement. It was not my intention to pin you down in apn} 
such way as that. 

Mr. Wimeisu. I understand. I simply want to elaborate a littl 
my answer and say that exploitation has, to a larger extent than ! 
indicated in my answer, affected the transportation efficiency and the 
rights and interests of the public and the stockholders of the con 
panies. 

I have observed no direct reicrence in any of the plans to what 
are known as the short lines, and I should like to submit just a brie’ 
observation concerning those railroads. — 

The short lines, as I understand it, comprise those roads operating 
less than 100 miles. It would be a mistake to assume that all shor 
lines are weak lines or need help. We find some of them very highly 
prosperous. Taking the region with which I am most familiar, te 
southern region, and you have the Atlanta & West Point, the 
Western Railway of Alabama, the Washington Southern, the Rich: 
mond, Fredericksburg & Potomac, each falling into the category ol 
short lines but all very prosperous lines. There are a number 0 
other short lines which, because of their favorable location and gooc 
management, fall into the class of prosperous lines; but there are @ 
large number of those short lines that were constructed to serve loca 
needs that can not live upon the traffic that is local to their lines unde 
any reasonable rates upon which the traffic would move. Some 0 
those lines with the proper encouragement will develop into pros 
perous lines. Others will long continue to be weak lines. I find thai 
those who speak for the short lines, through the American Short Lin 
Railroad Association, are opposed to any guaranty of return. ' 

Mr. Bird M. Robinson, who is the president of that association, 1” 
a recent address at a convention of the association held in Wash 
ington, declared his opposition to a Government guaranty, doubting 
the right of the Government to give such a guaranty, and believing 












RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 479 


that it would be unwise to attempt to fix at any time what return 
should be given at any future time. He says: 

_ It must be recognized that conditions, interest rates, and prices of commodities, as 
well as the value ol labor, fluctuate from time to time, and are necessarily different in 
different sections of the country. At one period the interest rates and prices may be 
low and the just compensation due the railroads for services rendered to the public 
should be correspondingly affected. At another period interest rates and prices are 


high, as they are now, and during such period the Just compensation due the railroads 
for services rendered should be a higher and different rate. 


The relief, as I understand it, to which these short lines think they 
are entitled is that it should be made the mandatory duty of the 
Interstate Commerce Commission to establish through routes and 
joint rates upon application therefor, and itself determine the division 
a the rates as between the trunk line and the short line. 

The commission has long doubted its power to open such through 
‘outes or to make such joint rates, or to determine the division of 
ihe joint rates, excepting as to those rates prescribed by the com- 
mission. By a recent majority decision, the commission now thinks 
that it has that power, but it seems that it would be well to confirm 
uch power to the commission and let it be not only within the power 
yut within the duty of the commission, upon application of the short 
ine or the trunk line or any interest, to institute the proper investi- 
ration and determine those routes and divisions. 

Merely to permit the short lines to charge higher rates than are 
ipplicable to trunk lines for similar hauls does not meet the situation. 
._ know that has been tried. There are some jurisdictions, some of 
he States, in which those classes of roads are permitted to charge 
naterially higher rates than the trunk lines for similar lengths of 
laul, but it has not operated succesfully. 

High rates tend to restrict the traffic, and even if it moved, there 
re few of these short lines that need relief that could live under any 
ates upon which the traffic would move; and so it would seem that 
tis in the public interest to preserve these short lines, which are fre- 
(uently valuable feeders to the trunk lines and sometimes serve a 
ommunity which is otherwise without transportation service, or 
erve local needs that can not otherwise be served. I say if there is 
uch a situation as that and the short lines should be encouraged, as 

think they should, then the most feasible plan that suggests itself 
9 my mind is that which is advocated by the short lines themselves. 
Jo not take them and give them a guaranty. Do not undertake to 
wn them, either wholly or in part, but give them fair divisions of 
drough rates and then let them develop along those lines as they 
an, and as they will. 

Now, gentlemen, when we face a difficult situation like this, which 
‘essentially an economic problem, it is always safe to go back to 
rst principles and see what light we can gain from those principles 
1at will aid us in the solution of the problem. 

There are only a few, a very few, underlying principles that obtain 
nd operate in the matter of transportation charges. 
vet me say here that all of this talk about a legislative made rule 

[ rate making, to my mind, contradicts the very principle, the 
sonomic principle, upon which rates not only may and should, but 
lust be made, if they are going to continue to serve the interests 
oth of the carrier and of the shipper and of the public. ) 


152894—19—-vor 1——-31 


480 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


If experience teaches any lesson, it is that while the current of 
economic law, like the flow of water, may be diverted or obstructed, 
it can not be subverted and defeated. Such an attempt is not only 
impotent but surely invites disaster. We will be wise if we can learn 
what those fundamental principles are and then observe them. 

The great principle, the great economic principle, to my mind, 1s 
that the carrier is entitled to a fair return upon the value of that 
which he employs for the public convenience, to the extent that 
this can be accomplished under rates that are just and reasonable 
to the public, , 

This was the principle declared in the early case on this subject 
by the Supreme Court in Smythe v. Ames (169 U. 5., 466), a case 
with which we are all familiar, which has been frequently reaffirmed, 
and never doubted. I ask the liberty of making a short quotation 
from that opinion: | 

What the company is entitled to ask is a fair return upon the value of that which it 
employs for the public convenience. On the other hand, what the public is entitled 
to demand is that no more be exacted from it for the use of a public highway than the 
services rendered by it are reasonably worth. If there be any conflict of interest, 
the interest of the public is paramount and must prevail. 

In any rate structure, the first effort is to determine what the 
services to be rendered are reasonably worth and translate such 
measure of value into the rates to be charged. That the carrier 
should have atair return upon the value of his true investment is 
ereatly to be desired; that he shall receive just compensation for the 
transportation service rendered is imperative; that no more may be 
exacted from the public than the services rendered are reasonably 
worth is a limitation that may not be exceeded. As the Supreme 
Court declared in Covington v. Sanford (164 U. S., 578) the publi¢ 
can not properly ve subjected to unreasonable rates in order that 
stockholders may earn dividends. If the carrier can not operate 
profitably under reasonable rates, it is a misfortune for it and its 
stockholders that the law can not remedy by imposing unjust burdens 
upon the public. . 

In determining what is just and reasonable as between the carrier 
and the public, the cost of the service to the carrier as well as the 
value of the service to the shipper must be considered. An element 
entering into this cost of the service is the value of the property em- 
ployed.in performing it. A fair return upon the property investment 
is one, and an important, factor to be considered; but it is not the 
single or even the dominant factor. If rates are to be fixed solely 
upon the basis of a fair return upon the value of the investment, the 
paramount right of the public to demand that no more be exacted 
from it than the service rendered is reasonably worth, would he 
completely subordinated. —— o 

Whatever may be the relevancy of the value of the property in a 
judicial inquiry concerning confiscation, I assert with confidence 
that the ratio of return upon such value is neither proper nor pratt 
cable as a rule of rate making. I do not hesitate to affirm that 10 
schedule of railroad rates in this country ever has been made upon 
such basis, or-even can be, without violent imjustice to the true 
interests of all concerned. 7 

At the hearing in the circuit court of the case of Union Paeifie 
Railway Co. et al. v. Interstate Commerce Commission (222 U. Sy 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 48] 


541), Mr. Howard Elliott, then president of the Northern Pacifie 
Railway Co., gave it as his opinion that neither the cost nor the 
capitalization of a railway has anything to do with rate making. 
Mr. Klhott stated that in so far as value was to be considered at all, 
the value of the railroad as an operating machine should be taken, 
without any direct reference to cost, physical value, or capitalization. 
In other words, the earnings of the road would have to be capitalized 
in order to arrive at its value as an operating commercial machine: 
but the value of a railroad dependent upon its ability to make net 
earnings and pay dividends is an uncertain and fluctuating standard 
and misses the mark of those who would attribute value to non- 
aarning roads. 

Our purpose here is to endeavor to sound a note of warning against 
the danger of radical departure from economic principles. Should 
the railroads of the country be grouped into a few large systems and 
m arbitrary rule of rate making designed to guarantee a minimum 
‘eturn upon aggregate values be adopted, little vision is required to 
lainly discern that every other interest in the country would be 
subordinated to that of the railroads. 

The most delicate subject presented for your consideration concerns 
he functions of State commissions, and to what extent, if at all, they 
thould be limited by Federal legislative enactment. 

That which in the beginning wes a Federal union of supposedly 
Overeign States has evolved into a great Nation which stands in the 
irst rank of world powers. As provincialism decayed, nationalism 
lourished. Facilities for easy and rapid communication being pro- 
rided, business became largely nationalized and commerce between 
he States enormceusly expanded, until it is now estimated that about 
10 per cent of the traffic of the country moves in interstate commerce. 
| en two forces operate upon one subject within the same sphere 
f influence it seems inevitable that the greater will eventually destroy 
helesser. To the extent then that regulation of domestic traffic may 
onflict with the welfare of commerce between the States, the weaker 
aust yield to the stronger influence. The relaxation of State regula- 
ton has responded to the demands of commerce as a whole; and 
here is little reason to doubt that this process will continue, with or 
ithout legislation. 

In view of this it becomes all the more important to pause and 
onsider the legal as well as the economic aspects of the situation. 

The exclusive right and power of the State to regulate and control 
8 purely domestic commerce will not be controverted. The plenary 
ower of Congress over interstate and foreign commerce is equally as 
npervious to doubt. 

The intent of the Constitution as judicially construed is that com- 
lerce between the States shall be untrammeled, subject only to reg- 
lation by Congress and its agencies. State action that would impede. 
ie flow of this commerce or cast any undue burden upon it is there- 
re forbidden. 

_ These principles of fundamental law are not subject to change or 
iedification at the will of either Congress or the States. Neverthe- 
8s,the interpretation of our Constitution is amenable to a crystalized 
Ad sustained public sentiment, which has more often influenced 
langes in our constitutional law than have ever been effected by 
ypress amendment. Should the thinking public become convinced 








482 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


that the general welfare demands that the powers of the State over 
domestic commerce should be abridged or destroyed, a way may be 
found for its accomplishment by a new and enlarged construction 0} 
some of the familiar powers that have been expressly conferred upoy, 
Congress. 

But this exigency has not yet arisen, notwithstanding the diligent 
effort that has been made and that is being made to create such ¢ 
sentiment, mainly through attacks upon the efficiency and integrity 
of State railroad commissions. The State commissions, like al 
human tribunals, are composed of fallible men who make mistakes 
and who sometimes may be influenced by prejudice, but who aré 
rarely corrupt. In the vast majority of cases these commissions art 
faithful to their duties and fair to the carriers. I can not be silent 
under the imputation that these men are so lacking in virtue an¢ 
intelligence as to warrant a condemnation of the system of State 
control on that account. I dare say that Congress is far from ready 
to deprive the States of the exercise of their constitutional powe1 
over domestic commerce upon the ground that State commissions 
are either incompetent or dishonest. 

But the real grievance, gentlemen of the committee, of which 
complaint is made is that a number of State-made rates are lowel 
than the carriers would have them, and, notwithstanding theu 
protestations, the carriers, or some of them, have not yet become 
fully reconciled to public control in so far as the making of rates i 
concerned. 

The commissions, both State and Federal, have so won the respect 
and confidence of the courts, that their determination of matter: 
within their jurisdiction is rarely disturbed. : 

Appeal is now made to Congress to so extend Federal authority 
over commerce as to deprive the State commission of its real powel 
over domestic rates, upon the theory that lower schedules of State 
made rates operate as an unjust discrimination against interstate 
commerce, and impose an undue burden upon that commerce. 

The error of this statement lies in the assumption that all dis 
criminations are unjust and therefore should be forbidden. 

Whether a disparity in rates operates as an undue preference or al 
unjust discrimination is a question of fact to be determined in ead) 
case, and not a matter of policy to be dealt with and declared by 
Congress. Not all discriminations, but only those that are unjust 
are forbidden. The exercise of discrimination is essential in th 
successful conduct of affairs. The root meaning and the correc 
definition of the word is to distinguish, to discern. The exercise 0 
this discriminating judgment consists in distinguishing difference 
and observing distinctions. The lack of this discrimination creat 
prejudice and is as harmful as its opposite. 

Disparities of rates, then, while evidence of discrimination, do no 
at all imply that such discrimination is unjust. If the State-mad 
rates are themselves reasonable, they are not to be condemned merel, 
because similar interstate rates of the carrier are higher. ‘ 

In the Minnesota rate cases (230 U. S., 352), referring to the mp 
doubted power of the State over its domestic commerce, Mr. Justi¢ 
Hughes says that a requirement that the State rates shall be on & 
equal or higher basis than those that are fixed by the carrier 10 
nterstate transportation “is to maintain the power in name whil 











RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 483 


denying it in fact’’; and he declared that the idea that the power of 
ihe State is to be so limited ‘‘is foreign to our jurisprudence.” To 
the same effect, see Chicago, etc., Railway Co. v. Public Utilities 
yommission (242 U.S., 333). 

_ Now, let me say here that there is no such thing as a schedule of 
nterstate rates, upon which interstate commerce moves, that can 
ye accepted as the standard by which to measure intrastate rates. 
Che interstate rates between important centers are the result of 
competitive influences that move a large volume of the traffic, and 
ay are frequently lower than the State-made rates for a similar 
iaul. 

There is another class of interstate rates, known as the local inter- 
tate mileage scale, which is gotten out by each company or system 
or itself and which is intended to apply between local points in 
lifferent States to and from wuich no through rates are published. 
n other words, it is intended to apply to such an insignificant amount 
if local traffic as to really be no factor in the situation at all. 

Those rates have never been reviewed either by the Interstate 

yommerce Commission or by any State commission, and are arbitrary, 
igh mileage rates. Not only that, they differ. The mileage scale— 
ve will take the State of Alabama—the mileage scale of the Louis- 
‘alle & Nashville is a different scale from that of the Southern Rail- 
vay. The Southern differs from that of the Central of Georgia; 
nd so you have no standard by which you can measure these State- 
aade rates. 
| Our position is that the law as it now exists affords adequate 
emedies against unjust discriminations affecting interstate com- 
aerce. 
In all such cases the prejudiced shipper or community may make 
omplaint to the Interstate Commerce Commission which has ample 
ower to determine whether the discrimination is unjust, and if so 
und to order its removal. The exercise of this power by the com- 
lission has been considered and approved by the Supreme Court in 
series of cases, beginning with the Shreveport case, 234 U. S., 342. 
_ What then may Congress be called upon to do? Shall it forbid all 
tate rates that are lower than interstate rates, even though they 
ork no injustice? Shall all discrimination in such rates be declared 
nlawful, whether just or unjust ? 

If such purpose should commend itself to Congress it would be 
wsimpler and better to directly declare that the Federal authority 
ould extend to the regulation and control of all commerce, both 
iterstate ani that internal to the States. The constitutional limi- 
ition upon the power of Congress over the subject could then be 
sfined by the courts, and the matter set at rest. 

Unless the thought is to so attenuate the rate-making power of the 
tates as to render it impotent and accomplish its final defeat, no 
gislation on this subject is necessary. There is no halfway ground; 
less the power of the State over its domestic commerce be pre- 
| tved in its integrity, the fabric will be shattered. 
| But, say some, these lower schedules of rates cast an unjust burden 
}90n interstate commerce, for that it requires interstate rates to be 
aintained at a higher level than would otherwise be necessary to 
“oduce revenues adequate to the needs of the carrier. Hence they 
; gue, the pov er of the States to make such rates should be annulled. 










A84 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


This argument defeats itself. If in fact the lower State rates do 
cast a burden upon or operate to the prejudice of interstate commerce, 
it is now an unlawful thing which the courts will restrain upon proper 
application and proof. 

Would it be unwarranted or unkind to draw the conclusion that 
what the carriers and their security owners really seek is to rid them- 
selves of the restraint of State regulation, so that State rates may be 
advanced in those cases where they happen to be lower than inter- 
state rates? If advances in State rates be permitted will the carriers 
make any compensating reductions in mterstate rates so as to relieve 
the supposed burden upon that commerce? Can one burden be 
relieved by increasing another, in the absence of any injury to the 
shipper ? 

A little clear thinking makes it plain that lower State rates can not 
cast a burden upon interstate commerce or impede its flow unless 
such commerce is injuriously affected; and that can be truly predicated 
only of such State rates as may constitute an unjust discrimination 
against shippers in interstate commerce and the localities in whieh 
they do business. | . 

How is it possible, may I inquire, that a burden can be cast upon 
interstate commerce, dissociated from those who engage in inter- 
state commerce? Interstate commerce is not a living thing. It is 
not anentity. Itis merely a channel, an avenue, an instrumentality. 
Unless some impediment is placed upon the free flow of that com- 
merce, which would prejudice the shipper or the community, then to 
my mind it is impossible to see that any burden has been cast upon 
anybody. Now, if there be such burden, it must arise at last, from 
unjust discrimination. If such unjust discrimination exists, the 
legal remedy now is adequate, and I hardly see how you can improve 
it by legislation. } 

Mr. Denison. Your contention is, or your position is, then, that 
the injustice will be to the individuals who do the shipping 4 

Mr. WimpisH. Necessarily. ) i 

Mr. Denison. And only to the shippers ? 

Mr. Wimsisu. Yes. é 

Mr. Denison. And they have remedies in court; is that the idea? 

Mr. Wimpisu. Yes; they have a remedy before the commission oF 
the court, as the case may be. There are some unjust burdens that 
do not involve rates, as in the McNeil case from North Carolina; the 
reciprocal demurrage case; and cases of a character that may involve 
legislation that does not directly affect rates. In such cases the 
courts have original jurisdiction. In regard to those rates which are 
within the jurisdiction of the Interstate Commerce Commission, tie 
commission has the power to hear and determine and remove unjust 
discrimination; so that one or the other forum is open to every 
person who may be injured by any discrimination against interstate 
commerce that injuriovsly affects anybody who uses interstate 
commerce. That is my idea of it. | oe 

Congress may have the power by direct enactment to foreclose 
investigations, but certainly it will be sparing in the exercise of such 
power. As Sir Izaak Walton said of the strawberry: ‘ Doubtless 
God might have made a better berry, but doubtless He never did/ 

The limitation of this memorandum does not permit discussion of 
the instrumentalities and means for the accomplishment of declared 


a 


7 


aa 





RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 485 


purposes. We must therefore forego consideration of the merits of 
such proposals as the compulsory Federal incorporation of the rail- 
Toads; supervision and control of the issuance of securities; the 
estabiishment of regional commerce commissions with some sort of 
supervisory power over State rates; the appointment of a secretary 
of transportation with executive powers not remote from those 
exercised by the Director General of Railroads in matters of policy; 
or that last financial notion of the doctrinaire, the creation of a 
Federal board of transportation to be vested with enormous and 
comprehensive powers such as have never yet been intrusted to any 
subordinate agency, even in time of war. 

But let me say in passing that we do not advocate the creation of 
regional vommissions for the purpose and with the powers that seem 
to be contemplated. . Now, to the extent that a regional commission 
or any other subordinate agency could assist the Interstate Com- 
merce Commission in disposing of its work and thereby expediate it, 
it is much to be desired, because we all know, we all realize, whether 
from necessity or not, that proceedings before the Interstate Com- 
merce Commission in matters concerning rates are very slow. Months 
and sometimes years elapse—I am not criticizing the commission or its 
members in saying this, but we must recognize that, due to many 
duties, or some sufficient cause, that the proceedings are too slow. 
We may begin an investigation before the commission, and before 
it is completed the conditions have entirely changed. Whatever 
can be done to expedite that and to relieve the commission of unnec- 
essary duties, I think ought to be done. To the extent that a 
regional commission might dispose of administrative matters, or 
largely routine matters, or even take testimony and hear cases in the 
first instance, we have no objection to it; but we do think it would be 
unwise to establish little interstate commerce commissions through- 
out the country. 

If Federal regulation and control has one preponderant merit, 
if it excels in one thing, it is that the jurisdiction of the commission 
is countrywide. It coordinates rates, charges, and classifications, 
and prevents disparities and uncertainties that would inevitably 
arise if you had several tribunals exercising equivalent jurisdic- 
tion throughout the country. 

To say that an appeal may lie from the regional commission to the 
supreme central body, does not meet the situation, because that 
doubtless would require more delay and greater time, and involve 
more expense than is incurred by a direct appeal to the commission. 
ft would not relieve the commission to any great extent of the 
volume of its work. 

_ Thave thought a great deal as to what might be done in order to 
xXxpedite hearings before the Interstate Commerce Commissien, and 
{ am expressing now only my own personal view, and not as repre- 
senting anybody, when I say that I have thought that probably it 
night be best accomplished by dividing the commission, somewhat 
as I understand was done in England; have a judicial branch or a 
quasi judicial branch; let the commission, we will say as at present 
sonstituted in its personnel, have complete jurisdiction over ail mat- 
ers affecting rates, charges, classifications, and transportation, in 
io far as regulating rates are concerned; relieve the commission of, 
many of its perfunctory administrative duties; releive it of looking 





: 


486 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


after car service and safety appliances and violations of the act, 
having their secret agents all out through the country, seeing whether 
shippers or whether carriers were obeying or disobeying the law, and 
if they find that the law is being disobeyed, report it to the Depart- 
ment of Justice, and being, in fact, prosecutors. It seems to me 
wise to take all of that away from the judicial branch of the Inter- 
state Commerce Commission. If they have to pass upon the rights 
of shipper and carrier, they should not have anything that would 
tend either to prejudice them or to open them to the accusation or 
charge of being prejudiced. 

The CHarMan. Where would you lodge those powers that you 
take away—in whom ? 

Mr. Wimsisu. It might be done by constituting a judicial branch 
of the Interstate Commerce Commission. Let them have their own 
organization, as they have now, but let the head of each department 
or branch be not the commissioner who is going to pass judicially 
upon these matters. 

The idea of creating a separate tribunal to pass upon matters of 
wages and costs, as has been recommended by the President in his 
letter, I confess does not appeal to me. On the other hand, I doubt 
whether it would be proper for that commission to assume to exercise 
that function—I mean the judicial branch ‘of the commission. That 
might be placed upon the Interstate Commerce Commission, but re- 
moved from the duty and jurisdiction of the judical branch of the 
commission. 

As Mr. Clark said in his statement, mm so far as operating costs are 
concerned, and the amount of the investment, to the extent that they 
might be material to the decision of the case, the commission now 
takes them into consideration. I should not like to see another 
tribunal passing upon these questions and saying to the Interstate 
Commerce Commission mandatorily “Advance the rates sufficiently 
to take care of these increases which we allow.” . 

It seems to me that much of the evil that would attend making 
rates with the idea of producing a definite amount to meet a fixed 
guaranteed return, would apply to that situation. It would be an 
enormous, and an almost impossible, task for the commission. How 
frequently would these things come about; how often would the com- 
mission have to readjust the rates? We would have no stability m 
rates—and we all know that stability in rates is just as much to be 
desired as reasonable rates themselyes—because the violent or 
frequent fluctuation in the level of rates is destructive of stability. 
We must have reasonable rates, and, above all things, we must have 
stable rates. | 

I have no objection to extending the power of the commission to 
such an extent that it may be deemed advisable over water carriers. 
“We do not think, however, that it should extend and apply to what 
are known as tramp vessels or tramp steamers. I see nothing to be 
gained by placing them under the jurisdiction of the commission, 
and we think it might operate mjuriously if you did place them under 
that jurisdiction. I am not going to elaborate that feature of it, but 
merely throw out the idea; but, with that limitation, we would have 
no objection to the extension of the power of the commission over 
water rates and water carriers and the coordinating of rail and water 
rates and carriers to the extent that may be found advisable. . 


« 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 487 


We have not deemed it appropriate to propose and submit any 
lan to be added to the multitude now before you. The situation is 
ntirely too serious for suggesting new theories and untried experi- 
ents. Let us hold fast to that which is good, without being stam- 
eded into the false notion that radical departures are necessary. 

Our system of public regulation is far from perfect. Let us observe 
nd correct its faults, rather than cast aside the structure that has 
sulted from long experience, and under which the railroads as a 
thole have been fairly prosperous. Above all things let us avoid 
ach governmental undertaking or assurance as will create a strong 
twored class with power to subordinate all other interests to its own. 

Let the railroads be treated not only fairly but liberally. Let them 
ave such rates as will be adequate to their reasonable requirements 
i order to serve the public efficiently. But do not venture upon 
ay arbitrary rule of rate making that ignores the rights of the public, 
ad that will permit the exaction of exorbitant charges out of pro- 
ortion to the value of the public service rendered. The power to 
vy rates upon the necessities of commerce is closely akin to the 
wer of taxation; and the power to tax involves the power to 
astroy. 

‘Upon the return of normal trade and traffic conditions the con- 
rvatively capitalized and economically operated railroads will be 
le efficiently to serve the public with profit to themselves without 
ty radical changesinratestructures. If it be found that in any region 
terauroads can not secure adequate compensation for their services 
ider existing rates, such rates should be advanced. In the mean- 
me, during this transition period, it would be much wiser to extend 
mporary aid by direct loans from the Government rather than to 
Ve the railroads a roving commission to replete their treasuries 

‘ burdensome levies upon the commerce of the country. 

Task permission, Mr. Chairman, to file these appendices as a part 
Iny statement. 

‘The Cuarrman. Very well, you may do so. 

‘Will you also add, as a part of your testimony, a draft of a pro- 
sion segregating the purely administrative functions of the com- 
ission ? . 
Mr. Wimsisu. I will endeavor to do so, Mr. Chairman. It will 
° more study than I have given it, but I will endeavor to do so. 
‘Mr. Merrirr. My understanding, sir, at the present time is that 
any of the railroads, certainly the railroads in the Eastern District, 
® not earning their standard returns. 

Mr. Wmisx. That is true, sir. 

Mr. Merrirr. Now, if those roads, even the great roads, like the 
nnsylvania and the New York Central, should be returned under 
(3 provisions of the Esch bill only, without any additional legisla- 
1, what do you think would be the effect on the business of the 
| untry ? 7 

Mr. Wimpisu. I have indicated my thought that probably the 
iuds in the eastern district are entitled to an advance in the level of 
ir rates. Of course that is prospective; I mean that gives them 
je revenue for the future. To the extent that they need immedi- 
) aid and are meritorious—I mean the road itself is a meritorious 
-perty—I think it would be much wiser for the Government to 
jeend that aid directly to the railroad and let them proceed under 


: 









488 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


private operation and control, even if the Government, in som, 
cases, would sustain a loss. I think it would be much better tha 
trying any radical policy. 

Mr. Merrirr. Some suggestion has been made here that it woul: 
be well for a year, for instance, pending the settling of the genera 
business of the country, that the standard return should be continue: 
for one year after the return of the roads. Had you noted tha 
suggestion; and, if so, what do you think of 1t? 

Mr. WrusisH. I am rather favorably inclined to it, to give them ar 
opportunity to readjust; but I would not continue the standar 
return without some sort of control. 

Mr. Merrirr. Without what? 

Mr. Wimsiso. Without some sort of control. 

Mr. Merrirr. Would not the enlarged control by the Interstat 
Commerce Commission, under the Esch bill, be sufficient for tha 
purpose ? 

Mr. Wiapisu. Probably so. It is the principle that I uphold 
that they should be given protection during a sufficient length o 
time to enable them to effect their reorganizations and to adjus 
themselves to changed conditions. I think that would be fair. 

Mr. Merrirr. Now, with the Interstate Commerce Commissio: 
having the enlarged control suggested by the Esch bill, which give 
them very great control over railway rates, irrespective of legisla 
tion, is it your view that that control gives them any responsibility 
as to a rate which shall produce some sort of return on the proper 
investment account? Do you think the property investmen 
account should be ignored altogether ? 

Mr. Wimersu. I think the value of the investment is one of th 
factors that should be considered. I do not think it is a single factor 
or even the dominant factor, but I think the commission has alway 
considered, perhaps not consciously, but it has always had im min 
the situation of the property, the operating costs, and the invest 
ment, and has, either consciously or unconsciously, considered thos 
things in arriving at what are just and reasonable rates. I knoy 
in the 15 per cent case, in which I was engaged, the commission gay 
a good deal of consideration to those matters. : 

Mr. Merritt. In connection with the Seaboard Air Line, I under 
stood your view to be that that road was probably overcapitalized 

Mr. Wimsisyu. Overvalued, I think, sir. 

Mr. Merrrrr. And I think in the suggestion that you made, tl 
you were influenced in your view by at least the valuation, if not th 
value, of the property. Is not that so? 

Mr. Wiis. My view is this: That the Seaboard Air Line, an 
all other railroads, should receive a fair return upon the value of the 
property, of their investment, employed for the public convenient 
to the extent that it can be had under rates that are reasonable # 
just to the public. If the Seaboard Air Line is so valued that und 
those rates, reasonable and just to the public, and under which oth 
lines serving the same territory are prosperous, it has not been ab 
to earn any return upon its stock, I think the solution of that is 
bringing down of the valuation of the Seaboard to something like 
true valuation. JI am only speaking of what I believe to be a tt 
valuation. 










RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 489 
_ Mr. Merairrr. I understand. 
| Mr. Wiveisu. So that the Seaboard Air Line will be enabled to 
garn, under rates that are just and reasonable. 
_ Mr. Merrirr. Yes. You understand, I simply asked that question 
to clarify it in my own mind. 
_ Mr. Wruvsisu. Yes; and I am very glad to state that. 
Mr. Merrirr. Now, the obvious way to bring down the capitaliza- 
jion of any railroad, or to revalue it, is to let the laws of nature take 

iheir course, and if a road can not swim, let it sink. Is not that right 2 

Mr. Wimetsu. Yes. I think if you can get the conditions right 
they should all be given an equal opportunity, and then the battle 
should be to the strong, and the race to the swift. I believe in com- 
detition myself. 

Merritt. Yes. That is true in normal times. The railroads 
jave been gomg through abnormal times. 

Mr. Wimpisu. Yes. 

_ Mr. Merritt. They have been managed under war conditions; all 
heir business has been mixed up; their traffic diverted; and all that 
fort of thing. I noticed in a table which Mr. Commissioner Clark 
jut into his testimony, at the suggestion of Col. Winslow, there are 
oads whose capital stock amounts to something over two thousand 
tulions, which paid no dividend in 1916. 

_Mr. Wiweisn. That was about 36 or 38 per cont of the whole, was 
{ not % 

| Mr. Morerrr. I think so. I do not know about that. 

| Mr. Sims. You mean they earned nothing, or they just did not 
may it out, or both? 

Mr. Merrirr. Did not pay dividends. The list of roads in class 1, 
thich was in the table, the roads that did not pay dividends during 
he year ended December 31, 1916. 

Mr. Wimpisu. Many of those earned dividends and applied the 
Loney to other purposes. I say many of them did; I mean some of 
them did. | 

Mr. Merrirr. Yes; some of them did. Of course, some did not. 

Now, what I am getting at is our responsibility, as legislators, if 
ny, to the commercial structure of this country, in treating that vast 
lass of securities, which under these existing conditions apparently 
\ of little, if any, value; whether we are justified in trying to tem- 
orize, in our legislation, and keep these roads alive, or whether we 
jad better adopt a general economic principle, which you euunciate 
)ere, and if a cataclysm comes, let it come. 
| You have evidently given great and intelligent thought to this 
|Westion, sir, and that is the reason I am asking you whether, so far 
)3 you have thought of that question, the country would be better 
)Z, shrinking what it has to shrink at once, or whether it would be 
atter to keep up this return for another year, and then let the ques- 
jon be an open one as to what has to be done. 

Mr. Wiusisx. I think the necessary aid should be extended in 
me form and for some time until conditions become more normal, 
|’ until it becomes evident that something else may be necessary 
}\be done. My preference, after a good deal of thovght of it, is that 
ere should be some direct Government aid. 

. Merrirr. You think that should be discretionary, or absolute ? 

. Wimsisu. Why, I think it should be discretionary. J think 
6 aid should only be extended to those roads that deserve the aid. 





















490 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Merrirr. What would make a road deserving—virtue ? 

Mr. Wimpsisu. Yes. Virtue is a large term. What I mean is that 
any honestly conducted and fairly reasonably capitalized railroad 
should not be criticized too harshly and severely right now, without 
giving them a chance. 

Mr. Merritt. The testimony shows that the increase of freight 
rates has been somewhere about 25 or 30 per cent. 

Mr. WimsisuH. Yes. 

Mr. Merritt. That, I take it, is about as small an increase as any 
great commodity has been subjected to in this great war. 

Mr. Wimsisu. Well, there, if you will per.nit me 

~ Mr. Merritt. I shall be very glad to hear from you. 

Mr. Wipstsu. A railroad rate differs from a commodity. <A rail- 

oad is not a producer. ” 

Mr. Merritt. But transportation is a commodity ? 

Mr. Wimsisu. No, sir; I think not. 

Mr. Merrirr. You think not? 

Mr. Wiusisu. The railroads have frequently spoken of transporta- 
tion being the only commodity they have to sell. That, I think, is an 
entire misconception. 

Mr. Merritt. I would like to hear you. 

Mr. Wimpisn. The railroad does in fact perform a service. It does 
not produce a commodity. It does not physically add to the value 
of any commodity, as further manufacture does. The value to the 
commodity and to the public is in the transportation. It is in the 
removing of a commodity from one place to another. Now, if a 
commodity has not a larger value in the place of destination than 
it had at the place of origin, plus the freight rate, then that transpor- 
tation service has no value to the customer, and that commodity 
will not continue to move. So that what the railroads do is to supply 
purely a service, a service of transportation, and while that service is 
related to commodities and consists most largely in the transporta- 
tion of commodities, it is in no sense a commodity, but a pure service. 
That is pot strictly personal, because it extends to the commodity 
as well a: to the person. 

My. Merritt. But the charge that a railroad might lawfully make 
for that service would depend upon how much the service cost it? — 

Mr. Wimpisu. Yes. 

Mr. Merrirr. And therefore, what was in my mind, was that 
everything that the railroad has to purchase in order to render the 
service, having increased from 50 to 100 per cent, that the increase in 
freight rate thus far had been very modest. 

Mr. Wimsisu. Freight rates differ from prices of commodities in 
several respects. In the first place, a freight rate or charge does not 
respond to the changes in conditions readily. It ought not to respond 
too readily, because there you produce a fluctuation and a lack ot 
stabihty that is not desirable. So that freight rates are made definite 
to extend indefinitely, or at least over a period of years. Now, duri 
that period of years, you have fluctuations; you have some years 0 
large tonnage in freight transportation, and you have other lean yeats- 
But you take the average period and test the adequacy of the ri 
proposed by that average of the period as applied to the region. 

What the railroads have suffered from has not been rates, but lack 
of traffic. There are very few railroads in this country, certainly 













RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 49] 


until this war traffic came on, that were not able to transport a great 

deal more traffic than they were transporting. 
Now, as to that traffic, the law of increasing returns applies, and 
that is that up to the capacity of the plant the added business over 
that necessary to pay SUETB URE expenses and the usual return, does 
not bear the same proportion of cost, therefore it is very much larger 
get. When you get to the point of overtaxing your plant, as you 
may do temporarily by congestion or by it becoming a permanent 

sondition, of course the law of decreasing returns applies, and it is a 
osing proposition. 

All the railroads, speaking as a rule, have not suffered and their 
sxarnings have not varied so much on account of rates as on account 
pf the volume and the conditions of traffic, and I have observed that, 
‘ollowing lean years, usually there are fatter years, so far as the 
yolume of traffic is concerned, that compensate for the leaner years. 
_ Mr. Merrirr. That is all, Mr. Chairman. 

_ The Cuarrman. Mr. Barkley, of Kentucky. 

_ Mr, Barxxey. You spoke in the morning, during your testimony 
{n chief, about Government aid to railroads, in the form of subsidy. 
_ think you used the word ‘‘subsidy.’’ Would you mind amplifying 
ust what you mean by that? To what extent and in what form 
hat subsidy you had in mind should take? 

Mr. Wiusisu. I mentioned it with direct reference to the so-called 
veak lines, that were weak not because of any fatal defects, but 
yecause of some deficiency or inefficiency that might be remedied, 
ind I though that it would be better for the Government to make 
lirect loans to a weak road of that character, letting it be payable 
fter a long term of years, and requiring a very small sinking fund in 
te to repay the principal at the end of the term. I thought that 
vas better than advancing the rates. I thought it was better than 
ther plans which had been advanced. 

Mr. Barkiey. Suppose that the weak business was permanent, 
hat they might need it over a long period of years? 
| Mr. Wumeisn. I think that undoubtedly the Government in some 
ases would lose the money. 

Mr. Barxiey. Do you think as a principle of government that it 
‘ better to advance money out of the public treasury to weak roads, 
1 order that they may live, than to permit them to advance rates 
aiciently to enable them to live ? 

Mr. Wimzisu. I think it has been demonstrated that if the road can 
ot perform its function and earn something, that it ought not to 
ve perhaps. Now, there may be conditions and there may be in- 
ances, in which it might be wise to maintain a nonpaying road, but 
would certainly be very rare. | 

lr. BARKLEY. We have heard a great deal in recent months, and 
)e still hear it—it is sort of a psychological condition,-it seems, that 
“ists in the minds of a great many people—that if the railroads were 
‘turned now, or were returned at the present time without any 
medial legislation, that they would go into bankruptcy. I want 
») find out if you can point out in this Esch bill what provision there 
that is calculated to protect that situation from occurring, if this 
ll should be passed as it is now written. In other words, what 
Sancial opportunity is afforded by this bill that would prevent that 
iaotic condition from happening? 








® 


492 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Wimeisu. Well, I can not agree, Mr. Barkley, that such would 
be the result. I believe that probably with the exception of some 
roads in the eastern district and some in the western trunk line terri- 
tory that the railroads can be returned to private operation and 
control, and not only survive, but win a fair degree of prosperity. 
I do not share the sentiment that it means bankruptcy. I know that 
this is a transition period, and I think it would be not unwise to 
extend this to strong roads, to any meritorious roads that needed the 
temporary help until it could become readjusted to the changed 
conditions. 

Mr. Barxiey. As I understand, the roads mainly in the southern 
classification district are prosperous. 

Mr. Wrueisu. I think so. | 

Mr. Barxtry. That is, they are in the main earning their standard 
return, and they were even prosperous, comparatively speaking, 
before the war, and have remained so since, much more so than the 
roads in the eastern classification. Now, how does that situation in 
the southern classification district compare with the western district? 

Mr. Wimeisu. Now, take that portion of the western district that we 
‘call the western trunk-line territory; that is, north of a line drawn 
from Burlington, Iowa, across, roughly speaking, to Chicago, north 
of that and east of the Mississippi River, and then taking a large 
fae of the territory on the west of the Mississippi River, which is 

nown as western trunk-line territory. I think that conditions there 
are as unfavorable as they are in the East. 

Mr. Barkiey. Taking the country as a whole, there is a much 
larger territory involved, in relation to railroads that have been a 
losing proposition, so far as earnings are concerned, than where they 
have been prosperous ? . 

Mr. Wiupisu. If you take it as a whole, there has been a deficit 
of nearly $250,000,000. 

ee eeetat I am speaking not only in dollars, but in territory 
as well. 

Mr. Wimpise. You must remember that the transcontinental lines, 
all of them, except the Chicago, Milwaukee & St. Paul, are prosperous 
lines. I think the reason for the weakness of the Milwaukee could 
be found; but, with that exception, taking all the other transcoi 
tinental lines, the Great Northern, the Northern Pacific, the Union 
Pacific, the Southern Pacific, and the Santa Fe, they are all pros 
perous lines; and I believed that each one of those could be returned 
to private control and operated profitably under present conditions. 

Mr. Barxiey. You do not share the view which has been rather 
promiscously and loosely expressed, that if the roads are turned 
back within a reasonable time, a few months, without specific rem- 
edies by the Government in the shape of financial advances, that 
they will get into a chaotic financial condition ? : 

Mr. Wrmpisu. I do not. 

Mr. Barxiey. The President has suggested in a letter that there 
be an independent body created for the purpose of passing on wages. 
T believe you oppose that ? 

Mr. Wimsisu. Yes; I oppose that. 

Mr. Barxiey. What is your view about the desirability of estab- 
lishing some public tribunal, supposed to represent the public inter 
ests as well as the railroads and those who work for them, having 
jurisdiction over the question of wages? , ; 









RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 493 
Mr. Wimeisu. I confess I have given less.study to the question 
of wages, as to how they should be determined, than I have to more 
‘trictly transportation features of the problem. I do not think any 
tibunal should be created that would have a mandatory power over 
he rate regulating, rate making tribunal. I do not think any tri- 
yunal, under any name, should be able to say to the Interstate Com- 
nerce Commission, ‘‘You must so readjust rates as to produce so 
‘nuch additional revenue in order to meet such and such increases 
n costs.”’ 

Mr. Barxiry. Now, the Esch bill, the bill we are considering, pro- 
ides that the Interstate Commerce Commission can take into con- 
ideration in fixing rates increases in the cost of materials, increases 
‘o the cost of labor under the present system—that is, assuming that 
he roads are under private control—that that matter is left wholly 
vetween the railroads and their employees. 

| Mr. Wimsisu. Yes. 

- The Crarrman. Mr. Barkley, do not use the word ‘‘increases.”’ 
t says ‘‘operating costs and costs of labor.” 

i Mr.Barxiry. | happened to be mistaken in using the word 
“Imereases,’’ but it involves the same thing. ) 
| The Interstate Commerce Commission say that they have, as a 
aatter of fact, taken those things into consideration in the past, 
lthough the law did not require them to. If the railroads and their 
mployees alone are to set the figures with respect to wages, which 
he Interstate "Commerce Commission is to take into consideration 
1 fixing the rates, do you not think it might be in the public interest 

0 have some public body which is supposed to look after the inter- 
sts of the public, apart from the railroads and their employees, who 
ught have some say as to fixing wages which are subsequently by 
ae Interstate Commerce Commission, to be translated into rates. 

Mr. Wimsisn. I think the danger of injury would be much greater 
‘han hope of benefit under a plan of that kind. I know from my 
Xperience before the commission that they do consider, to the extent 

nat they think material, the costs of operating the railroads. I 

0 not mean to say they should be bound by that; I do not think 

rey should be bound by that. If they think a railroad is being 
perated at an extravagant cost, they probably do not give that 
ost the consideration that they would if the railroad was being 
lore economically operated. ‘To just the extent that that is an 
ement or factor to be considered, I think the commissioners con- 
der it. But I repeat that that even is not the dominant factor in 
ite making. 
Mr, Barxury. No; I understand that. 

The bill also provides, in addition to authorizing the commission 

) consider cost of material and cost of labor, through an amendment, 
1at the cost of capital shall be included. What would you say 
ae including that in the consideration of the commission in fixing 
ites ? 
_Mr. Wiupstsu. I think if you did that, you would very soon be 
‘iven to a definite return upon capital, after payment of all expenses, 
hich would essentially become a guaranty, and which would be 
en to all the objections that I have urged to a guaranty in any 
orm, | 

















ui 


494 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Barkuey. In other words, if the commission must conside 
the cost of capital, which is involved in the interest they pay or 
money they borrow, then does it not follow necessarily that thé 
commission must have some supervisory power over the amount 0: 
money that they do borrow and the rate of interest that they pay 
and would it be possible to separate those two things, if that is done! 

Mr. WimpisuH. I do not agree that the commission must considet 
the amount of the capital in order to arrive at fair rates. I agree 
with Mr. Howard Eliott that neither capitalization nor the cost oi 
it has anything to do with rate making. The basis is somethmg 
entirely different. What the commission should properly have in 
mind is to make such reasonable rates as will permit of a fair return 
upon the capital, if that can be done; whether the capital was al 
sound, representing full value or not it can not be taken as a meas- 
ure, or in any respect a measure, of rates to«be applied. May ] 
give an illustration of the facts in a case that I had? 

The CuarrMan. Yes. | 

Mr. Wimsisu. In southwest Virginia are large coal-producing re- 
gions—southeastern Kentucky and southwestern Virginia. One ol 
those districts is known as the Dante region and the other Appa- 
lachia region. | 

The Cerolina, Clinchfield & Ohio Railroad was primarily built te 
serve the Dante coal district, the outlet being largely through Spar- 
tanburg, S. C., as a gateway to southeastern territory. The Clineh- 
field also extended its line into the Appalachia district, which lies 
adjoining. The Southern Railway also has a line from both the 
Dante and the Appalachia districts, but a much longer and a more 
circuitous line; it goes around by Morristown, then has an expensive 
haul over the mountains to Asheville, and then down to Spar 
tanburg. The value of the Southern Railway Co. per mile of that 
road, I should say, would hardly exceed $60,000. The value of the 
Clinchfield is probably nearer $200,000 a mile. The Clinchfield is a 
splendidly built road, has low grades, and is a road of very high 
operating efficiency. It is a short line. 

Now, if you mage the rates on coal from these Virginia districts to 
Spartanburg and Carolina territory upon the basis of the value of the 
capitalization of the Clinchfield, or with that as a substantial element 
to be considered, you would have rates that would be extravagant 
relative to value of the Southern Railway’s greater mileage. 

So, I do not see how you can take into consideration the value of 
those lines in arriving at what is a just and reasonable rate. You 
take the Clinchfield conditions, a road of much higher operatmg 
efficiency. I have forgotten now, but I think it required some—oh, 
very much less engine power to convey the coal by the Clinchfield. 
It has a much cheaper operation. Now, if you put a rate on the 
Clinchfield, with a shorter mileage, that would be simply reasonable 
for that service, without any regard to its capitalization, and without 
any regard to the fact that the Southern serves the same territory. 
you would have a rate for that particular service perhaps so low that 
the Southern could not participate in the traffic. I do not think that 
would be to the interest of anybody, because I think that it pro 
motes competition to have rates such that each of these lines cal 
participate in the haul from coal-producing districts to the coal- 
consuming territory. About the only way you can arrive at it, and 













RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 495 


she way the commission did arrive at it in that particular case, was 
jo find out what is a fair, reasonable rate fo, Clinchfield transporta- 
jlon service. Having in mind all of these things, I think the com- 
nission so amplified that rate as to permit the Southern to go into 
shat district without loss. 

) . Barxiey. The suggestion has been made, in connection with 
‘he increased rate or charges for money that the railroads might have 
0 borrow, that these rates would be rather high. Is that not more. 
ir less fluctuating on any given road, the rate at which they might 
ye able to obtain this money or the rate next month? 

Mr. WimsisH. Yes; that is true. 

Mr. Barxzey. So that, if that is to be a part of the business of 
ixing rates, there must be continually fluctuating rates, keeping up 
‘I the time with the fluctuation in the cost of obtaining money ? 

- Mr. Wimpisu. I think so. 

Mr. Barxiey. One other question, Mr. Chairman, and I think I am 
hrough. ‘There has been a suggestion here—this leads into the dis- 
ussion of various plans that have been suggested—about the group- 
ag of roads into a few large companies or systems or regions through- 
‘ut the United States, and in connection with that there has been a 
uggestion that the Interstate Commerce Commission be amplified, 
|0 as to cover the territory occupied by State commissions and have 
}hem divided up into groups and regions, close to the people in vari- 
‘us sections of the country, and that that be substituted for the 
/aethod of control heretofore in vogue. What do you say about the 
racticability of permitting groups or systems of roads, occupying 

definite territory throughout the country, and having them super- 
ised by regional directors, or regional representatives of the Inter- 
jtate Commerce Commission ? 

Mr. Wiueisu. I think it is quite impractical. If you take any 
|irge system you will find that it probably extends into more than 
/ne of such regions as might be created. Another thing is that it 
\ould produce a variety and produce a conflict of judgment and 
pinion and would mar the integrity of the uniformity that the deci- 
ons of the Interstate Commerce Commission have, as applied to 
1e transportation throughout the country. I can not see that any- 
‘ung would be gained by that sort of regional provision. 

Mr. Barxiey. From your experience as a railroad man and your 
vestigation of the railroad situation, do you believe that it would 
2 practical to have what is called a governmental ownership and 
tivate operation of the roads ? 

. Wimeisu. I do not. 
‘Mr. Barxtny. Your view is that, if there is to be government 
wnership, that there has to be government operation, and that if 
lere 1s to be private ownership that likewise there has to be private 
eration ? 
‘Mr. Wiueisu. I think those things are inevitable. 
Mr. Barxiey. That is all I wanted to ask him. 
|The Cuarrman. Judge Webster of Washington ¢ 
| Mr. Wezster. I have no questions. 
} The Cuarrman. Mr. Doremus, of Michigan. 
Mr. Doremus. I have no questions. 
‘The Cuarrman. Mr. Watson of Pennsylvania ’ 


152894—19—vor, 1——82 
















i 


496 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Watson. I have just one question. Many of the plans sus 
gested are to take care of the railroads after they are released.  C 
course, the railroads have depreciated in physical condition greath 
Have you any suggestions to make as to how the railroads should } 
returned, in what manner the Government should return them, an 
whether it should take care of and build up their physical condition 
In the manner which they are returned depends a great deal on thei 
‘future prosperity. 

Mr. WimsisH. You must remember. that during the period ¢ 
Federal control the railroads have been receiving by way of guaran 
teed return the average of the three highest earning years in thei 
history. Now, that is the railroad corporations’ profit. They coul 
either have declared dividends pending this public control or the 
could reserve it as a surplus fund to meet the condition that the 
must know is going to occur when the roads do come back to thei 
private owners. 

The Government is under obligation to return the roads in as goo 
physical condition as when received. In fact, I assume that th 
Government is going to return them, generally speaking, in bette 
physical condition, because a great deal of money has been spent b 
the Director General in improvements and permanent betterment 
to the railroads, some of which is charged against the railroads an 
some of which doubtless is chargeable against the Government. 

Mr. Watson. Assuming they are returned, do you believe tha 
they can continue under private ownership without the aid of th 
Government ? . 

Mr. Wimpisu. I think some of them can not. Some will nee 
temporary aid by the Government. 

Mr. Watson. Are you not in favor of Government ownership ? 

Mr. WimpisH. No. I am very much opposed to it. : 

Mr. Watson. Which do you believe would be the greater evi 
Government ownership, or letting the roads go into the hands of 
receivership and then reorganize them to meet the new condition 
that must come between capital and labor? 

Mr. WimpisH. That is a very grave question which you hay 
asked and one which I must answer in the same serious spirit. A 
between the two, I think it would be better to let the railroads g 
through such process of reorganization as might be necessary, éve 
though it required a receivership. 

The CHarrmMAn. Mr. Sanders of Indiana ? 

Mr. Sanpers of Indiana. Referring to your statement that th 
exclusive right and power of the State to regulate and control purel 
domestic commerce will not be controverted, is not that subject 
this qualification, that the right and the power of a State to By 
and control its commerce is always subordinate to the right ¢ 
Congress to control interstate commerce, and whenever it is neces 
sary, in the control of interstate commerce, to interfere with th] 
right and power of the State to control its domestic commerce, tha! 
can be constitutionally done ? 

Mr. Wimprsu. { undertook to so express myself. 

Mr. Sanpers of Indiena. The bill under consideration by tb 
committee enlarges to a very great extent the power of the Interstat 
Commerce Commission over carriers engaged in interstate commerce 
It provides that the equipment of certain railroads can be used b} 










RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 497 


my Other raileoads by a proper process; that the terminals of one 
allroad van be used by another railroad, or any number of railroads, 
inder reasonable restrictions and upon payment of just compensa- 
jon; it provides for the fixing of maximum and minimum rates; 
id it provides that new switches and switcning facilities shall be 
inder the control of the Interstate Commerce Commission, at least 
is far as the final disposition of them is concerned. It provides that 
he capital issues of railroads shall ultimately be under the control 
f the Interstate Commerce Commission. 

Do you agree with those proposed changes in the law ? 

Mr. Wimsisa. Not unreservedly; not as to them all. 

Mr. SanpERs of Indiana. Do you believe in the control of the 
ssuance of stocks and bonds? 

Mr. Wimsisn. I think that is a very doubtful question, as to 
yhether that power should be vested in the commission or should be 
xercised at all as a matter of Federal control. I am very much 
fraid that a provision that requires the approval of the Federal 
rovernment or its agency for an issue of capital stock implies an 
bligation to give some sort of protection to the earning power of 
hat capital stock. 

_Mr. Sanpers of Indiana. There is no language in the bill, however, 
o that effect. 

“Mr. Wiusisu. No. The language in the bill, I think, is rather 
atended to exclude ‘that idea; but you can not by language avoid 
he moral consequences, if they follow inevitably. I can see how it 
rould be desirable, from some standpoints. For instance, a rail- 
sad wants to refund its obligations. Perhaps that railroad may 
xtend through several States and the laws of those States may be 
ifferent. They have to get the approval of the commissions of 
ach one of those States, which may be a very difficult matter, and 
ay be almost impossible. 

That is a source of great embarrassment to the railroads and really 
10uld be relieved, so far as it can be. If that should be the extent 
[ the consequences of the provision I should not, of course, object 
)1t; but I repeat, that whenever the Government undertakes to 
ty either in express language, or in language that is qualified, “I 
m not going to permit you to issue this stock without my approval ;”’ 
ad thereafter approves it, there is an implied obligation on the part 
‘the Government to protect, and that leads in the direction of a 
laraniy. 
Certainly if you are going to consider capital as a more important 
ment in rate making than the commission now considers it, you 
saggerate its importance in determining these questions. So I am 
%t prepared to say that I would coneur in that; but I say I am not 
tirely free from doubt as to whether it is an advisable thing or not. 
“Mr. Sanpers of Indiana. The Government, during the war, 
‘rough the Capital Issue Committee, controlled the issues of cap- 
ilization to a large extent, did they not? 

‘Mr. Wimepisu. I think so. 

‘Mr. Sanpers of Indiana. In a great many cases—-practically all 
$es—the Government is not responsible, and would it not be an 
jalagous case in the caso of capital issues in peace times ? 

‘Mr. Wimpisn. Yes; I think it would be analagous; and yet I speak 
om recent experience. /1 have recently had a case before a State 








498 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


commission which had the power and duty to authorize the issuan 
of stocks and bonds of public utilities in the State. This case ij 
volved the franchise of a power company for light and power and t} 
strect railway service in alarge city. That commission had approys 
the issuance of a large amount of bonds in order to enable the pow, 
company to complete its development. When the matter came 1 
for consideration the commission was not expressly bound by tha 
and yet I felt, and I feel now, that the commissioners were in fact vel 
much influenced by the fact that they had approved the issue of the 
securities. The result was, without investigation into the value, the 
accepted those valuations as representing the value of the compan 

Mr. Sanvers of Indiana. Are you in accord with the proposed co! 
trol of maximum and minimum rates? 

Mr. Wimsisu. I have a great deal of doubt as to the propriety « 
fixing minimum rates, and yet perhaps the power to fix minimap 
rates might be a solution of another problem that is a very serio 
one, and that is the long and short haul provision. The fixing « 
minimum rates might be a solution of that, and yet I can see that tl 
fixing of minimum rates might not always be a desirable thing. 

You have seen, gentlemen, that I favor competition wherever it ca 
be had, competitiou in service, competition in rates, competitic 
between communities. and competition between commodities. If 
minimum rate is fixed, the carrier would no longer be free to reduc 
that rate without first obtaining the consent of the commissio 
Perhaps he could get that consent. Perhaps you might assume thi 
he would get it in all cases whore he deserved it, and yet we do kno 
that carriers have frequently in the past depressed rates because / 
conditions that have arisen, and the result has been lower rate 
Now, what effect the fixing of minimum rates would have on tnat 
do not know. Iam not in a position to object to making minima 
rates, but I am not in a position to advocate it. | 

Mr. SanpeErs of Indiana. If the Federal Government should tual 
over the control of the capital issues of carriers engaged in intersta: 
commerce, and should prescribe minimum rates, don’t you thir 
that that would almost compel the unified control of the railroac 
irrespective of whether it was interstate or intrastate ? 
Mr. WiusisH. | am afraid so. 

Mr. SanpErs of Indiana. That is all. 

The CuarrMAn. Mr. Denison of Illinois. 

Mr. Drentson. No questions. 

The CHarrMAN. Mr. Sweet of Lowa? 

Mr. Sweet. No questions. 

The CoarrMan. Mr. Winslow of Massachusetts. 

Mr. Wriystow. If you would be willing, Mr. Wimbish, to spare’ 
few moments, I would like to have you discuss two or three questio 
Mr. Winsisu. I shall be pleased to, Colonel. 
Mr. Wrxstow. These questions really are not immediately in It 
of the bill, but they are more or less interesting. I should like to 
you if you feel that railway management has given its attention 
the establishment and development of its good-will account, whit 
might have been given with advantage to the railroads ? 

Mr. WimsisxH. With its good-will account ? 

Mr. Winstow. Yes; what the merchant calls his good-will acco 
his acquaintance with his customers, and so forth. : 



















hi 
__ RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 499 
} Mr. Wimsisu. They have given attention to that largely in those 
ses where competition in service compels that sort of personal con- 
‘eration. I do not believe that they have developed it as a business 
‘set, with the same motive and with the same diligence that private 
asiness concerns have. In other words, wherever you find a railroad 
‘at enjoys a monopoly of the service, you find them lacking in cul- - 
‘yating that good will of their customers; where the competition 
strong you find it manifested very freely. 
Mr. Wixstow. I would like to ask you if you think that railroads. 
ld have earned more if they had developed that good-will account 
id had the confidence of the shipping and traveling public com- 
\wable to the average good will in commercial accounts ? 
\Mr. Wimsisu. Undoubtedly, Colonel; I think so. 
| Mr. Winstow. You think they would have earned more? 
(Mr. Wimpisu. Oh, yes. 
| Mr. Wrnstow. Now, what would you say as to this question. 
}as the operation of railroads been built up without the cooperation 
| departments of the railroads? Say, for instance, the operating 
id and the traffic end ? | 
| Mr. Wimpisn. You say, have they been able to, without that 
‘operation ? 
Mr. Winstow. My proposition is, have they considered carefully 
jd developed as carefully as they could a close cooperation between 
|elr operating and traffic departments ? 
|Mr. Wimsis. Generally I think not. I think there might have 
en closer cooperation than there has been. I know in some systems 
ere is not only not cooperation, but there has been jealousy, and 
t I know other systems, like the Louisville & Nashville, that has a 
jtps Vesprit that has worked admirably. J think you will find all 
jPartments of the Louisville & Nashville will cooperate. I might 
}7é you other illustrations where I think they do not cooperate, 
/t on the whole | think that they have not cooperated, as 1 think 
xy might have done. 
Mr. Winstow. Have not railroads been too largely built up as 
|ziMeering monuments, rather than as models of every-day economi- 
' ly operated commercial organizations with a view to selling their 
| vices at a fair price and at the lowest possible cost to the railroads ? 
dr. Wimpisu. Of course that involves the consideration of the 
tory of railroads. In the beginning | think railroads were built 
meet a “public demand and principally if not purely to perform a 
blic service. They were local affairs. They were built by the 
‘ney contributed by their stockholders. That condition continued, 
terally speaking, until the Civil War. In the seventies railroads 
‘ame the subject of much exploitation. That was due to various 
ses. The railroads, during that decade—many railroads—were 
| It just for the purpose of a sale or exploitation and without due 
‘ard to the necessities or convenience of the public. I think quite 
umber—many—were built during that period, with that in view. 
4ater, beginning with the eighties, perhaps, I think there has been 
thange. The railroads are seldom now built by those who are 
al to them. They are usually constructed as additions to an 
}sting railroad, or a system, or in order to further other private 
{srests, just as the Clinchfield, a splendid railroad, was built by 
Clinchfield company, which owned coal mines. 











| 









a 


 ——_ 


; 


500 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Within the.last 20 years I think perhaps fewer railroads have been 
built. for purposes of exploitation, and I am sure that much fewer 
have been built by those persons local to the road, with the simple 
design of serving that local public. 

Mr. Winstow. Do you think the railroads have been running on 
a policy of trying to find out what the shippers and public want and 
then giving to them so much, on the policy of ‘‘this is what we have 
and you take it, whether you want it or not’’? 

Mr. Wimeisu. I am sorry to say that I think the latter policy has 
been the prevailing one. 

Mr. Winstow. Has there been too much of this easy coming and 
easy-going sort of management, for the best financial interests of 
the railroads and for the best service of the public? 

Mr. Wipsisu. I think so. 

Mr. Winstow. Has there not been in railroad management a 
degree of what might fairly ve regarded as a haughty spirit toward 
tke public on the part cf the management ! 

Mr. Wurersn. That spirit at one time was much more manifest 
than later. I believe that the railroads, certainly in the past 10 
yeurs or ionger, have been endeavoring to correct that fault; and 
yet those who belonged to the old régime find it very difficult to 
reform their ways. 

I recall a very important case that I had involving rates on a basie 
commodity that was shipped all throughout this country in very 
large volume, and when relief from a condition that we thought 
should not be tolerated was applied for to the railroad managers the 
freight traffic managers very cooly informed us that what we were 
suffering from was not excessive rates, but that we ought to go out 
and reconstruct our plants. In other words, they undertook to 
advise us economically what we ought to do to improve our business; 
or, as I then said, they were undertaking to be statesmen and not 
simply traffic managers. I do not-think there has been very many 01 
that kind left; but there were some who undertook really to sug- 
gest and advise about your business from that standpoint. 

Mr. Winstow. Can you conceive of the successful operation Of 
the railroads in the future unless they go to their customers “with 
their hats in their hands,” so to speak, and ‘‘if you please,’’ on theit 
lips @ 

ae Wiaetsu. I think they should act with courtesy and consider 
ation. I do not think they should be servile, or anything of that 
kind. If they will give adequate service and be courteous im giving 
service I think that the best results can be obtained. | 

Mr. Wrnstow. I did not mean, and I do not suppose you did, & 
infer servility in any extreme sense. Of course, that would be un 
commercial; but my feeling is, and I would like to get your view 0 
it, that the railroads will have to compete in true commercial sense 
realizing fully the changed attitude of the public, with a view 0 
getting together with the public largely, from the public’s viewpoint 

Mr. Wimsisu. I quite agree with you on that, Mr. Winslow. ~ 

Mr. Wrystow. I want to ask you, although you may have coveret 
this at some time, if you think that laws ought to be made, if Be 
sible, that will insure tne common use of terminals, where the puoi 
convenience and need would seem to be benefited thereby ? 









RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 501 


_ Mr. Wipisu. I have some hesitation in thoroughly approving that; 
ut f have come to the conclusion that perhaps the Interstate Com- 
aerce Commission should be given that power over the terminals of 
ailroads. | 

_ Mr. Winstow. I suppose we are of one mind as to the value of that 
rrangement, under Federal control, in respect to relieving conges- 
ion of freight transportation during the vast two years. 

Mr. Wimpisu. Yes, sir. 

_ Mr. Wrnstow. Could it have been done in any other way at that 
me ¢ 

Mr. Wimsisn. Probably not, sir. 

You see, that congestion was an actual condition existing at that 
‘me. It was necessary to relieve that condition, and it could be 
sieved by the means that were applied by the Director General, 
ich as the one that you mentioned; also, instituting one-way hauls 
or traffic and using roads the most convenient way in order that 
ongestion would be relieved, regardless of private ownership, dif- 
erent private interests, etc. Of course, that could be done under 
jovernment control, and was done. 

_ Mr. Winstow. Is there any good reason that you can see, from a 
ulroad point of view, why the great traveling public, going into New 
ork City from this direction, at the same rate of fare and virtually 

i the same time, should be obliged to go over the Baltimore & Ohio, 
ver the ferry, etc., when the Pennsylvania Railroad station is 
ynvenient to the public and big enough to hold all of the trains 
iat would run in there? I do not like to mention names, but I 
erely do it in the way of illustration. 

Mr. Wimsisu. The Pennsylvania Station is the private property of 
1¢ Pennsylvania Railroad. Nevertheless it is impressed with a 
“tblic use, and, in so far as the public good is to be served, the prop- 
‘ty of the Pennsylvania Railroad may be applied to that use, even 
the extent of permitting another road a qualified or limited use 
| its terminals; but I do not think that ought to be done merely for 
‘ie convenience of the Baltimore & Ohio Railroad. 

Mr. Wrinstow. No. 

Mr. Wiusisu. Not for the convenience of the Baltimore & Ohio 
‘for the mere convenience of the public, unless that convenience 
volves the idea of something more than ordinary convenience. In 
her words, it might be more convenient for you to land at Thirty- 
urth Street than at the ferry down at Twenty-third Street. 

Mr. Winstow. Let us say it involved the enormous outlay to 
| nstruct a tunnel like that of the Pennsylvania and the approach 

New York City, which might be very difficult to acquire. It 
ight be an inconvenience to the city of New York in having another 
ch arrangement of terminals there, and also the question of the 
ereased cost and investment to do the same thing. So far as the 
tblic is concerned, would all those reasons seem to give an excuse 
a common use of this terminal ? 

Mr. Wimpisu. Those might exist; and, if so, they would justify the 
e by the public of this property of the Pennsylvania Railroad. 

Mr. Winstow. Let us depart from that for just a moment. Do 
|u think money can be obtained, capital enough, to run the rail- 
ads, if given back, from other sources, other than the Government, 

put them in the way of paying their debts and starting off on a 
| und basis ? : 











502 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Wimpisu. In my varied and various experience I have never 
been a financier. I imagine that some aid from the Government 
would be required during this transition period, but I do not know the 
extent of that or the amount of it. 

Mr. Winstow. I should judge, from what you say, that you had 
not thought out any plan that would comprehend a suggestion of the 
sources from which the money might come, or in what form of security 
it might be issued. | 

Mr. Wimpisn. You mean as applied to Government aid ? 

M:. Winstow. No; without Government aid. 

Mr. Wimpisu. Without Government aid—no, J had not considered 
that. ) 

Mr. Wrnstow. Isn’t that going to be a very important matter in the 
consideration of the question of return to the railroads ? ‘ 

Mr. Wimpisu. It seems to me the railroad managers should have 
been thinking about that. During the years 1918 and 1919 they will 
have received guaranteed returns, which is a tremendously large fund, 
and which they were not under any obligation to pay out in dividends. 
There were no demands made upon it for operation of the railroads, 
and they should have accumulated and added to their accumulated 
surplus quite a large amount of money during those two years. It 
seems to me they would be able to finance themselves, with that sort 
of resource. As I say, | really do not venture an opinion on finance. 
I do not know how funds could be procured, but I can not conceive 
why the railroad managers. themselves have not been giving cou- 
sideration to that and employing their resources to establish credit. 

Mr. Winstow. Have you happened to follow the ill fate of thie 
railroad systems of New England? ° 

Mr. Wimpisu. Of New England ? 

Mr. Winstow. Yes. 

Mr. Wimpisn. Well, in a way, sir. 

Mr. Wiystow. Your rule would not apply to any one of these 
three great systems ? 

Mr. Wimsisu. My rule? 

Mr. WinsLow. Your proposition. 

Mr. Wiamsisu. You speak of the Boston & Maine? 

Mr. Winstow. Yes; and the New Haven, and the Maine Central, 

Mr. Wrsisu. The Maine Central was not in such a bad condition 
prior to the war. 

Mr. Winstow. It was not? 

Mr. Wrusisu. No, sir. 

Mr. Winstow. Then the question is, how far they have had t 
get down the line the other way; that is what I am raising the pom! 
on—that is, under Government management ? 

Mr. Wiueisu. The Boston & Maine and the New Haven were, 0 
course, in desperate condition almost, before the taking over by the 
Government, but that was due to causes that we all know about. _ 

Mr. Wrnstow. Wherein have they had a chance to increase thell 
surplus cash account in the meanwhile ? 

Mr. Wimsisx. I do not know how that would be, Colonel. 

Mr. Winstow. It is very aggravating, I admit. That is all, Mr 
Chairman. | 

The CuarrMANn. Judge Sims has a question to ask. 





RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 508 


_ Mr. Sms. Mr. Wimbish, you will recall that when the war broke 
out in Europe in-1914, it was about the first days of August or the 
last days of July, that there was almost a sudden collapse in all kinds 
of business in this country. It affected every sort of business alike - 
You will recail that during that period, while Congress was in session, 
that there were bills introduced for the purpose of requiring the 
Government, compulsorily— I mean, to ccmpel the Government— 
to loan money on cotton—that is, 5 cents a pound, the cotton to be 
placed in a licensed Government warehouse, in order to aid the farm- 
ers to get the money which was absolutely necessary in order that 
they might gather their crops and thus be enabled to take care of 
their families. : 

|. You remember, of course, it was not done. Now, then, following 
that period the demand for cotton increased, by reason of war de- 
mands, until the price, compared to prewar prices, became abnormally 
a There was no Government obligation that I can see, or public 
Obligation, to pay a fund out if its treasury to indemnify those people 
who were compelled to sell their cotton at 5 and 6 cents a pound 
during that period of depression. 

_ These railroads lost, during the five months of 1914, and perhaps 
garly in 1915, in proportion as all other business lost. 

| This standard return is based upon the three years next receding 
July 1, 1917, which would only include four or five plonale of the - 
‘ime when all business was in a state of collapse, as well as the trans- 
portation business. Then, following the demand for war supplies for 
Wurope moving from the interior to the coast, and from one place to 
mother, the transportation business built up wonderfully, and con- 
sequently two of those three years were so abnormally good that it 
made the average the best that ever had been in this country. 

“Mr. Wimpisu. That is true. 

Mr. Sims. Now, the Government takes over the railroads, with an 
mplied promise that they be returned in as good condition as re- 
eived. That ought to be complied with and will be complied with. 
3ut when the armistice came, there was a collapse in business—that 
8, in the transportation business. Thousands or millions of tons, 
erhaps, failed to go to the coast that would have gone to the coast. 
‘hat would have been the case had the railroads remained under 
lirivate operation and control. 

Mr. Wiusisu. Yes, sir. 

Mr. Srus. Now, with the end of the ia Se year, or on the 11th of 
VYovember, one year of this time will have passed. The railroad 
‘usiness is now building up. 

Mr. Wrusisu. Yes. sir. 

Mr. Sus. Why, if we return to them all the advantage of private 
;ontrol and private ownership and private operation, should we be 
jtorally bound to pay them the standard return during the next 
‘ear with their business increasing all the time, when the Govern- 
‘ent has no power whatever to make any rate or in any way to pro- 
xct itself against loss upon that guaranty ? 

Now, Task youwhy? That is the only thing I have heard you say 
dat has struck me as not in accordance with the general trend of 
}our comments—why should the Government continue to guarantee, 
hen it ceases to have any power whatever by which it may protect 
self against the result of that guaranty; that is, continue the pay- 




















504 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


ment of a standard return whether the railroads make the return or 
not- 

Mr. Wimsisu. Yes, sir. But only upon the theory, if it is justified 
at all, that the railroads are engaged not only in a publie service but 
in a service that is essential to the public. Now, if they do not need 
any aid from the Government, either by extending for any length of 
time the term of the payment of this guaranty, or aid in any other 
form, they ought not to have it; but if it is necessary, in order to 
enable them to continue to perform that public service as it should 
be performed, to temporarily aid them, it seems to me that it would 
be the wise thing to do, a much wiser thing than to permit them to 
enormously increase rates and burdens upon commerce. 

I undertook to qualify what I said, Mr. Sims, by saying that I 
did not know wiaelieae the guaranty of the standard return should 
be continued; but I did think that they should have a reasonable 
opportunity of readjusting themselves to the changed conditions, 
because the Government did take the properties out of their hands. 

Mr. Sms. Now, on the question as to the diversion of traffic, is 
it not true that, with few exceptions, the railroads are receivin 
now—I mean, doing just as much business, getting Just as a | 
tonnage—as they were getting on the 28th of December, 1917? 

Mr. Wimsisu. Probably that is so. 

Mr. Sirus. And even more; and they are getting now 25 to 30 per 
cent rate advance over what they were receiving for the business 
they were then doing ? , 

Mr. Wrueise. But as against that they have higher operating 
expenses. 

Mr. Srts. They have had no operating expenses since that time 
whatever, not the slightest. I mean, they got the standard return 
regardless of what the operating expenses were. 

Mr. Wiusisu. Surely, the railroad as a corporation. 

Mr. Sus. And they are getting them back now, with a traffic as 
ereat in volume as it was then, with an increased rate established and 
in operation of 25 to 30 per cent. Whenever we turn them back, 
those who receive the benefit of this standard return will, as a matter 
of course, undertake to be economical both in the payment of wages 
and in the purchase of supplies, and everything e:se, to reduce their 
cost as much as possible, -nd then by extra effort to make as much 
net return as possible, and then with the stimulation of the individual 
and private initiative, coupled, that is, with the possibility of loss, 
if they do not exercise it to the limit, if they are to be guaranteed on 
this return straight out during 1920, I can not see why it should be 
returned to private control in everything, except that involving the 
possibility of loss, because if these railroads should make more than 
the standard return in 1920, the Government does not get a cent of it. 

Mr. Wimpisu. That is probably true. They are returned, Mr 
Sims, under higher operating expenses than existed when they wet: 
taken over. There have been increases in wages and increases in the 
cost of material and supplies, so that the operating expense is greater 
to-day than it was in December, 1917. 

Mr. Sms. But not due to the simple fact of the Government coD- 
trol of these railroads. 

Mr. Wimpisu. Not at all. 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 505 


__ Mr. Sims. Operating expense for everything has gone up alike. 
One of the street railway companies in the city of Washington, which 
controls more than half the mileage, is suggesting to-day a fare of 
10 ceats, wheu they used to sell tickets six for a quarter. It has 
never been under Government control or operation. It has been all 
the time under private control and operation. 
Mr. WimBisH. Yes, sir. 
Mr. Srus. Now, it is suggesting more than 100 per cent advance in 
its rate, whereas the steam railroads have only advanced their rates 
from 25 to 30 per cent. It is the same way all over the country. 
Why should not the owners of the railroad property take the same 
chance that the war brings to the owners of all other property ? 
_ Mr. Wiuaisu. I think they should, and the only thought I had in 
‘mind was that, inasmuch as the Government had taken the operation 
‘and control of the railroads out of the hands of the private owners, 
that the Government should not return the railroads at a time or in a 
manner that would operate as any unnecessary hardship upon the 
private owners. If, because of this situation, and because of the 
fact that prices have advanced—wages have advanced—it becomes 
necessary that the roads should be readjusted, it would be very much 
more in the public interest to extend aid in some form, either by a 
continued guaranty or by a direct loan, until the railroads can 
readjust themselves, in order that they may perform this service, 
tather than, as some seem to fear, to have receiverships and bank- 
Tuptcies, which I have expressed myself as believing is more a mirage 
than anything else. 

. Sus. A loan properly secured would be a hundred times more 
defensive than an absolute gift of a guaranteed return, which they do 
‘hot make and would not have made if the Government had not 
taken them over. 
| want to ask you about some other matters. 

' Mr. Wimpisu. All right, sir. 

| Mr. Srus. But it did not sound like ‘‘Mr. Wimbish”’ on the stand 
this morning to extend this return at the general taxpayers’ expense 
regardless of any benefit accruing to those taxpayers. 

Mr. Wists. I did not intend to so express it. 

Mr. Sus. I do not want you to lower your standard by yielding a 
particle. Now, Mr. Wimbish, I want to ask you some questions 
‘about which i am satisfied you are informed. As a general rule, 

from the time the railroads began to be first built in this country up 
to the present time, have any capitalization charges ever been 
amoitized and ceased to exist ? 

Mr. Wimsisu. I think not. 

Mr. Sivs. You think not? | 

Mr. Wimeisu. [n fact, | know it. That is, not to my knowledge. 
_Mr. Sims. And all bond issues, as a general rule, have been paid 
sumply by a renewed bond issue ? 

Mr. Wimpisu. Yes. 
Mr. Sims. [ understand it to be, if I am correct about it—I may 
d¢ mistaken—that it has now become a matter of adverse criticism 
‘ora railroad out of earnings to make what is called capital improve- 
nents, or improvements that would authorize capital issues. Is not 
hat a matter of criticism of the railroads now, if it does it more 
than it ought to ? 











; 


506 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Wimsisu. Yes. 

Mr. Sims. If it charges enough to build new lines? 

Mr. Wimpisn. Yes; but net corporate income may be so applied. 

Mr. Sus. Now, with that policy, the fact that no capitalization 
has ever been amortized, and with regulation under the law practi- 
cally such that no new capital ever can be amortized, where under 
heaven is capitalization going to go too in the dim future of railroads ? 

Mr. Wimprsu. The future may not be so dim, Mr. Sims. 

Mr. Sms. In the distant future, then ? 

Mr. WimpisH. It may continue to be inflated. . 

Mr. Sms. In the distant future. Now, another thing. All real 
estate owned, rights of way, terminal property, and things of that 
sort, however little they may have originally cost the railroad 
corporations—and some may have been absolute cifts—that form 
of investment continued to increase by way of community value 
without the railroad company investing one additional dollar. When 
property that was worth $2 an acre out in the West was given 
to or acquired by the railroads, when rights of way were given that 
were not worth over $2 per acre, by community value, by the 
settling of people and the building up of property along the line, 
they are entitled to an earning on values substantially the same value 
that the property if sold would bring for other purposes, for which 
like property is used in that neighborhood, and they are entitled to 
an earning on that. All these propositions here—not yours, but those 
proposing that Congress shall by mandate, by a law, require the rate- 
making bodies to provide a rate that will pay not less than 6 per 
cent upon the property investment of the railroad, and to value a 
right of way at $200 an acre that did not cost $2 an acre, is that 
reasonable, right, and justice to the present and the future gener- 
ations of this country ? 

Mr. Wimsisu. I think not. 

Mr. Sms. But it can be done under existing law, and it is done all 
the time. I understand the Minnesota rate case settled that point 
beyond all question, and I do not see why it should not be that way, 
if it is private property, with all the rights and benefits accruing to 
private ownership. If they did not charge any higher rates than 
were lawful and were authorized by the repost eg body, and they 
were entitled, as they are entitled, to a rate giving a fair return on 
the present fair value of the property, then, though they did not put 
a dollar in it, they are entitled to it under the law. 

Now, Mr. Wimbish, personally speaking myself, my own views 
only, not the plan upon which I introduced a bill the other day, but 
why should not the capitalization of railroads be amortized as well 
as capitalization in any other kind of industry, if it can be done with 
rates that are not excessive, thereby reducing or continuing the net 
investment, and let that be reflected in continuously less rates for 
performing the same service ? 

Mr. Wimpisu. How would you enforce that, Mr. Sims? 

Mr. Stus. Well, I will give you the theory that comes to my mind. 
My own judgment and my own opinion is that it would be of the 
greatest possible future benefit to this country to go as far as I am 
going, that the Government of the United States should at once ot 
as soon as possible acquire all the fixed property of all the railroads 
all over the country; that is, the land, the terminals, the rights of 





. a 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 507 


way, everything that is fixed, but none of the equipment or movable 
property; that it should be permitted to issue bonds bearing 4 per 
cent interest, providing that the bonds are not to be taxed by any 
taxing power nor the interest accruing thereon to be taxed by any 
taxing power, | per cent of that return to be placed in an amortiza- 
tion sinking fund, and just as soon as that 1 per cent would com- 
pletely pay for this property, or as soon as it paid for any portion 
of it, that the portion so amortized should no longer be considered 
for rate-making purposes, even to the extent of paying this 4 per 
cent. With all the demand there is for capital all over the world, 
the railroads, not even governments, can go in and compete with 
each other for idle, unemployed money, and expect to get it for any 
less than what somebody else is willing to give for it. 

_ The Cuarrman. Mr. Sims, you ask for so much that we can not 
get the benefit of the answer. 

Mr. Sims. I am satisfied with the course that I am pursuing. 

The CuarrMan. We want the questions to be answered. 

Mr. Sims. I am going to ask him to answer them. To-day tax 
exempt securities are selling decidedly better than taxed securities, 
even though the security itself, so far as the property behind it is 
concerned, is absolutely unquestionable. Now I want to know why 
you or anybody else, with the railroads, the present corporations, 
retaining all of their movable property, retaining all of their initi- 
ative, retaining all of their competition, and retaining all the powers 
that they now exercise, what objection is there to the Government 
of the United States taking this burden, with perfect safety, off the 
railroads, because railroad bonds have to be refunded every once 
and awhile, and let the Government completely and perfectly amor- 
tize this property, and in the meantime lease it to the corporation 
for purposes of operation, because through a lease every form of recula- 
tion can be provided for and carried out that any possible regulatory 
law can provide. 

Now, I have gone into this matter so extensively in order that 
you might get my viewpoint. 

_ This is not to the extent of the Plumb plan bill. The bill offered 
by the railway men may be a better bill, more scientific and every- 
thing else, but I say, in reaching my unscientific conclusions, that 
‘nasmuch as the railroads have never amortized any property, and 
ihe plan of capitalization prevents it, why should not what I am 
roposing be done ? . 

| rMBIsH. | think, Mr. Sims, that Government ownership of 
he physical, immovable properties would necessarily result in Gov- 
‘Taoment operation of the property. 

_ Mr. Sms. Through lease ? 

_ Mr. Wimpisu. Or you would have a condition where the ownership 
'y the Government would give no relief to any of the evils that may 
xist—high rates, exorbitant rates; or any of the others. 

_ Mr. Sts. Could it not by lease provide for all of those things ? 

_ Mr. Wmetsn. If I am correct in my theory of rate-making, that 
eally a just and reasonable rate is fair compensation for transporta- 
ton service performed, I do not see that you would get anywhere by — 
‘our plan that would insure any relief to the public by lower rates. 

Mr. Sims. And no taxation to be placed either on the bonds or the 
Toperty bought and held by the Government of the United States. 







~ 


508 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Now, according to some authorities, I see the taxes paid last year, 
or the year before, by the railroads, amounted to $186,000,000 alone. 
They would certainly save that much. Now, why could not the 
Government, if it absolutely owned this property—the corporations 
owning all the rest-—why could not the laws or regulations which you 
have just referred to and just discussed, apply equally as well as they 
do now, because the Government will get 4 per cent out of the pro- 
posed leasing proposition. 

The CHarkMan. You say the $186,000,000 in taxes would be 
saved ? 

Mr. Sims. Why, it would be saved to the payers of transportation 
charges. 

The CuarrMsNn. The people would have to pay it? 

Mr. Wimsisu. It would have to be paid in some way. 

Mr. Sms. I mean, to the extent of Government ownership, it 
would be saved because transportation has now got to pay it. 

Mr. Wimpisu. Still, ¢ you do not have a tax from:one source, you 
would have to impose it upon and get it from another source. No 
Government, State or Federal, is supposed to levy taxes beyond its 
necessary requirements. 

Mr. Sims. Certainly not. 

Mr. Wimpisu. And if you have to have so much, and if you elimi- 
nate from the subject of taxation railroad property, then you have 
got to make that up by an imposition on some other property, and 
where has the public gained ? 

Mr. Sims. You have reference to States and communities ? 

Mr. Wimsiso. And Federal, too, so far as there may be Federal 
taxation. 

Mr. Sms. I was going to say, I have another remedy for that, so 
far as that feature is concerned, that for 20 years the Government, 
for the first year, pay 100 per cent of the taxes that had been col- 
lected and 95 per cent the second, and go on down to the end of the 
20 years, to the State, municipalities, or counties, the taxes that they 
have been getting from the railroad property—in so far as it had been 
paid on the property the Government had acquired—because 
when you remove that great burden from commerce, that now is 
equal to 75 per cent or more of all the property of the railroads, you 
are going to benefit every community that is served. And that is 
not all. You, know now there is a very great difference in taxation 
in the different ‘states. Texas, for all purposes—I mean the rai- 
roads in Texas-——for all taxation purposes, whatever pay exactly 
$300 per mile of line. In New Jersey they pay $3,500 per mile of line. 
Now, asystem going through New Jersey into Texas—if such existed-= 
Texas would absolutely pay a rebate to New Jersey, because the 
taxes have to be paid out of all the earnings of the system; a railroad 
may go through half a dozen States. This would stop that one 
thing, but they don’t want that, because they say themselves th 
they must levy taxes equal to the amount that are generally levied 
in the States on their taxable property, but Federal incorporations 
would remove the States’ power to regulate and to levy taxes just a 
far as possible. That is what we have Federal regulation for. If th 
Government owns it, there are no taxes on it, and then if the Govert: 
ment owns it for 20 years and diminishes it at the rate of 5 per cel 
a year, it can pot hurt the communities or the land. | 











RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 509 


__ Now, Mr. Wimbish, I was raised in the South like yourself, and if 
there is anything in the South among the old ideas it was that of 
individuality, of individualism. I grew up with those ideas, and 
those ideas continue to be very strong in me up to the present time. 
‘Now, it has got to this point with me. I am not for Government 
ownership of arything just for the sake of Government ownership, 
and I am not for private ownership of anything just for the sake of 
private ownership. It is a question now of how we are going to 
avoid Government ownership? The Government built the Panama 
Canal and put $400,000,000 of the peoples’ money in it, and it has 
operated very successfully, as a mere transportation facility. The 
have got a railroad there that I never heard any complaint of at all. 
It owns a number of ships, and they are all being operated, and the 
Government is doing a large package traffic business all over the 
United States, against which I have heard no complaint—the parcels 
ost. : 
i The Cuarrman. The Panama Canal is not paying operating ex- 
penses. 
' Mr. Sus. It is not? 

The Cuarrman. No; it is not, it is not paying anything. 

Mr. Sms. I know it is not, but I am talking about the efficiency 
of the operation and the character of the operation. They are not 
being questioned at all, and we could make it pay if we would only 
put the rates up Ligh enough. But it is Government owned and we 
nave been requested not to do it. Here we have parcel-post packages 
imited to 50 pounds, at fixed rates, going all over the United States. 
You can ship a thousand tons of the same sort of thing ifyou put 
tim packages of 50 povmds each. It is regulation, it is Government 
yperation entirely to-day, and’ we do not hear a word about the 
ficiency or inefficiency of the Parcel Post Service. 

Mr. Wimpisu. You referred to the parcel post. That is not a 
zovernment owned institution. 

Mr. Sims. It is Government operated. 

Mr. Wimpisu. Yes; but if there is any governmental function 
‘onnected with transportation, it is the operation and not primarily 
he ownership. Ownership is only incidental to the operation, 
ecause nobody cares anything about who owns the property, but 
he question is who operates, and how successfully it is operated, 
nd when you speak of the parcels post as furnishing an analogy to 
astify Government ownership, I fail so see the pertinency of the 
omparison. 

dr. Sims. Operation; I am only speaking of operation, and not 
Wnership. You were saying that operation followed ownership 
levitably ; but I think you might go further. You might have Gov- 
‘ment operation and private ownership, and you might have 
\rivate ownership and Government operation, just as we have in 
arcels post. You probably did not have in mind what I had. I 
4y we do not own the railroads, and yet we are operating them to the 
Xtent of this parcels package service, and nobody complains of the 
Peration; but, on the other hand, the Government has, during the 
ar, Operated the property of the railroads, both movable and immov- 
ole, and there has been a great deal of complaint about the opera- 
‘On, and there is at the present time. I do not see, however, how 
ley Were inevitably connected, but they may be, and that is what I 











510 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. — 


was asking you. It has been said that Government operation of both 
movable and immovable property would be more economical and 
better in every way, but I have not said so, and if itis I want to be 
converted. 

Mr. Wimpisu. Now, if you have Government ownership of the 
means of transportation, that means you must have Government 
operation or you must let a private company operate, and probably 
the form under which it would operate would be that of lease. The 
private company would probably lease from the Government. 

Mr. Sms. That would be nice. | 

Mr. Winetse. That would simply mean that if you are going te 
rolieve this property of taxation and deprive the States of that source 
of revenue, lease your property to private operators, you have done 
nething but relieve private operators from a burden, and_ enabled 
them to get property and the use of property more cheaply than the 
otherwise would get it. Now, it does not follow, to my mind at all 
that the public would get any benofit by a reduction in rates, becausé 
the private operator would have his rates just about as high as the 
Interstate Commerce Commission would permit him to have them 
anyway. 

It so happens, if you will pardon me, that my State of Georgii 
constructed the first Government-owned railroad in the world. Wi 
began in 1837 the building of the Western & Atlantic Railroad 
That was a very ambitious project. It was intended either. t 
connect or build’on to the Cumberland River, to navigable water 
for connection with the great waterway system of the West, and a 
some point in Georgia, Atlanta not being then in existence, but a 
some point where a railroad then building from Savannah woul 
join railroads then building from Charleston and Augusta. The 
finally did build into Atlanta. The State of Georgia built the Wester 
& Atlantic Railroad, as a great State work, out of State funds, ou 
of money from the treasury of the State. That railroad was opene 
for traffic in 1851 between Atlanta and Chattanooga. The Stat 
operated that road, and with a fair degree of success during th 
fifties and up to the Civil War. . 

‘After the Civil War the State undertook to continue its operatior 
That was a period following war, a period of reconstruction, a perld 
of business disruption and of a great deal of business corruption. — 

The result was that the operation of the Western & Atlantic Rail 
road by the agents of the State in the few years succeeding the Civ 
War was a great scandal. It became evident that the State coul 
not stand for the operation under conditions as they then existoc 
The result of that was in 1871 the State leased the Western & Atlanti 
Railroad to the Western & Atlantic Railroad Co. for a term of year 
the Western & Atlantic Railroad Co. being a private corporation 
At the expiration of shat time it was leased to the Nashville, Chatte 
nooga & St. Louis Railway in 1890. é¢ 

Shortly thereafter I became special attorne and afterwar'c 
‘counsel for the State in connection with the Western & Atlant. 
Railroad, and still am. That lease expires next December. A ye 
azo we leased the road again to the Nashville, Chattanooga & St. Low 
Railway for a term of 50 years. ) 

Now, so long as the State undertook to operate the railroad, — 
was proven to be of little or no value to the public and a great sour 
of expense and scandal to the State. 1 








RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. i ia | 


When the State leased that property, the State ceased to really 
lave any interest in it further than to have rentals paid month by 
nonth, and it having been leased now for 30 years, and with a pros- 
yective lease of 50 years, to the Nashville, Chattanooga & St. Louis 
tailway, while the State of Georgia owns it, in point of fact the State 
3 simply interested in getting its monthly rentals, and the fact that 
he State owns the Western & Atlantic Railroad has not the slightest 
earing upon rates or charges. The Western & Atlantic Railroad is 
ree from taxation, but the public has not got one penny of benefit 
rom it, so far as I can understand it. 

Mr. Sims. How much is the rental, Mr. Wimbish 2 

Mr. Wimpisu. The rental is $540,000 a year for the next 50 years. 
| Mr. Sims. I mean, what per cent of the return, about what does 
‘amount to? How much does the railroad have to pay? What is 
ie mileage of it? 

Mr. Wimsisu. The mileage is 138 miles, in round numbers. The 
ulzoad was valued by our engineers at a conservative valuation from 
welve to fourteen million dollars. That is a very conservative 
faluation. They did not include any equipment. We were able 
) get $45,000 a month rental. 

Mr. Sms. If that $45,000 was applied to reduction of rates, so 
Tas it would go, on that 138 miles, then those people who live on 
iat line of road would get a benefit. | 

Mr. Wiusisn. If it was so applied, yes. 

Mr. Sms. I mean this road you are speaking of now—of course, a 
‘tle short road would not illustrate the whole country. But that 
fate operation was by people politically appointed, I suppose. 

Mr. Wimpisu. Oh, yes. 

Mr. Sims. But my theory is, to let your corporation keep the roads 
xe they have got them now and operate them, but the corporations 
e crying for credit, credit, credit, and if we will amortize and take 
vay the burden which they have to bear on this real estate, 75 per 
‘nt or more of it—and it is increasing all the time, by unearned 
orement, piling up all the time—you take that off of transportation, 
en the Interstate Commerce Commission or State commissions can 
ake regulations much easier and with much lower rates; and 
doubtedly, if they would still charge as high as they are doing 
w, what will they do when these properties continue to mount 
_Yalue all the time? How is it possible that the rates would not be 
jluced when the cost of operation and fixed charges is reduced 
, the extent that there will be no taxes to pay ? 

Mr. Wipisu. That, I repeat, has no immediate bearing. 

Mr. Sms. I am speaking of the whole country now. 

)Mr. Wimpisn. I can only give you illustrations of particular roads. 
;¢us take the Cincinnati, New Orleans & Texas Pacific Railway, 
|tending from Cincinnati to Chattanooga, a road some 326 miles in 
| gth. That road is owned by the city of Cincinnati. 

Mr. Sims. Yes. 

Mr. Wraersu. It is leased to an operating company, or to a com- 
ay that does operate it, the Cincinnati, New Orleans & Texas 
tific Railway Co. The ownership of that company is held by the 
ithern Railway and some others. It has a very small capitaliza- 
‘0, 80 small that you hardly speak of the capitalization of the 








‘temnati, New Orleans & Texas Pacific at all. It is almost an 
152894—19—vor 1-33 


512 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


uncapitalized leased prepery They have capitalized the operatin 
company. You have there a municipally owned railroad that i 
favorably situated and has been very efficiently operated. There i 
not a railroad in this country that has paid as large returns per mil 
of road and in comparison with any other standard as the Cincinnat 
New Orleans & Texas Pacific Railway. It is because of its greu 
volume of traffic and because the rates were made not with respec 
to capital, small capital or large capital, but because they were th 
going rates in that section of the country. 

Mr. Sus. That is a particular illustration. Is it not a fact tha 
-when the Southern got hold of it she diverted immense volumes ¢ 
traffic and sent it cver that road that it would not have gotten unle: 
the Cincinnati Southern had been acquired by the Southern Railway 

Mr. WimpisH. You can not say that, pecause it was first lease 
by the Cincinnati, New Orleans & Texas Pacific at the time it wa 
completed to Chattanooga. Iv had no traffic. It was just bem 
completed in 1881. The Southern Railway was not incorporate 
until 1895. 

Mr. Sts. I am talking about that very railroad that has now ge 
it leased. What was the name of it? 

Mr. Wiupisn. The Cincinnati, New Orleans & Texas Pacific. 

Mr. Srus. Yes; that is the company; that is owned by the South 
ern now, is it not? 

Mr. WimpisH. I[t is now. | 

Mr. Sims. But its immense traffic never began until after that cou 
pany went into the hands of the Southern, did it? | 

Mr. Wiaisu. Oh, yes. ) 

Mr. Sims. There was a case before the Interstate Commerce Con 
mission that tells about these things, and I did not know but tha 
maybe you were in that case. I remember distinctly the excessi¥ 
earnings of this road were alleged to be due to the fact of diverte 
traffic, or a traffic furnished by the Southern, that it would not hay 
gotten in competition with the Southern. 7 

Mr. Winisu. In the very case you refer to a complaint was brougl 
to the commission showing these excessive earnings, and the con 
mission found that, if it considered the haul only over the Cincinmat 
New Orleans & Texas Pacific from Cincinnati to Chattanooga, tit 
the rates ought to be reduced; that they were more than reasonab 
for the service performed by that company, in that it aggregate 
an excessive amount. } 

Mr. Sirus. About forty some odd per cent? ‘ | 

Mr. Wimepisn. But the commission did not reduce the rates, becatt 
it said that Cincinnati and Chattanooga are not served alone by th 
road. There were other more circuitous routes, and that they wol 
take them all into consideration. But: the only thing that I want 
to bring out about the Cincinnati, New Orleans & Texas Pacifie wa 
notwithstanding the fact that it was so favorably situated, and 10 
withstanding that there is no considerable capital charge against t 
line, and the lease rental is always paid before they calculate the 
profits, that the rates on that road have not been reduced. Y 
just as high. | f 

Mr. Sims. Because the rates are not made for the whole country 0 
the standards of that road. ER: 

Mr. Wiupisu. I do not know how you are going to make rates f 
the whole country by any standard except the value of service. _ 





s 
i 


an 
a6 


| 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 513 


_ Mr. Sims. Then in effect itis your contention that if we thoroughly 
amortize 75 per cent of the present value of the railroad and remove 
it fom taxation, that will not have a tendency to reduce rates on all 
of jhe railroads of the United States? 
oS. WimsisH. “here is no assurance that there will be any such 
result. 

_ Mr. Sms. T am not, talking about the results. T am talking about 
the tendency. There is nothing sure in the future. 

Mr. Wriutsu. J do not think there will be a tendency that way. 

Mr. Sims. In other words, this complaint that the railroad com- 

anies have been making about not getting money to refund their 

onds, and so forth, in so far as 75 per cent of the value of their 
property is affected; is not true? 
_ Mr. Wimsisn. Well, T think you are right about that. 
_ Mr. Sms. One or the other is bound to be true. They can not 
oth be true. [so thoroughly agree with you on almost everything 
you said on the other matters, I did not want to have a controversy 
with you. I have confidence in what you say as a man capable of 
forming a correct judgment. 

Mr. Wimpisu. I thank you, sir. 

Mr. Sims. Are we going to guarantee rates and put a mandate on 
the rate-making bodies, and that mandate is measured not by the 
value of services but by what the people can pay, and provide it 
must produce a certain amount of net return upon an investment, 
claimed which I think never has been fully made? 

Mr. Wimpisn. In conclusion, and in the hope that I have not 
prejudiced myself in your good opinion by any expression I have 
made, I want to ~epeat that the purpose | had in view in answerin 
the questions was to subserve what seemed to me to be pabetanpial 
justice, that if the Government comes in and seizes property, the 
government ought not to precipitately cast it back unless it gives 
ihe owner of the property the opportunity to readjust; because the 
‘eizure was not the act of the private owner, but was the act of the 
aovernment, not the carrier who may get a profit out of it. , 

Mr. Sims. I am strictly in favor of returning the roads as soon as 
hhe Esch bill is passed. But if the Government is to pay anything, 
nstead of paying the whole standard return, let it do what you 
uggested-—loan these companies that may need it during this réad- 
ustment. 

The Cuarrman. The committee desires to thank you, Mr. Wim 
sh, for coming here and explaining your views so cleat 

(The committee thereupon adjourned until Wednesday, August 6, 
919, at 10 o’clock a. m.) 
if : Aveust 20, 1919. 
ton. Joun J. Escu, 


Chairman House Committee on Interstate and Foreign Commerce, 
Washington, D. C. 


_My Dear Mr. Escu: I am inclosing you dralt of suggested amendment to the Esch 
ilrelating to the granting of financial aid by the United States to the railroads, You 
ill observe that two classes of loans are contemplated. 

_ One is a temporary loan to those railroads who desire only provisional relief, and who 
te able to furnish adequate security; and the other to those railroads who require 
‘eater indulgence and a longer term loan—in other words, the so-called weak lines. 
‘418, however, contemplated that no loan will be made to any road of this class without 
‘Mlicient assurance of its ability torepay. Roads that can not pay operating expenses 
/4d fixed charges under a reasonable capitalization must be left to their fate. 


| 


514 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


This draft is only tentative and suggestive, and does not represent that finish in 
either thought or expression that I would like to have given it. My only purpose is to 
submit a concrete plan upon which something of real value may be built. : 

I regret to say that the demands upon me are such that I will be unable to prepare 
and submit a draft of an amendment looking to the establishment of a judicial branch 
of the Interstate Commerce Commission. I have given this subject some study, but I 
find that it is so large and involves so much detailed consideration that I am not able 
to do the work within a limited time. 

With assurance of my high personal esteem, I beg to remain, 

Sincerely, yours, 
Witiram A. WIMBISH. 


SuGGESTED AMENDMENT TO H. R. 43878. 


Suction —. That the United States may extend financial aid to railroads now unde 
Federal control for the purpose of enabling them to maintain their ability to prop- 
erly serve the public during the transition period immediately following the return 
of the railroads to corporate operation and control, in accordance with the require- 
ments and upon the conditions as follows, to wit: 

1. Any such railroad company desiring to obtain such provisional relief shall make 
application therefor to the Interstate Commerce Commission, specifying the amount 
of the loan desired, the time within which it is to be repaid, the use to which the 
money is to be applied, and the character and value of the security offered, together 
with such other facts relating to the propriety and expediency of granting the aid 
applied for and the ability of the applicant to make good the obligation, as may be 
pertinent to the inquiry and as the said commission my direct. 

“9. Should the said commission, after such investigation and hearing as 1t may deem 
appropriate in each: case, be of the opinion that the application should be granted 
in whole or in part, the said commission shall make report thereof to the Secretary 
of the Treasury recommending the amount of the ioan; the time, not exceeding five 
years, within which it is to be repaid; the security to be taken therefor; the rate of 
interest to be paid, not less than 4 per cent per annum, payable semiannually; and 
the character of the obligation to be assumed by the applicant, together with the 
terras and conditions thereof. The interest sha!l constitute a first charge upon the 
railway operating income of the particular railroad, and shail be given preference 
and priority in payment over all other charges upon such operating income. The 
obligation for the payment of both principal and interest shall constitute a first lien 
upon the securities offered and accepted, as well as a general lien upon all of the rail- 
road properties, subject to prior valid legal liens; and shall further constitute a first 
charge upon net corporate income and accumulated annual surplus: Provided, how- 
ever, That prior to any default in payment Cf interest or principal the railroad com- 
pany may out of its net corporate income make current payment of its usual dividends, 
not in excess of the average dividends declarea and paid during the three fiscal years 
ended June 30, 1917. 

Src. (a). That any railroad, whether or not now under Federal control, that may 
require more permanent and extended relief in order to enable it to efficiently serve 
a real and substantial public need for transportation, not otherwise adequately sup- 
pret, ta make application to the Interstate Commerce Commission for this character 
of relief. : 

The application shall set out the amount of the loan and the term for which it is 
desired; the purpose of the loan and the uses to which it will be applied; the present 
and prospective ability of the applicant to reray the loan and meet the requirements 
of its obligation in that regard; and the extent to which the public convenience and 
necessity will be served. The application shall be accompanied by statements 
showing such facts and details as the said commission may require with respect to the 
SEN a situation, ownership, capitalization, operation, and earning power of the 
rallroid. 

Should the Interstate Commerce Commission, after such hearing and investigation 
as it may direct, be of the opinion that the application is meritorious, and that the 
public convenience and necessity demands that the operation of the particular rail- 
yoad should be continued; and should the commission further find and conclude that 
the prospective earning power of the railroad is such as to furnish reasonable assurame 
of ability to meet the payments required, the commission shall make report and sub- 
mit to the Secretary of the Treasury its recommendations with respect to the follow- 
ing matters: 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 515 


(a) Wt ether financial aid should be extended to the applicant railroad company; 
and if so in what amount and for what term or period; the method of repayment; the 
‘security or assurance that should be required and taken; and the percentage that should 
‘be required to be paid annually into a sinking fund to retire the loan at maturity. 

(b) Whether asa condition precedent to making the loan the stock and bond capitali- 
zation of the road, either or both, shoud be voluntarily reduced in order to afford 
reasonable assurance that the road will have sufficient earnings to pay operating ex- 
penses, tax accruals, and fixed charges, and meet the required payments on account 
of the loan; and if so, to what extent such capitalization should be reduced or scaled. 

_ All such loans shall bear interest at the rate of four per cent per annum, payable 
semiannually. In addition to the interest the debtor railroad company shall set 
aside and pay annually into the Treasury of the United States not less than two per 
cent of the amount of the principal of tne loan, which payments so to be made annually 
shall constitute a sinking fund upon which interest shall be allowed at the rate of four 
per cent per annum, to be credited annually. When the payments so to be made into 
the sinking fund, together with interest thereon as above provided, shall aggregate 
‘an amount equal to the principal of the loan, such amount shall be applied in liquida- 
tion of the indebtedness and the loan shall be canceled. 

The interest and sinking fund payments on account of said loan shall constitute a 
first charge upon the railway operating income, and shall be given preference and 
priority in payment over all other charges upon such operating income. 

__ The obligation for the payment of principal, interest, and sinking fund requirement 
shall create a special lien upon the particular security that may be offered, and a 
general lien upon all of the properties and property rights of the railroad company, 
including net corporate income and accumulated surplus. 

' Sec. (b). The recommendations of the Interstate Commerce Commission shall in 
all cases be subject to the approval of the Secretary of the Treasury. In the event 
the Secretary of the Treasury shall approve the recommendation in any case he shall 
cause the amount of the loan recommended to be paid out of the Treasury of the 
‘United States to the approved applicant upon the execution and delivery of such 
contracts, evidences of indebtedness and other assurances in such form as shall be 
approved by the Attorney General. Should the Secretary of the Treasury for caus¢ 
disapprove the recommendations of the Interstate Commerce Commission in any case. 
he shall refer the matter back to the said commission for further consideration and 
report, accompanying such rereference with a memorandum setting out his reasons 
for such disapproval, together with a statement of the changes and modifications sug- 
gested by him. Thereupon the said commission shall, with or without further hear- 
ing, reconsider its report 1m the case and, to the extent that it may deem proper, alter, 
change, or amend its recommendations. The final approval or disapproval of the 
application shall rest with the Secretary of the Treasury. 

Sec. (c). That the sum of $ is hereby appropriated out of any moneys in the 
Treasury not otherwise appropriated, which may be used by the Secretary of the 
Treasury as a revolving fund for the purpose of the loans as in this section above pro- 
vided to be made. 


COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE, 
Hous oF REPRESENTATIVES, 
Wednesday, August 13, 1919. 


The CHatrMan. The president of the National Association of 
Manufacturers, through a representative, wished to present a brief 
Statement at this time, but in view of the fact that we had not the 
time this morning and he could not stay over until tomorrow, he 
desires to have this statement presented for the record. 

_This association represents 5,000 individuals, firms, and corpora- 
tions engaged in every form of manufacture in practically every State 
in the Union, and the statement expresses the views of this organiza- 
tion with reference to what it believes should be included in the rail- 
toad legislation, and I ask that it may be printed at this time. And, 
Judge Sims, the report from the St. Louis Traffic Club, to which you 
teferred, might go in at the same time. 

: Mr. Sims. Yes; I will be very glad to have it submitted at this 
ime, 


516 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. : 


(The statements referred to follow:) | ) 


STATEMENT OF NATIONAL ASSOCIATION OF MANUFACTURERS. 
(By Stephen C. Mason, president.) 


GENTLEMEN: On behalf of the National Association of Manufacturers I beg to submit 
for the consideration of your honorable committee the views of this association respect- 
ing various proposals pending before you for control and regulation of the railroads 
of the United States. 

This association is composed of substantially 5,000 individuals, firms and corpora- 
tions engaged in every form of manufacture in practically every State in the Union, 
Its members employ more than two and a half million persons and constitute the 
largest single group of industrial shippers contributing to the interstate and foreign 
commerce of the Union. The views here epitomized were finally reframed and 
reiterated at the annual convention of the association, May 19, 20, and 21, in New 
York City, with an attendance present of more than 1, 200 delegates, representing the 
most diversified forms of manufacture in every part of the country. 

The association believes— 

1. That the railroads should be privately owned and operated, the return to the 
owners to be made not later than the period fixed by the present statute, or sooner if 
remedial legis!ation essentia! to their successful operation is enacted. 

2. That as soon as possible and throughout the period of Government administration, 
Congress should provide amply for the e execution of a vigorous program for the adequate 
upkeep and betterment of the railway properties, both because this is an obligation, 
which the Government has assumed toward the owners and the public and because 
experience demonstrates that normal railway buying exerts a powerful influence upon 
general business and employment. 

3. That Congress should clearly declare that the promotion and expansion of trans- 
por tation facilities is an essential public policy of the United States. That such poliey 
should embrace systematic ‘railway development, that of inland waterways an 
hard-surfaced roads, and the articulation of these forms of essential communication. 
The plan and execution of such a policy should be the duty of a highly qualified 
transportation board created for that purpose, relieving the Interstate Commeres 
Commission of the administrative duties essential to so “oreat a policy, and recom~- 
mending to the commission the elements of an adequate rate structure to sustain it. 

4. That the rule of rate making should he clearly defined by statute, including as 
elements of an adequate rate an amount sufficient to insure the maintenance ol 
efficient service, make a fair return upon the existing investment and assure 
obtainment and protection of essential credit. 

5. That the railroads privately owned and operated, but subject to Federal read 
lation and incorporation, should be authorized to consolidate and cooperate among 
themselves for the coordination of lines, facilities, organizations, and terminals and 
the elimination of waste, to the same extent and in the same manner as such coop: 
eration and consolidation has been permitted or required during Government opera 
tion and administration. 

6. That the Interstate Commerce Commission be relieved of administrative duties 
that it may more efficiently discharge its increasingly important judicial functions | 
in the regulation of macimum. and minimum rates, ‘the adjustment of tariffs and the 
development of a just and nondiscriminatory rate structure. The administrative 
duties of the commission should be referred to the proposed transportation board) 
which supervise the issue of railroad securities, study and recommend the Put ¢) 
need for facilities and extensions, estimate and certify to the Interstate Com 
Commission the revenues required under the rate- making rule fixed by Congre 

7. That no program of railroad regulation is complete that does not assert ai 
protect. the paramount public interest in the uninterrupted operation of the instru 
mentalities of commerce between the States. To this end appropriate legisla ‘ior 
sare be enacted to provide, either — y 

. That whenever, in the opinion of the President of the United States, a disput 
ae hours, wages, or working conditions threatens the inter ruption of the service 
of a carrier essential to the performance of the civil or military functions of the Gor 
ernment, or the free movement of commerce between the States, or with foreig 
nations he should appoint a commission eminently qualified to ascertain the cz 
and circumstances of the dispute and make an award and recommendation the 
and during the conduct of such inqury and until the publication of such fin 
and award it shall be unlawful for the employers or employees of the carrier invo 
to combine or conspire, among themselves or with each other, to cause a stvik 
fockout that wil! deprive the public of the service of such instrumentality of cop 

unication; or 























% 


a 
f 


: RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 517 


| 


: 2. It should be provided, as authorized by the decision of the Supreme Court of the 
Mmited States in sustaining the Adamson eight-hour law, that whenever a labor 
ispute threatens the operation of an instrumentality of interstate communication, 
ae President shall appoint a commission which shall write a contract for the parties 
) remain in force until they shall voluntarily agree between themselves, thus retain- 
ig to both parties their freedom of contract, subject only to the paramount interest of 
1e public in the continued operation of the railway service. Such proposals merely 
ring emphatically to the attention of the public and possible disputants the limits 
thich the paramount right of social self-defense has long since placed upon the activity 
f combinations. 
With the exception of the last, each of these propositions in various forms has been 
abmitted and argued before your honorable committee. We do not, therefore, deem 
‘Mecessary to submit a repetitive argument for them, but we venture, as a great body 
fshippers, to assert that under modern conditions adequate and efficient transporta- 
(on is itself a limit upon every form of successful production. The development of 
dequate sources of material supply and the successful distribution of finished products 
jutterly dependent upon corresponding facilities for transportation. The task of 
adying America’s needs for delivery and communication and to systematically 
‘late its facilities by land and water, by road and rail, is a task of sufficient magnitude 
) require the assembling of the most highly qualified experience and ability in a 
sansportation board. | 

‘The declaration of a great constructive policy of transportation would clarify public 
tought and stimulate aggressive business activity, while the statutory definition of 
1e rule of rate making would lessen the sources of friction and controversy and lay 
ae secure foundations of a sound rate structure. The certification of the essential 
svenue requirements for the development of a progressive transportation system 
fould greatly lessen the burdens of the Interstate Commerce Commission and the 
»paration of its administrative from its judicial functions would expedite its operation 
ithin the field in which it has been particularly satisfactory. 

‘We do not deem it necessary to argue the respective merits of public or private 
wnership. The great system of transportation which we enjoy is the fruit of private 
Utiative and enterprise. The abuses and evils incidental to its growth have yielded 
ya steadily increasing extent of controi. But our governmental structure, the genius 
f our institutions, our ideals and principles, are not favorable to the public operation 
{ private enterprise, especially in any competition between the Government and its 
wn citizens. It is, moreover, seriously doubtful whether our organic law, which 
lakes the public authority a regulator of commerce, authorizes it to conduct a business 
peration save under the pressure of the national exigency which brought Government 
ulroad control into being. 

We submit, moreover, that the good faith of the United States is pledged under the 
ireumstances in which Government control was assumed to return the private proper- 
tty thus taken to its owners. An accident may justify the commandeering of an 
utomsbile by a public officer to remove an injured person to a hospital, but it would 
touse justifiable resentment if the return of the motor to its owner were made the 
ibject of controversy. ‘he burden of proving the superior value of public owner- 
ip has so far been met only by gratuitous assertions of its superior efficiency, which 
te more than refuted by the excessive costs, the failing service, and the demoralized 
lorale of the operating force consequent upon a little more than a year of Government 
peration and control. Every argument that is or can be made in principle for Govern- 
tent ownership of the railroads under thinly disguised control of the organized 
mployees is equally applicable, and will be made to like Government ownership and 
peration of the telephone, the telegraph, and the merchant marine. It proposes a 
Deculative experiment at colossal expense in an hour when the nation staggers under 
1e burden of unprecedented debt. No plan could be devised that would more cer- 
linly demoralize the business structure of the nation, jeopardize the savings of the 
‘ugal and the industrious, or more certainly increase the ccst of sustaining the life 
{every human being within the nation. It is the first step through the gateway of 
ate socialism to the operation of transportation and industry under a soviet control. 
We venture, in -onclusion, to especially assert the necessity of relieving national 
smmunication of the fear of deliberate interruption, Communication is almost civill- 
ation. ‘The interdependence created amongst individuals and communities makes 
1 uninterrupted movement of transpor‘ation in every form essential to the main- 
mance of social life. The right of employer or employee, of organized capital or 
tganized labor, to combine to act in concert, is subordinate in every form of associa- 
‘on to the paramount interest of the public in the uninterrupted service of the essen- 
al facilities of communication. These forms of service are as necessary to modern 
fe as the circulation of blood to the human body. Social self-defense justifies the 
Xercise of every power of government essential to remove any economic or physical 








518 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


obstruction from the pathway of commerce, be it a mob, a monopoly, or a sand bank. 
No sovereign State, however great its population, however strong the belief of its 
people in an act of their legislature, can interpose its will, or its law, or its structures, 
to interrupt or obstruct or prevent the free flow of commerce. To assure the freedom 
of trade and tue trader exerted a most powerful influence upon the transformation 
of the confederate’ colonies into the union of States. Is it not pertinent now to ask 
the question which the Supreme Court of the United States asked and answered 
in the Debs case, at the instance of Grover Cleveland: 

“Tf a State with its recognized powers of sovereignty is impotent to obstruct inter- 
state commerce, can it be that any mere voluntary association of individuals within 
the limits of that State has a power which the State itself does not possess?”’ 

We submit that it is not only the right but the duty of Congress to now exert its 
full authority to define the limits within which business men or workingmen, capital 
or labor, employer or employee, may go in threatening the transportation of the 
Nation as a means of compelling the acceptance of economic demands of political 
policies. Congress must either now assure the protection of the paramount interest 
of the public in the continued operation of the railroads or abdicate its regulatory 
authority t» selfish and irresponsible combinations of private persons. 


REPORT OF THE St. Louts TRAFFIC CLUB ON THE ESCH-POMERENE AND POINDEXTER 
BILLs. 


: Str. Louis, Mo., July 26, 1919. 
Your committee desires to report that the Esch-Pomerene bill on the whole, is the 
most comprehensive bill which has been submitted to this session of Congress. Your 
committee indorses especially the proposed plan to pool equipment and terminals 
It is felt that competitive conditions should be restored as promptly as possible, and 
in order to insure its restoration, the plan which contemplates the pooling of earnings 
should be eliminated entirely from the bill. Your committee deems it unnecessary 
to insert a provision requiring the commission to take cognizance of the cost of capital 
in the making of rates as recommended by the Chicago committee. There are many 
unnamed conditions which, under this bill, the commission must take into consider- 
ation in adjusting rates, and to name only a few would circumscribe the powers of 
the commission in giving due weight to all of the conditions involved. 
The Poindexter bill, which contemplates a rigid fourth section rule, with no excep- 
tion, your committee has concluded should be emphatically indorsed and our Con- 
gressmen so advised as promptly as possible. To-day flagrant fourth section violations 
exist based on fictitious water competition. Because unduly favorable rates can be 
made to such centers, carriers have been unwilling to readjust such rates because no 
intermediate territories have been involved. Routes are so circuitous as to make 
inadvisable the application of rates to intermediate points, are not desirable under 
any condition. Your committee is not unmindful of the advantage in the past of 
some of these indirect routes, but their necessitv will be obviated if the pooling of 
equipment and terminals in the Esch-Pomerene pill is approved. 
In this day of high operating cost for every unnecessary milea freight car is handled 
an unnecessary addition to the cost of operation is made. Formerly, carriers engaged 
in traffic via circuitous routes on the theory the additional traffic represented a profit: 
somewhat less than the earnings to which they were entitled on other traffic. 
The conditions of the railways to-day should preclude this practice. If the cir~ 
cuitous route can be made a profit on the certain traffic, the direct line should show a 
correspondingly greater profit, which should contribute to reduce the deficit now 
confronting the Railroad Administration. 
It is by no means certain that the carriers will always show a profit on this round~ 
about traffic. On the contrary, the reverse is frequently true. All of this circuitous’ 
routing contributes to reduce the net revenue per ton mile. The bill will only drive 
out of competition between common points the circuitous and impractical routes. — 
A circuitous route in one instance will be the direct route in another. The cancella- 
tion of these circuitous routes will conserve equipment and promote competition. 
between inland and coastwise waterways. 
Your committee feels that copies of these resolutions should be sent to all the Con- 
gressmen and Senators, and to all members of the traffic club. 
Respectfully submitted. 
H. R. BRASHEAR, Chairman. 
GEORGE DANNER. | 
H. T. Burns. 
F. W. DEpre. 
Jos. L. PowrEr. 

Epwarp Devoy, President. 


ct 
- 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 519) 


PLAN PROPOSED BY LEON CAMMEN. 


BEING CHAPTER XVIII OF THE BOOK, ‘‘GOVERNMENT OWNERSHIP OF PUBLIC 
UTILITIES.”’ 


At present two ac encies have the right of Government regulation of public utilities,. 
the Federal Government and the States, and as has been explained elsewhere, unless 
a constitutional amendment to that effect should be carried, the two will have to 
continue, as both are based on recognized and undeniable rights of their respective 
sovereign bodies. 

It would be therefore desirable in the new system of regulation to effect such an 
organization as would bring regulation by the Federal Government in close coopera- 
tion with that by the various States of the Union. 

With this in view it is proposed to divide the entire country into, say, six districts, 
in as far as yossible organized in such a manner as to constitute real industrial and 
economic units. The limits of the districts should be so selected that as large as 
possible a share of the traffic of the roads in each district should lie within its own 
imits. 
| Each district should be governed in railroad affairs by a sort of public. utilities: 
1ouse of congress, consisting of representatives of the public utility commissions of 
2ach State in the district, representatives of the roads and of important organizations 
at shippers, with a chairman appointed by the Federal Government, or by the Presi- 
lent. The district committee would then consist roughly of from 60 to 100 persons,. 

jul of whom would be presumably experts in matters of transportation and industrial 
[Ee elopment, and would handle mostly matters affecting their immediate neigh- 
orhood. 

The proceedings of such a body would be absolutely open to the public and would 

iaturally attract a large amount of attention on the part of the people and the local 
ress. All matters of regulation within the district would be handled by this district 
joard either as a body or through its appointed committees, the chairman giving the: 
federal Government a voice in the affairs of each district consistent with the dignity 
if the central authority. 
In this way matters affecting each district only could be settled right on the spot 
y men knowing local conditions and representing all sides of the question. Since, 
urthermore, all work of the board, both open meetings and committees, would be 
‘bsolutely open to the public, no secret meetings or confidential documents being 
ermitted, ths questions would be thrashed out in the open and the weight of public 
pinion would keep the parties on the right track. 

The representation of the States comprising the district in the district board would 
sure the acceptance of its decisions by the States within reason: that is, no State 
rould absolutely surrender its sovereignty to the district board, but the weight of 
pinion of the district board and of the States represented therein would in the vast’ 
lajority of cases help the formal adoption of the decisions of the district board by 
he governing bodies of the States composing it where such a formal action is necessary. 

Matters affecting two contiguous districts could be handled by conferences between 
oards either as plenary bodies or through special committees appointed by them, 
hile matters affecting the entire country or more than two districts, such as trans- 
ontinental transportation, relations between the roads and the Federal Governm ent, 
te., would be handled by a Federal body corresponding to the present Interstate 
Ommerce Commission and consisting of six chairmen of the district boards, with a 
hairman of the Federal commission appointed by ‘the President in the usual manner. 
o this way the central commission would consist of men thoroughly familiar not 
aly with conditions in every district but with the various views held therein, so 
iat the central body would in the fullest sense of the term represent the transporta- 
0M opinion of the country. 
ie this is only a bare outline of the scheme, it would appear that such an arrange- 
‘ent would make possible the fullest degree of cooperation between the public, the 
uppers, the States of the Union, and the Federal Government. 
| — matter of the greatest importance is that of the basis for treating the rail- 
ads. 
| What, after all, constitutes fair treatment of the roads? It is said that such a ques- 
0n can not be determined without a complete physical valuation of the roads, which 
‘ay, however, take many years before it is completed. It is true that if we had such 
valuation we could with fair certainty decide what should be the absolutely just 
tes for every line. We are, however, faced not with a theory but with a condition, 
‘id that ss that in order to continue and advance the development of the industries 
We country, we need the roads to transport goods and passengers in an adequate 











520 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


and efficient manner, and while we have roads, we know perfectly well that they are 
ga to deliver that service on which the economic progress of the country 
epends. Ghee 

The only basis from which roads should be considered is that of enabling them to 
deliver that service to the country for the purpose of which they have been created . 

To do this it would appear to be a simple though not perfect plan to employ the same 
district organization that has been proposed above. This plan involves the considera- 
tion of the roads not as corporate units but as physical tools. If the Pennsylvania o 
the New York Central companies have lines lying within three or four districts, these 
lines would be treated as entirely independent units, notwithstanding the fact that 
they may belong to one company. In fact, it may ultimately prove desirable to insist 
upon some form of corporate organization which would indicate the division of the 
transportation systems into their respective districts. 

Within each district a rapid survey can be made at a comparatively small cost and 
in a comparatively short time, sufficient to give a clear idea as to the physical state ot 
the lines. Sufficient statistical data are already in the hands of the Interstate Com- 
merce Commission and the companies to determine the amount of freight carried by 
the lines, and business conditions locally would show to what extent the lines hay« 
been able to handle the business in existence or in immediate prospect. 

On the basis of these data, neither of which are assumed to be exhaustive or abso: 
lutely comprehensive, it would be perfectly possible to determine the immediate 
needs of the transportation system treated asa whole in each individual district, whil< 
a similar work carried out by the central body would rapidly indicate what furthe: 
ae tS harai as are necessary to handle long-distance hauls and transcontinental 
traffic. 

The roads in each district would then be treated as complete units and the district 
board would face the problem of what to do, not with the Pennsylvania or the Nev 
York Central, but with the transportation system in the State of Rhode Island or thé 
State of Indiana. ; 

In this way it might be found that the eastern section of a State (which we may cal 
Kalawassa) has all the roads that it apparently needs, while the western end of tha 
State represents a picture of congested traffic, delayed deliveries, ete. It would ther 
fore appear clear that the eastern end does not need for the present any assistance 
while the western end does need it. But in the western end there are two roads, the 
X & Y and the Red Mountain. Under the laws which have existed before the war. 
the X & Y and Red Mountain, while both overloaded, were expected, nevertheless, tt 
compete for traffic, which meant that even though the Red Mountain could not car) 
it, it was still under the law bound to try and take away traffic from the X & Y. J 
. this way the two coads were forced into competition for which there was neither neec 
nor reason. Likewise the two roads were not permitted to combine in any way 
jointly handle the increased traflic. 7 

Under the new arrangement, the district board would endeavor so to combine the 
business carried by the X & Y and Red Mountain as to increase their joint transporta 
tion facilities. This might be done in various ways; for example, the two might lx 
permitted to construct joint relief or feeder lines, which would permit a more eco 
nomical handling of traffic. Terminal facilities might be pooled or new handling 
facilities established for the jomt use of the roads. . 

In this wat the transportation net in each district would be developed primarily 
not from the point of view of each individual line but on the basis of the consideration 
of the needs of the district, which, by the way, would automatically solve the problem 
of water carriers, since wherever the water carriers could relieve traffic con estiot 
they would be permitted to do so under a system worked out in each case by the dis 
trict board in such a manner as to help the traffic needs of the district without injuria 
the railroads. { 

The question of tinancing the new improvements could be solved in the followit 
manner. As matters stand now the railroads can not raise enough capital to finance 
their own improvements. The district board could help them-in several ways. In tht 
first place, the district board might permit to finance certain improvements joi) 
by more than one railroad, which would give an important supplementary guarahy 
to the securities. Further, through the district board the States might pledge thet 
credit in part or in full to help out the railroads, and, finally, the district boards mi 
bring the matter up before the Federal commission, which would then arrange 10 
similar assistance on the part of the Federal Government. Finally, a combination © 
any two orall of these methods could be employed, depending on the merits of the case 
the amount of capital involved, and the more or less local or national importance of (fi 
project. The main thing at present is not so much to determine how each individ ua 
case may be handled as to establish a machinery powerful enough and flexible enougt 
to handle all cases on their merits. 4 














RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 521 


s Ps ja 
: 


‘Itis obvious that the basis for any system involving assistance to the railroads on 
she part of either State or Federal Governments must be such as to make capital avail- 

ple to the railroads where they can not get it on their own credit, and at the same time 
preserve an incentive for the roads to try and do without Federal aid, because if 
ilroads are left under private management and still placed in a position where 
would have to rely on outside assistance for all their improvements, their plight 
d be slightly better than under straight Government ownership. 
would appear that a good way to solve this problem would be to limit the divi- 
lends of any road which has received financial assistance from the Federal or State 
jovernments while the obligation still remains uncanceled, to a comparatively low 
igure, say, 4 pei cent or not more than 5 per cent of the outstanding stock. Since 
vell-managed lines, if properly treated by the Federal and State Governments in the 
aatters of rate regulation, can easily make more than this amount, there would be 
‘mn incentive for the railroad management to issue their own securities and cancel 
‘heir debts to the Government at the first opportunity, so as to be able to resume regu- 
iw dividends to stockholders. On the other hand, this would also help the Federal 
overnment by rapidly reducing its obligations on the railroad account. ~ 
' The question of wages could be solved in a somewhat similar manner. The men 
Eats the railroads are entitled to a wage which should represent two clements, 
‘f which the first is a so-called living wage, or enough money to maintain a proper 
sandard of living for a man employed in that particular kind of work. Thus, a signal- 
jan would have to receive enough to be enabled to live as well as the average workman 
‘his district employed in an occupation requiring the mental and physical qualifica- 
ons which a signalman has to have, with perhaps a little more, soas to attract the best 
lass of labor to the responsible jobs in the transportation system. A locomotive engi- 
eer is a man of higher training and education than asignalman, and therefore would 
@ entitled to a correspondingly higher living wage. The living wage considered in 
ie above manner is an absolute minimum that a railroad employee should have, and 
would be the duty of the district board to see that no railroad is permitted to operate 
its region which does not pay to its employees, no matter how lowly, proper living 



































‘In addition to that, the employees should at least to a certain extent suare in the 
jofits of the concern. There may be a tendency, especially at present, when the 
‘uestion of Government ownership may come to a vote, to promise to railroad em- 
loyees a larger share than they are entitled to, so as to counteract the promises of 
igh wages on the part of the Federal Government. Either of the two schemes, how- 
ver, is nothing but a political bribe unless the profit sharing in private companies 
‘ the high wages paid by the Government are justified by the economic conditions 
‘the country and the conditions of operation of the railroads. Railroad labor would 
2in the long run far better off if they received only a decent wage and not a concealed 
ibe for their political vote. 

The participation of railroad labor in the profits of the companies is unquestionably 
stifiable and should be established, but it should not be forgotten that all railroad 
‘ofits, whether to labor or capital, come out of the pockets of the country, represent 
thing but an indirect tax on the industries and the very life of the Nation, and 
ereiore should be maintained within reasonable limits. 

A basis for the determination of wages and profits is comparatively simple, though 
quiring a rather careful handling. 
(Hach district should have what may be called a coefficient of operation of capital. 
is obvious that a million dollars invested in transportation facilities in the State of 
hode Island will bring in a larger volume of traffic than a similar million dollars 
vested in the railroads in the State of Arizona, because of the different conditions of 
‘onomic development. Further, a million dollars in bonds paying 5 per cent divi- 
md and having a preference over all other payments is entitled to a different r>turn 
ana million dollars in common stock, so that 2 company which has 50 million dollars 
common stock and 50 million dollars in bonds is entitled to a different return +o its 
|areholders than a company which has 5 million dollars in stock and 95 million dollars 

‘Ponds. Further, a company which has been able to finance its extensions by its 
m effort, is again, entitled to a different return than a company which has received 
sistance from the State or Federal Government. [ecause ofthis it would be per- 
tly feasible to work out a formula for each district which would show the minimum 
he which the stocks of the companies operated in each of these districts are 
‘Utled. This minimum return should go to the stockholders of the companies in 
‘© Same manner as the living wage goes to the Jabor, and the rates in each district 
uld be worked out so as to cover liberally the operating expenses without stunting 
?Taliroads or reducing them to various uneconomical shifts, and to give an equitable 
| 











m capital according to the formula above referred to, as well as a living wage 
- It will be found that the weakest roads will receive practically only that 


i BY 
3 
a | 
Bs, 
ag 


“d : . ; Pail 


522 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


much. The stronger roads will, however, get a good deal more because of their highe 
efficiency of operation, or perhaps because of their better location. The extra profit 
of these stronger roads should go partly to capital «nd partly to labor, with that dis 
tinction, however, that the share which goes to capital would be divided among th 
stockholders of that company only, while the share that goes to labor would k 2 divide 
not among the employees of the stronger company exclusively, but partly go into : 
common district fund and be divided among all employees. 

A little example may illustrate how it is proposed to operate such a scheme. Thi 
X & Y Company has made an extra profit of say 10 million dollars. Out of this profi 
the stockholders received, say, two-thirds, or $6,666,666, while the labor receives one 
third, or $3,333,334. Out of this amount the employees of the X & Y Company 
recelye one-half, or $1,666,667, while the other half goes into a joint fund for tl 
employees of the local district to be divided equally amongall. Hence, the employee 
of the X & Y Company will receive a little more than one-sixth of the extra profits o 
the company, that is, the one-half of the one-third that comes to them directly, an¢ 
their share out of the commonfund. They would therefore have a particular incentive 
to work well for their railroad. 

It might be further advisable to modify this scheme, at least in certain instances 
in the following way. The additional money that comes from the district fund shoule 
be given out not each month but every three or six months in large lumps to enable 
railroaders to meet large expenditures which can not be usually met out of thei 
weekly or monthly wages, and thus free them of the curse of usurers and installmen 
sharks. On the other hand, the large sums given out directly to labor from thet 
own companies (that means, the one-sixth of the extra profits), should be given to then 
only partly, say, 50 per cent, while the other part should go into a special fund and ac 
as a sort of insurance fund, so that a man after having worked on the railroad for : 
certain number of years would have quite a large sum saved for him to take care 0 
him in his old age. 

There are several similar modifications of this scheme possible and it is believec 
that it has the advantage of both equalizing to a certain extent the wages in a certail 
district and still providing an incentive for the men to care for the interests of thei 
own company, and what is still more important, to stick to their jobs with well 
managed and profitable companies. : 

The above brief outline of a possible scheme of operation of railroads under privat 
ownership but with Government regulation has been offered not so much as a workin 
scheme which should be adopted as a whole, but simply as an illustration of the possi 
bility of working out a plan under which public utilities could be treated fairly botl 
to themselves and to the best interests of the country, and still remain under privat 
ownership. . 


PLAN PROPOSED BY VICTOR MORAWETZ. 


RAILROAD CREDIT MUST BE REESTABLISHED. 


To furnish adequate railway service in this rapidly growing country requires a! 
expenditure of new capital averaging approximately a thousand million dollars pe 
annum for improvements and additions enlarging the capacity of the existing line 
and for the construction and- equipment of branches and extensions into territory ne 
adequately supplied with transportation facilities. However, for more than 10 yeal’ 
there has been a gradual deterioration of railway credit, so that even prior to our ent, 
into the Great War it became impossible to finance new railroad projects and the existim 
railway companies were unable to raise the amounts of capital which they urgenth, 
needed. At the present day many of the strongest companies are unable to raise al, 
considerable amount of capital by sales of their bonds, except at ruinous prices, ai! 
very few o° them are in a position to sell their stocks at any price. If the railway 
should ucw be returned by the Government to their owners without far-reachin 
remedial legislatici, a large part of the railroad mileage in the United States woul 
soon pass into the hands of receivers. a 

In my opinion, this deterioration of railway credit, with the consequent inabilit 
of the majority of the railway companies to raise necessary capital, was not duet 

_ insufficiency of,the incomes of the companies, but it was due to the loss of confidence 
of investors in the stability of these incomes. I believe that prior to the war Ut 
incomes of most of the important companies would have been sufficient to surt@ 
their credit if investors had felt confidence that these incomes would conti 
Investors lost confidence in the stability of railway incomes and in the safety of railwa 
stocks and bonds (except underlying bonds of the safest class), because no defini 
and practicable rvle or standard for fixing railway rates was prescribed -by law and the 











RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 593 


eared that in the long run the various railway commissions would not allow the 
‘ompanies to charge the rates necessary to enable them to continue to pay the interest 
im their bonds and the usual dividends on their stocks. 

| Merely to raise rates so as to increase the prewar operating incomes of the railwav 
‘ompanies without definite assurance as to the future would not be enough to restore 
he confidence of investors. Such an increase of rates and of the operating incomes 
‘{ the companies might cause a temporary rise of the market values of railway stocks 
nd bonds, but it would not in the long run restore confidence and it would not sole 
he problem. The railway problem can be solved only by furnishing adequate 
‘ssurance to investors that in the future railway rates will be fixed according to some 
efinite, practicable and just rule or standard. 


NO EXISTING STANDARD FOR FIXING RATES. 


‘To provide by law that rates shall be “reasonable” or “fair” or “adequate” would 
‘Imish no standard whatever. No one has ever devised any practicable method 
f determining the reasonableness or fairuess or adequacy of a particular railway rate. 
+ of a complete schedule of railway rates. 
“The Constitution provides that no one shall be deprived of his property without 
ue process of law and that private property shall not be taken for public use without 
ist compensation. The courts have decided that a law or an order of a commission 
‘xing the rates of a public service corporation so low as to prevent it from earning a, 
ur return on its property would in effect deprive it of its property and therefore 
‘ould be unconstitutional. The doctrine has now become generally accepted that 
‘ay system of rates yielding more than this so-called fair return is too high and that 
ie Government should fix rates at a level that will vield no more than the return 
hich the companies have a constitutional right to claim. However, the Constitu- 
on furnishes no standard for determining the value of the property upon which 
.e railway companies are entitled to earn a fair return and it furnishes no standard 
w determining the rate of return upon this property that is to be deemed fair. In 
iew of the uncertainty as to the meaning and effect of these constitutional provisions, 
ey have failed to give the necessary confidence to investors. The right to maintain 
lawsuit against a railway commission to establish that the rates fixed by it are con- 
scatory and unconstitutional is not a sufficient assurance to attract capital. 

When we speak of the value’ of property we commonly mean its market value, 
‘, 1n other words, the price at which it can be sold. But it is obvious that railway 
ites can not be based upon the value of the railways, using the word “value”’ in its 
‘dinary and proper sense. Railways are not bought and sold in the market and they 
|ive no ascertainable market value. Moreover, as railways can be used only for 
ilway purposes, their value depends upon the earnings that can be obtained from 
1eir operation as railways, and these earnings in turn depend upon the rates which 

| le Companies can chaige. An attempt to base the fairness and constitutionality of 
| ulway rates upon the market or selling values of the railways would, therefore, 
2» an absurdity. 

For similar reasons rates can not be based upon the market values of the stocks and 
mds which represent the properties of the railway companies. Tesides, the quoted 
arket prices of stocks and bonds indicate only the approximate prices at which 
mparatively small amounts of the stocks or bonds can be bought or sold for cash. 










ORIGINAL COST OR COST OF REPRODUCTION NO BASIS FOR RATE MAKING. 


In view of the impracticability of fixing the value of railways for rate-making 
| Wposes in the manner in which the value of the property ordinarily is ascertained, 
| has been proposed that railway rates shall be fixed so as to yield a fair return either 
) on the original cost of the railwavs, that is to say,-the amount of money originally 
| ‘pended for the acquisition of land, rights of way, buildings, equipment and other 
operty embraced in the raiiways and for the labor employed in their construction, 
| 8, however, depreciation, or (2) on the estimated present cost, of reproducing the 
ilways as now constituted. less depreciation. There are insuperable difficulties 
the way of carrying out either of these proposals. I shall point out briefly some of 
se difficulties Lefore undertaking to offer a constructive proposal of my own. 

The original cost of the railways is not ascertainable. Some of the lines were Luilt 
ore than half a century ago; some were | uilt by construction companies in con- 
teration of the issue of blocks of the stocks and bonds of the railway companies 
* whom they were built; some of the railway companies have passed through a 

‘St One reorganization and probably most of the lines no longer belong to the com- 
| Mies which originally built them. In many cases the books and accounts showing 
th more or less accuracy the original cost of the lines are no longer in existence and 


524 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


no trustworthy evidence of their cost is obtainable. Moreover, until comparativeh 
recent years the several companies had adopted no scientifie system or uniforn 
practice in allocating expenditures to capita! account or to the cost of operation an¢ 
maintenance. Any attempt to ascertain the actual cost of the railways prior to th 
adoption of the 7 resent scientific system of accounting prescribed by the Interstat 
Commerce Commission would certainly fail and, at best, it would invelve ix cerminable 
investigations and disputes. 

A statutory valuation of the railways based largely on the cost of reproducing then 
has been in progress since the year 1914 at enormous cost to the Government and to thi 
railway companies, but the valuation of only a few of the smaller lines has been com 
pleted. The rules to be applied in making these valuations have not been acceptec 
i the railway companies or approved. by the courts and some of the methods 06 
valuation adopted by the valuation board seem to be unreasonable and unjust. Tk 
complete the valuation of all the lines will require many years, and probably addi 
tional years will be consumed in controversies and litigation to correct errors in thi 
official valuations. When completed, these valuations will be based on costs of labo 
and materials during years long past. It seems obvious, therefore, that the officia 
valuation of railway properties will not prove a satisfactory basis for fixing the return: 
to which the companies are entitled and will not be available in time for the prepara: 
tion of a plan for the solution of the railway problem. 

It should be borne in mind, also, that if under the Constitution the cost of reprodue 
tion of the railways is the measure of value on which they are entitled to a fair return 
this must be the cost of reproduction at the time when the rates are put in force; but 
the cost of reproduction of railway property fluctuates from time to time with the cosi 
of materials and labor. If cost of reproduction is the proper basis for fixing rates, the 
basis wo’ ld change from time to time as prices of materials and labor change, and it 
would be necessary to recalculate the cost of reproduction and readjust rates accord. 
ingly. Thus, in a suit to restrain the unconstitutionality of rates in 1925 the question 
would not b:: wvhether these rates would yield a fair return on the cost of reproduction 
in 1914, or in 1919, but the question would be whether they would yield a fair retur 
on the cost of reproduction in 1925. | : 

Even if the original cost or the cost of reproduction of the railways were ascertainable 
and if rates could be adjusted so as to yield a fair return and no more upon the porey 
of each railway company, it would not be fair to the public or to the owners oi railway 
securities to adjust rates in that manner. The railways were planned and built under 
State laws as private enterprises for profit and their location and construction was nol 
directed or supervised by the States or by the Federal Government. Some lines were 
planned and built wisely, while others were planned and built improvidently and 
wastefully. Some were honestly located and built to serve the needs of industry and 
commerce or to develop sections of the country in need of transportation facilities 
while others were built merely to obtain profits through sales of stock and bonds to the 
public or to other railway companies. 

Furthermore, the market prices of railway stocks and bonds never have been deter 
mined by the original est of the railways or by the cost of reproducing them, ‘They 
have been determined principally by the present and prospe.*ive earnings or the 
companies. The stocks and bonds of the strong and prosperous companies are widely 
distributed -nd most of them are held by bona-fide investors. Many of the bonds 0 
such comp: aies are held by insurance companies and savings banks. On the otlel 
hand, the stocks and bonds of many of the poorer companies have not been so widely 
distributed and they are more commonly held in large blocks for speculative purpores: 

It has been proposed that the Interstate Commerce Commission shall make a valué 
tion of the railways according to principles and rules to be determined by it, taking 
into consideration original cost, cost of reproduction, average earning power for a given 
period of years, and such other elements as the commission may deem proper for deter 
mining their fair value, with power in the commission to make special adjustment 
in individual exceptional cases. This, in substance, amounts to a proposal to vé 
in the Interstate Commerce Commission a discretionary power, subject to no goven 
ing principle or rule, to value the railways and to make or to unmake the values of 
railway stocks and bonds. I submit that Congress should not delegate such a poe! 
to any commission or board, even if Congress has constitutional power to doso. 


WHAT RATE OF RETURN IS FAIR? ‘7 


. 2 
Assuming that the value of the railways for the purpose of fixing rates can be deter- 
mined, the question would remain as to the rate of return that would be reasone 
and fair. The reasonableness or fairness of a return upon property devoted to a publ 
service depends partly upon the current rate of interest or dividends that must D 
paid for money invested in long-time obligations or in stocks and partly upon the mss 
of the investment. However, the current rate of interest on long-time obligations 


i 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. O25 


fluctuates from time to time and the risk of investments in railway securities depends 
largely upon the railway policy adopted by the Government. 
a fyven if it were practicable from time to time to determine and fix both the value 
‘of railway property for the purpose of fixing rates and the rate of return upon this 
‘property that is fair, the problem would not be solved. ‘The railway companies.can 
‘not readjust the rates of interest on their bonds and the rates of dividends on their 
‘stocks from time to time according to the fluctuations of the rate of return on railway 
-property that is deemed fair. To raise capital by selling its bonds a company must 
obligate itself to pay interest on the bonds at a fixed rate up to the date of their maturity 
and it can not sell its bonds unless purchasers feel assured that the company’s earnings 
will continue sufficient to enable it to pay this interest. The power of a company to 
‘Taise capital upon reasonable terms by sales of its stock depends upon the confidence 
of purchasers in the ability of the company to earn dividends on the stock at some 
estimated rate. The adoption of a plan under which the earnings of the railway 
companies and their ability to pay interest and dividends would fluctuate from time 
to time with the rate of return upon railway property deemed to be fair would not 
| ere the confidence required to enable the companies to obtain capital upon favor- 
able terms. 


RATES ENSURING A FAIR RETURN TO EACH EXISTING COMPANY IMPRACTICABLE. 


To adjust rates in such manner as to yield to each separate line of railway a fair return 
and no more on its original cost or the cost of reproducing it is absolutely impracticable 
whatever basis of fixing rates may be adopted. Of necessity, rates applicable to com- 
petitive business, that is to say, business between points that are common to several 
'Tines, must be alike for all the coinpeting lines; for otherwise the line charging the 
lowest rate would attract all the business. So als. the rate for the transportation of a 
commodity upon which the margin of profit is small, as, for example, coal, from differ- 
ent sections of the country to a common market, can not vary materially if producers 
in these different sections are to be given. an opportunity to compete. Moreover, 
‘the power to increase or to reduce rates upon noncompetitive business is subject to 
‘practical limitations. “Under a system of rates yielding to the favorable situated 
companies no more than a fair return many of the less favorably situated companies 
would be bankrupt. Under a system of rates yielding a fair return to the unfavorably 
‘situated companies many of the more favorably situated companies would earn much 

more than is deemed to be a fair return. 

The question whethe: the adoption of a system of rates yielding to the most favor- 
ably situated compatues a fair return, but no more, upon their property would be 
constitutional as to the less favorably situated companies which under such a system 

of rates could not earn a fair return has not been settled by the courts, but in any 
event the adoption of such a system of rates would certainly result in the bankruptcy 
of many of the companies and would be disastrous to the country. It would destroy 
what is left of railway credit and would put an end to any hope of obtaining additional 
capital for railway purposes. 








RAILWAY BOOK VALUES NO BASIS FOR FIXING RETURNS. 


It has been proposed that Congress shall direct the Interstate Commerce Commission 
to fix rates in each of the several traffic sections of the country in such manner as to 
yield a return of 6 per cent per annum upon the aggregate of the so-called property 
accounts or book values of all the railways in that traffic section plus 6 per cent upon 
further expenditures of capital, and that each of the several companies in each region 
shall be left to compete for its share of the traffic and earnings under the rates thus 
fixed. In favor of the adoption of this proposal it has been urged that 6 per cent of the 

egate property inves‘ment accounts of the railways in each traffic section would 
yield but little mor. thar the aggregate returns now guaranteed b y the Government. 

No one familiar with the way in which the stocks and bonds of the railway com- 
| ames were issued and the way in which the book values of their properties were 

ixed can assert that these book values of themselves furnish any defensible basis for 
| fixing railway rates or railway incomes. The truth is that this proposal is only a 
| thinly camouflaged plan to fix rates for the present so as to vield a little more than the | 
igegregate standard returns under the Federal control act. 

4 do not find iault with this proposal on the ground that it would give unduly 
Jarge returns to the railway companies; but I respectiully suggest that Congress 
should guard against any action that might be construed as an approval of the prin- 
*iple or rule upon which the proposal is based. If this principle or rule were applied 
n eifecting consolidations of the several companies or in distributing among them 


526 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


the aggregate returns fixed in accordance with the proposal, gross injustice would be 
done to those companies which have been conservative in their financing and in 
the issue of their stocks and bonds. 


PLAN FOR SOLVING THE PROBLEM. 


I shall now sketch briefly the plan which I propose for the solution of the problem « 

1. Federal railway board.—A Federal railway board should be created with adequate 
power to carry out the plan and to perform the other functions delegated to it under the 
plan. This board should be a body of the highest dignity. Its members should be 
selected with the greatest care by the President with the advice and approval of the 
Senate. 

2. Formation of Federal railway companies.—After consultation with representatives 
of the several railway companies, the Federal railway board should group the railways 
into ‘10 to 15 well-balanced systems and, for the acquisition of each group, it should 
cause to be incorporated under the act of Congress a Federal railway company with 
power to acgviire all or any of the railways in the group assigned to it. 

3. Ascertainment of adjusted operating income during test years.—After giving a hearing 
to the several railway companies, the Federal railway board should adjust and fix, 
as hereinafter provided, the amount of operating income of each company (which | 
shall hereafter call its ‘adjusted operating income’’) to serve as a basis (a) for the 
consolidation of the companies by transfer of their properties to the Federal railway 
companies, and (0) for fixing the capitalization of the Federal railway companies. 

The amount of this adjusted operating income should consist in each case of the 
following items: 

(a) The average operating income of the company during the three test years under 
the Federal control act, subject to adjustments made by the Federal railway board 
according to rules or principles to be set forth in the act of Congress, so as to show the 
true earning capacity of the company under the then prevailing rate schedules. 
These adjustments should include fair allowances or arbitraries to companies operating 
short lines which furnish long-haul business to the trunk lines, and it should be pro- 
vided, among other things, that if during any part of the test years a company was in 
the hands of a receiver and charged extraordinary repairs and renewals to operating 
expenses, or if it made inadequate charges for repairs or renewals, or if it made large 
capital expenditures of which it did not receive the full benefit during that period, 
these facts shall be taken into consideration. 

(b) Interest upon moneys expended for additions and improvements from July 1, 
1917, up to the date when the company’s properties are vested in a Federal railway 
company. 

4. Basis of consolidation and capitalization of Federal railway companies.—Whatevet 
method of consolidation may be adopted, it will be necessary to fix the amount of 
stock, or of stock and bonds of the consolidated company to be received by each of the 
constituent companies, the undisturbed bonds of a constituent company being treated 
as part of the securities approtioned to that company. 

The only fair course is to apportion to each company entering into a consolidation an 
amount of stock, or of stock and bonds, proportionate to the estimated operating 
income which this company will contribute to the combined company. Itis proposed, 
therefore, that each company shall receive an amount of stock and bonds of the Fed- 
eral railway company in which its properties are vested proportionate to the adjusted 
Spee Ue income of the company fixed as above provided by the Federal railway 
board. 

It is suggested that the amount of bonds and stock to be issued by a Federal railway 
company for each railway vested in it shall be as follows: 

(a) An amount of bonds upon which the aggregate annual interest charge shall be 
some specified per cent (60 per cent is suggested) of the adjusted operating income 
the railway vested in it. Of the bonds thus allotted, the-Federal railway company 
would reserve an amount which, if issued, would create an interest charge equal (0 
that upon the bonds of the constituent company left outstanding. (Under this pro 
vision, all ovtstanding bonds of many of the companies, such as the Pennsylvania 
Railroad Cc., the Atchison, Topeka & Santa Fe Railway Co., and the Norfolk & 
Western Railway Co could be left undisturbed.) 

(b) One share of stock for each $6 of the remaining 40 per cent of such adjusted 
operating income. 

At the rate of capitalization above suggested there would be issued in respect of each | 
$1,000,000 of adjusted operating income $12,333,333 of 44 per cent bonds and $6,666,667 — 
of stock, assuming the stock to be divided into shares of a fixed nominal or par value. 
In other words, the operating income would be capitalized by the issue of bond and 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 527 


‘stock on a basis averaging 5 per cent. This rate of capitalization, however, is not an 
essential part of the plan and is suggested only tentatively. 
_ It is suggested that the bonds thus issued be payable in 40 years but be made re- 
deemable at the option of the Federal railway company after 30 years and that the rate 
of interest on the bonds be fixed at 44 per cent perannum, All the bonds thus issued 
for properties vested in a Federal railway company, together with all the bonds there- 
‘alter issued by it, should be equally secured by a statutory floating lien upon all 
‘properties from time to time owned by the company, thus rendering unnecessary the 
execution and recording of mortgages. 
' Each Federal railway company should have power, when authorized by the Federal 
railway board and on terms approved by it, to issue additional stock and bonds matur- 
ing at such dates and beariny interest at such rates as from time to time shall be pre- 
scribed by the board. ‘ A 
__ There is no good reason for requiring the stock of a railway company to. be divided 
into shares of some fixed nominal or par amount. Neither the rates chargeable by a 
company nor the substantial rights of its stockholders or of the public are affected 
_by the nominal or par amount of its stock. It is suggested, therefore, that the shares 
of the Federal railway companies be issued without any nominal or par value, as is 
now common practice in the organization of industrial corporations under the laws of 
New York and certain other States. One of the advantages of this course is that it 
would permit of the issue and sale of additional stock when its market value is below 
$100 per share, whereas stock purporting to represent a contribution of $100 of new 
capital per share could not be sold at all when the market value of the 
shares falls below par. However, if Congress should deem it necessary to give to the 
shares of the Federal railway companies a declared*nominal or par value and also to 
_imit the capitalization of these companies to some physical valuation of the existing 
properties vested in them, the shares could be issued subject to a provision that when 
in official valuation of the properties vested in a Federal railway company shall have 
een completed, each share of its stock shall be deemed to have a nominal or par value 
vdjusted in accordance with this official valuation. 

5. Standard for fixing railway rates.—The plan which I am about to propose for fixing 
‘ate schedules is based upon the following assumptions: It is necessary to prescribe 
some definite and practicable rule for determining the amount of operating income or 
‘eturn which in the future is to constitute the standard for fixing rate schedules. It 
S impossible to base rates upon the value of the railways because their value depends 
ipon the rates. For the reasons above pointed out, it is impracticable, and if it were 
wacticable, it would be unfair, to fix the return upon the existing railway properties 
‘ecording to their original cost or according to the cost of reproducing them. It is 
ikewise impracticable to adopt a return varying from time to time according to the 
) ate of interest or dividends which from time to time is deemed to be a fair or ade- 
{uate rate of return on railway capital. The only practicable course is to fix in a more 
r less arbitrary manner the amount of return to be provided in respect of existing 
| ailway property and to prescribe some definite standard or rule for determining the 

mount of operating income or return to be provided in respect of railway capital 
| ereafter furnished. 

Inasmich as the several lines are to be consolidated into well-balanced and fairly 
apitalized companies and as hereafter all railway construction and improvements 
nd all issues and sales of railway stocks and bonds are to be made under governmental 
jupervisior, and control, it would be reasonable and fair to provide that the amount 
| return in respect of capital hereafter furnished shall be the cost of obtaining this 
: pom thai is to say, interest and dividends at the rates necessary to attract the new 
) apital, 
| The rates in each section or territorial subdivision established for rate-making pur- 

loses should be adjusted in such manner as to yield a definitely ascertainable aggre- 
ate return upon the railway properties in that section or subdivision, but the several 
| OMpanies operating in each section or subdivision should be left to compete for their 
‘spective shares of this aggregate return. The incentive necessary to eflicient, 
‘Togressive, and economical management will thus be retained. As the proposed 
ederal railway companies are to be originally capitalized on the basis of the adjusted 
perating income of their properties during the test years, it is probable that each 
{ these companies will be able to earn approximately its proportionate share of the 
ygregate returns produced by rate schedules fixed in the manner proposed. 

_Itis not claimed that this plan for fixing future railway rates will work out the exact 
nstitutional rights of the present owners of railway securities, but it is submitted 
iat it furnishes an adjustment or compromise fair to the owners of railway securities 
-ad to the public. 

_As the adjusted operating incomes of the test years under the Federal control act 
ere the result of rates fixed by the Federal and State commissions during a period 


152894—19—-vor 1 34 













598 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


in which the companies did not enjoy more than average prosperity, it may fairly 
be assumed that these operating incomes were no more than a fair return on the prop 
erties of the companies as of July 1, 1917. No argument is necessary to show the fair- 
ness of the provision for interest on the moneys expended upon the railways for addi- 
tions and improvements after July 1, 1917. 

Each of the Federal railway companies would be required by the act of Congress ns 
a condition of its formation to assent to the proposed method of fixing rates. ‘To secure 
the assent of the other railway companies a provision would be inserted in the act of 
Congress that if any railway company shall fail to give its assent within a prescribed 
time its property shall be returned to it by the Federal Railway Administration and 
the return guaranteed to it under the Federal control act shall cease. 

My proposal is that the act of Congress shall direct the Interstate Commerce Com- 
mission from time to timg to fix rates in each traffic section in such manner as to 
yield upon the railways in that traffic section an aggregate return equal to at least 
the sum of the following amounts: 

(2) An amount equal to the aggregate adjusted average operating income of these 
railways during the test years under the Federal control act, together with interest 
at an average fixed rate upon moneys expended for additions and improvements 
after July 1,.1917, up to the date when the provisions of the act of Congress in respect 
of future capital issues shall be come operative. 

(b) An amount equal to the interest actually payable on bonds thereafter issued 
with the approval of the Federal railway board for extensions and improvements di 
the railways in that traffic section, or in renewal of maturing indebtedness. 

(c) Until the railways in a traffic section shall have been vested in the Federal 
railway companies an amount equal to 6 per cent of the capital actually raised by them 
through sales of their stock at not less than par and expended for extensions and im- 
provements, the stock in every case to be issued and sold only with the approval 
of the Federal railwey board and at the best prices obtainable. Aiter the railways 
shall have been vested in the Federal railway companies an amount equal to $6 per 
share of stock issued and soid by the Federal railway companies with the approval 
of the Federal railway board. 

While it is impracticable to determine in advance the precise rate of return or 
yield to investors necessary to obtain new capital by issuing stock, the proper retum 
upon capital raised by the issue of stock of the Federal railway companies would be 
adjusted automatically according to the condition of the money market by the prices 
at which the stock is sold. Thus, if a company should sell at $100 a share stock upon 
which it pays dividends at $6 per share annually, the yield to the purchaser and the 
cost to the company of the capital thus obtained would be 6 per cent; but if the stock 
were sold at $120 per share, the yield to the purchaser and the cost to the comer i 
would be only 5 per cent upon the capital actually obtained. On the other hand, 1 
the stock were sold at $90 per share, the yield to the purchaser and the cost to the 
company would be 6.67 per cent on the capital actually furnished. | 

If in any year the rates fixed by the Interstate Commerce Commission in any traffic 
section should fail to produce the aggregate of the foregoing amounts, the Interstate 


Yommerce Commission should add the deficiency to the amount of operating Income 













or return to be raised by the rates in the following year. Sane at 
The foregoing amounts would aggregate only a fair return on the existing property 
of the railway companies plus the actual cost of raising additional capital. nas- 


much as every railway company from time to time must make expenditures which, 
though not productive of additional income, can not under the existing rules ol 
accounting be charged to operating expenses, but must be charged to capital account, 
the Interstate Commerce Commission should be given authority to revise the Tu 
of accounting so as to include as operating or maintenance expenses all expenditures 
which in its judgment it is not expedient to capitalize by the issue of bonds or stock. 
6. Division of profits of Federal railway companies.—It is proposed that the net profits 
of each Federal railway company shall be applied as follows: * €| 
(a) First, to the payment of cumulative dividends at the rate of $5 per share pe’ 
annum, on the company’s stock. ; | 
(b) After payment of such cumulative dividends one-half of the remaining ne! 
profits of each fiscal year is to be applied to the payment of additional dividends on the 
company’s stock and the other half is to be distributed under the direction of the 
Federal reilway board pro rata among such of the Federal railway companies as Days 
failed to earn the cumulative dividends of $5 per share on their stock until thes 
cumulative dividends have been provided for and thereafter any balance is to 
paid to the Government. In considering this proposal it should be borne in min 
the consvlidation of the several existing railway companies into the Federal ra: 
companies is to ve effected on the basis of their operating incomes during the te 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 529 









ars and in such manner as to equalize so far as practicable their future earning 
pacity under fairly adjusted rate schedules. 
Vhile I believe that in many private industries it is desirable to give to employees 
contingent interest im the profits of the business, I doubt the advisability of giving 
railway employees a share in the profits of the railway business. My reasons for 
is view are as follows: ; 
‘a) For political reasons it-is undesirable to give participation in profits, in addition 
fixed wages, to employees engaged in operating public utilities like railways, the 
and eay nings of which are regulated by the Government. In this respect public 
Lat ties shc ald be placed upon the same footing as the Post Office Department or any 
ther department of the Government. | 
(b) It would he difficult to give to the large body of seasonal laborers employed 
, pon the railways their share of a contingent interest in the profits of the companies. 
Boyer, the volume of labor employed upon the railways is so large in relation to 
he divisible income that no substantial addition to the fixed wages of the employees 
-tould be practicable. 
\ | teal the plan which I am proposing rates would be fixed only high enough to 
*rovide a fair return upon the existing properties of the railway companies and. the 
etual cost of additional capital obtained and expended by them hereafter under the 
.irection and control of the Federal railway board. Therefore, to give participa- 
on in profits to railway labor it would be necessary to increase railway rates and 
‘icomes sufficiently to produce the aggregate amount of profits which it is desired 
) give to the laborers. The aggregate amount of profits, in addition to wages, to be 
iven to the laborers in each traffic section would, therefore, have to be definitely 
- xed, from time to time, by the Interstate Commerce Commission, but the amounts 
“xceived by the laborers of the several companies would vary according to the incomes 
_{ the companies. 
» 7. Reserve funds.—Proposals have been made for the creaticn of reserve or contingent 
»imds out of the earmings. {the companies. Such funds would not serve their purpose 
-nless kept in cash which could be drawn out atany time when needed. Probably it 
ould prove difficult to withstand the pressure to use or to invest in some manner large 
)2eumulations of cash in these funds, especially as the need of such funds is not clear. 
_teretofore the railway companies have not found it necessary to carry large reserves 
-* contingent funds in cash, but have provided for their temporary needs by borrow- 
“1g. ‘The incomes of the Federal railway companies should be more stable than have 
~ een the incomes of the existing railway companies, and the Federal railway com- 
amies should be in a position to borrow from the banks upon favorable terms in case 
» need. It should be borne in mind also that the regular payment of the full dividends 
‘1 the stock of the Federal railway companies is not essential, as these dividends are 
-) be cumulative at the rate of 5 per cent per annum, and if the rates established by 
ie Interstate Commerce Commission should not orove sufficient in any year to pro- 
ide the full return on the railways in any traffic section, the deficiency is to be made 
od thereafter. 
- Reserve or contingent funds can not be created without increasing to a corresponding 
-nount the operating incomes of the companies and this increase of operating incomes 
_im be obtained only by requiring the public to pay higher rates. It is suggested, 
erefore, that it Bail be better for the public and more economical to provide 
‘aimst contingencies by authorizing the Secretary of the Treasury, upon call of the 
vederal railway board, to make advances to the Federal railway companies up, to a 
united amount, in case the rates fixed by the Interstate Commerce Commission should 
it prove sufficient to produce the prescribed aggregate amount of operating income, 
{such advances to any company to be repayable with interest out of its subsequent 
come in excess of the cumulative dividends on its stock. 
8. The railway labor problem.—The railway problem can not be solved without 
paling with the railway labor problem. It needs no argument to show that an in- 
ease of the wages of railway laborers involves a corresponding increase of rates and 


a, 


rT Ts 













pra 


conn seamed 


timately must be paid by consumers or producers throughout the country. A 
‘ meral increase of rates would bear especially on farmers and other producers, who 
it only are consumers of commodities the prices of which are affected by the cost of 
ortation, but also are producers of commodities the prices of which are fixed 
tea by competition in foreign markets or by foreign competition in the United 
ates, so that an increase of the cost of transporting these commodities can not be 
ed to other consumers in the United States. 
_ As railway transportation is an absolute necessity, the well organized unions of 
ilway men have the power through concerted strikes to enforce their demands and 
‘levy tribute on the rest of the people to the same extent as an invading army. Such 
dower should not be vested in any man or ia any body of men. It is no answer to 
: | 


| ee 


530 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


say that the railway unions do not intend to exercise their power unjustly. In a free 
country no body of men can be the judge of the justice of their own demands or be 
vested with power to hold up the entire country. . 

Railway laborers should not be allowed to become virtually the rulers of the country 
by forming a combination having power to enforce any demands they may see fit to 
make under threat of destroying all industry and of depriving the people cf the neces- 
saries of life. While no man can be forced against his will to work upon the railways, 
all men choosing to accept employment upon the railways should be required by law 
to submit their demands to arbitration or to the decision of some tribunal established 
by the Government representing all the people, and they should be prohibited by law 
from joining in a strike unless the railway company by which they are employed should 
fail to comply with the award or the decision of this tribunal. : 

Power to decide the delicate and far-reaching questions involved in labor disputes 
should not be vested in any one person. It is proposed, therefore, that the President 
be authorized with the advice and consent of the Senate to appoint a permanent board: 
consisting of five men of recognized ability and probity and that this board, by a 
majority vote, shall act as umpire or as judge in deciding controversies between the 
railway companies engaged in interstate commerce and the railway labor unions. 

9. Federal regulation must be exclusive-—The multiple and often conflicting regula- 
tion of the railway companies and their rates by the commissions established by the 
several State governments renders impossible the adoption of any wise or consistent 
policy of regulation or of rate fixing and is injurious both to the railway companies 
and to the people of all the States. No satisfactory or permanent solution of the 
railway problem is practicable without providing for the incorporation of the com- 
panies under Federal laws or without centralizing supreme control over the regulation 
of all rates in some agency of the Federal Government. 

Adequate provision, however, should be made for the protection of local interests. 
The power of each State to tax railway properties within the State at the same rate as 
other property should be preserved and the police powers of the State should not be 
interfered with to a greater extent than is necessary. In that respect the railways 
should be placed substantially on the same footing as the national banks. While 
supreme control over intrastate rates as well as interstate rates should be vested in 
some commission or board established by the Federal Government, provision should 
be made for the protection of the several States and localities by the appointment of 
regional boards with jurisdiction over matters of local interest. Each State commis 
sion should continue to exercise the power to investigate the practices of the railway 
companies within the State and it should have the right to represent the interests on 
the State in the adjustment of rate schedules and in all other matters before the Federal 
commissions or boards. 

10. Provisions for adequate Federal regulation.—The duties and functions of the 
Interstate Commerce Commission have grown to be so complex and burdensome that 
no single commission could possibly perform them in a satisfactory manner. With a 
further extension of Federal control over the railways the need of relieving the Inter 
state Commerce Commission of some of its duties and functions will become impera- 
tive. The Federal railway board should be vested with broad supervisory powe!s 
over the Federal railway companies and over the whole system of regulation to be 
adopted. It should appoint one-fourth of the board of directors of each Federal 
railway company to represent the interests of the general public and an additional 
director to represent the special interest of railway labor. ; 

No Federal railway company and no other railway company engaged in interstate 
commerce hereafter should be authorized to make in.provements, additions, or exten- 
sions or to issue stocks or bonds without first obtaining the approval of the Federal 
railway board. : a 

The Interstate Commerce Commission should continue to regulate the rates and 
practices of the companies and to deal with all matters of an administrative character, 
but regional boards should be appointed by the Federal railway board to act as 
prance) of the Interstate Commerce Comniission and subject to its supervision ané 
control. 

11. Method of carrying out plan.—The suggestions herein made as to the procedure 
to be adopted in carrying out the plan are based on the following assumptions: 4 

No effective or permanent solution of the railway problem is possible with con- 
solidating the weak lines with the prosperous lines into a relatively small number 
companies, each owning and operating a well-balanced railway system. Without 
such consolidation it is impossible to give to the weak companies the credit ne topit 

: 


to enable them to obtain the new capital which they need and it is impossible to p 
an end to the vicious cycle of railway failures and costly reorganizations. Withow 
such consolidation it is impossible to establish a sound and fair system of rates, of to 


a 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 6531 


sotto saga 


yrovide for the use of terminals, equipment, and other facilities to the greatest ad van- 
age, or to prevent unnecessary duplication of facilities and of service, or to avoid 
vasteful competition for traffic, or to secure for the public the best service at the 
‘owest practicable cost. 

- No plan which fails to prescribe the terms or basis of effecting the necessary con- 
olidations, but leaves the consolidation of the companies to be effected by negotiations 
nd bargains among their security holders can prove effective. Under such a plan 
aany necessary consolidations would be indefinitely postponed, some of the weaker 
‘ompanies. would be oppressed while other companies would receive more than is 
jue them, and some of the most serious abuses of railway finance in past years may 
i revived. Under such a plan-the basis of capitalization of the several consoli- 
lated companies would vary widely and in some cases the bond issues of the con- 
‘plidated comy:anies would be unduly large. The consummation of such a plan 
robably would involve more labor, expense, uncertainty, and disturbance of values 
han the consummation of the plan herein proposed. it 
The Government can not by law compel the railway companies or their stockholders 
‘nd bondholders to assent to the proposed plan, but the consummation of the plan can 
practically assured by the following means: 

| The Government can terminate the administration under the Federal control act 
{ the prcperties of those companies which fail to give their assent and it can leave 
‘ese companies to work out their own salvation without extending to them any 
enefits under the plan or any Government aid. 

' Under the power of eminent domain the Government can condemn or can empower 
jae Federal railway companies to condemn any of the railways on the ground that 
‘ais is necessary to make them serve adequately as instruments of interstate com- 
jerce and as military and-post roads. Under the power of eminent domain the 
fovernment can condemn a railroad free and clear of liens and indebtedness, or it 
am condemn the property subject to any lien or indebtedness. Upon such con- 
emnation the Government would have to pay just compensation for the property 
vken and this compensation would have to be paid in cash, unless those entitled to 
aceive it should be willing ‘0 accept something else in lieu of cash. 

| Upon condemnation of the property of a corporation those lienholders and 
editors whose rights are not left undisturbed but are displaced would be entitled 
) payment of their claims in full out of the proceeds of the property condemned 
efore anything is given to the stockholders. The Government can uot condemn the 
onds or indebtedness of a company apart from its property, and upon condemnation 
[a railway free from liens and claims of creditors the Government can not arbitrarily 
pportion the price payable for the property among stockholders, lienholders, and 
editors. For this reason the condemnation of property of a company free of existing 
iortgages or claims or creditors, leaving the distribution of the compensation to be 
lade according to the legal rights of the parties, may cause hardship to junior security 
olders or to stockholders. 

The following is an outline of the procedure suggested to carry the plan into effect: 
Each railway company shall be allowed a period of four months aiter the passage 
ithe act of Congress to determine whether it will assent to the provisions of the act 
lating to the future adjustment of rates. If any railway company shall fail within 
ich period of four months to execute and file with the designated official an agree- 
| ent authorized and executed in a prescribed manner whereby such railway company 
srees to the provisions of the act of Congress, the property of such company now in 
/1e hands of the Government under the Federal control act shall be returned to it 
‘id all obligation of the Government thereafter to pay the standard return on the 
| toperty of such campany shall terminate; but the Governmnet shall continue in 
| 88ession of the property of each company which gives its assent in the prescribed 
| anner and shall continue to pay the standard return for the use of such property 
| 1til the expiration of four months after a Federal corporation shall have offered to 
} a such property as herein provided. 

| After consultation w'th representatives of the several railway companies, the 
} 2deral railway board should group the railways into 10 to 15 well-balanced systems 
id, for the acquisition of each group, it should cause to be incorporated under the 
|*t of Congress a Federal railway company with power to acquire all or any of the 
ilways in the group assigned to it. 

_ After giving a hearing to the parties in interest, the Federal railway board should, 
' hereinbefore provided, determine the adjusted operating income of the several 
mpanies in each group and should fix the amounts of bonds and stock of the Federal 
ilway company to be issued for the property of each company in the group, if ac- 
tired free and clear of all liens and indebtedness. 
















532 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


The board of directors of each company then should submit to the Federal railway 
board for its approval a proposed apportionmert of the bonds and stock allotted for 
the acquisition of the company’s property among its stockholders. bondholders and 
creditors, indicating which classes of bonds are to be left outstanding and which are 
to be called in to be exchanged for bonds or bonds and stock of the Federal railwa y 
company. 

Upon approval ly the Federal railway board of the proposed apportionment, the 
Federal railway company should invite the stockholders of each company whose 
property is to be acquired, and the holders of such of its bonds as are not to be left 
outstanding, to deposit their bonds and the certificates for their stock with a suitable 
depositary or trustee, and to agree to the proposed transfer of the property of the com- 
pany to the Federal railway company and to the exchange of the deposited bonds on 
the terms offered. . 

The offer made by a Federal railway company in each case should be subject to 
the condition that within a reasonable time to be fixed by the Federal railway board 
there shall be deposited on the terms of the offer such amount of stock as shall be 
satisfactory to the Federal railway board, and also in those cases in which a reduction 
of indebtedness or of fived charges is necessary, the requisite amount of outstandin 
bonds or other indebtedness of the company. The offer to the holders of any class 
outstanding bonds which need not be exchanged to reduce fixed charges to the pre- 
scribed limit could be deferred until a convenient time after completion of the transfer 
of the company’s property to the Federal railway company. In many cases all the 
bonds of the company could be left undisturbed. In every case the Federal railway 
company would reserve unissued out of the bonds allotted for the acquisition of a 
railway an amount which, if issued, would impose a fixed charge at least as large as 
that resulting from the outstanding unexchanged bonds. : 

If, within the time limited, an amount of stock satisfactory to the Federal railwa 
board and the requisite amount of bonds shall have been deposited, the Federal rail. 
way company, under the power ol eminent domain conferred upon it by the act of 
Congress, would take the property subject to existing liens and indebtedness and 
subject also to a liability to pay just compensation for the equity in the property thus 
taken, as assessed by a designated court, or by a special tribunal established for that 
purpose; but the Federal railway company would be credited in respect of the aggre- 


gate amount of compensation with the proportionate share thereof to be received by 
the holders of the deposited stock upon ratable distribution of the compensation 7 
all the stockholders. The deposited bonds would be received by the Federal rail. 
way company as purchaser and would be held in its treasury until all bonds of the 
same issue and of junior issues shall have been exchanged. To provide for the pay: 
ment of any sums which upon such condemnation must be paid in cash, the Federal 
railway company would sell its stock, or stock and bonds offered to the nonassenting 
stockholders and bondholders whose interests are cut off by the condemnation pro 
ceeding. { 

On the other hand, if, within the time limited, the required amount of stock anc 
bonds of a company should not be deposited, the deposited stock and bonds would be 
returned to the depositors and the property of the company would be returned to 1! 
by the Federal Railway Administration. The company thereupon would have ne 
right to share in the benefits of the plan; and it would be left to work out its owl 
salvation without any governmental aid. ft 

The property of a railway company to be acquired under the plan would be onl} 
the property now in the hands of the Federal Railway Administration. Assets n0 
taken over by the Federal Railway Administration and not included in fixing the 
standard return under the Federal control act would not be acquired by the Federa 
railway companies, but would be retained by the respective companies for the benefi 
of the holders of their stock, including the deposited stock represented by trust receipts 
Until the final winding up of the affairs of a railway company, the stock deposiiet 
under the plan should be retained by the depositary or trustee for the further assurant 
of the Federal railway company; but any sums received by the depositary or truste 
in respect of the deposited stock out of assets not acquired by the Federal railway 
company should be distributed by the uepositary or trustee among the holders 0 
the trust receipts for the deposited stock. The distribution of part of the stock, 0 
stock and bonds, to be received by depositing stockholders should be withheld un 
fnal settlement of accounts with the Federal railway company. . | 

it is impossible to place the railway companies upon a sound financial hasis or t 
cure the evils of the present situation without considerable trouble and expelise 
The amount of labor and expense required to carry out the plan above outlined is 10 
excessive and it can not be avoided under any adequate plan. 


New York, August 21, 1919. 


PART 5. 
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE, 
HovusE or REPRESENTATIVES, 

Wednesday, August 6, 1919. 
The committee met at 10 o’clock a. m., Hon. John J. Esch (chair- 
man) presiding. 
_ The CuatrmMan. To-day has been assigned for the hearing of those 
who are proponents of the so-called Plumb plan. In what order 
are the proponents to be heard, Mr. Plumb? 
- Mr. Piums. Mr. Stone, the grand chief of the Brotherhood of 
Locomotive Engineers will speak first, followed by Mr. Morrison, of 
the American Federation of Labor, followed by myself; and we hope 
that Mr. Garretson will be here during the day. He has not arrived 
or had not arrived at the hotel at the time we left, but we expect 
he will be here as soon as the train gets in. We will be heard in 
the order of Mr. Stone, Mr. Morrison, myself, and Mr. Garretson. 


STATEMENT OF MR. WARREN S. STONE, GRAND CHIEF OF 
THE BROTHERHOOD OF LOCOMOTIVE ENGINEERS. 


: 
The Carrman. Mr. Stone, give your name and address, and 
whom you represent. 

Mr. Stone. My name is Warren S. Stone, grand chief of the] 
Brotherhood of Locomotive Engineers, also president of the Plumb | 
Plan League, organized to secure public ownership and democracy | 
in the operation of the railways ah the United States. I here rep- | 
resent 14 organizations of railroad employees, numbering approxi- | 
mately 2,000,000 members. These organizations are: Order of Rail- 
way Conductors; Brotherhood of Locomotive Engineers; Brother- 
hood of Locomotive Firemen and Enginemen; Brotherhood of Rail- 
way Trainmen; International Brotherhood of Blacksmiths and. 
Helpers of America; International Association of Machinists; Inter- 
national Brotherhood of Boilermakers, Iron Ship Builders, and 
Helpers of America; Amalgamated Sheet Metal Workers’ Interna- 
tional Alliance; International Brotherhood of Electrical Workers; 
Brotherhood of Railway Carmen of America; Switchmen’s Union of 
(North America; Brotherhood of Railway and Steamship Clerks, 
\freight Handlers, Express and Station Employees; Order Railway 
|Telegraphers, and United Brotherhood of Maintenance of Way Km- 
| ploy ees and Railway Shop Laborers. 
| At the request of these organizations the Sims bill is before you. 
[speak to you as the voice of 2,000,000 railway employees, and dele- 
gated by them to announce to this committee and to the people of \ 
\this country that they are supporting this measure with all the 
. ee and all the unity of purpose that can move so large a body 
Mf citizens, 







533 


004 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP, 


f Joined with me in representing the American Federation of Labor, 
the next speaker will be Mr. Morrison, who adds his 2,500,000 of 
members to this body of railroad men I am speaking for; or, approxi- 
mately, we are speaking for 5,500,000 members. 

In order that there may be no doubt as to what I have said, I have 
committeed it to paper so there can be no mistake about it. 

In the industrial development of this country great organizations of 
capital first appeared as employers. Individual workers, following 
the example set by capital, organized as employees. Their purpose 
was to secure better working conditions and a larger measure of return 
for their labors. The full force of capitalistic organizations has been. 
set against labor to hold and to keep all the profits of industry. The 
strength of the labor unions has been exerted to wrest from capital 
some share of the profits for the wage earners. 

This has been a perpetual struggle by the workers to maintam a 
tolerable standard of existence; on the es: of capital to amass 
ereater profits. At times, both sides could ignore the needs of the 

ublic. But now the very growth of the labor organizations has 
etna into their ranks a great mass of the consumers. The large 
number of the wage earners now constitute a large percentage of the 
people. The extension of industry has changed the nature of the 
previous struggle. | 

For whatever the worker receives in wages he must spend for the 
necessaries of life. In addition, he is always compelled to pay to the 
employer an excessive profit on his own wages. The cost of his living 
is determined by the sum he earns, plus the profits he is charged on 
his own labor. And as a group, labor is forever prevented from better- 
ing its lot because of the profits exacted by the employer. The hope 
of a finer life is never realized. So long as consumers are forced to 
pay extortionate profits on their own earnings to a third interest there 
is no solution ot the industrial problem. 

We find that this third interest absolutely controls and dominates 
the management of industry. It fixes wages and controls working 
conditions. It fixes the prices of commodities without regard to the 
needs of society, or the necessities of producers and consumers. We 
have a democratic form of government but an autocratic control of 
industry. 

We exist under government, but by industry we live. Under such 
a system the majority of a democracy can, through their government, 
enjoy only such rights and privileges as an autocracy in industry 
permits them to receive. This country was peopled by a race who 
sought within its boundaries religious freedom. It was established 
by their descendants through revolution as a land of political free- 
som We now demand that it become the home of industrial free- 

om. | 

This can only be accomplished by extending to dustry the same 
right of individual freedom recognized by the founders of our Govern 
ment in establishing this democracy. ‘The need of mankind for the 

roducts of industry must be accepted as the basic interest in all 
industry. The right of the worker who supplies that need demands 
like acceptance. ‘This can only be achieved by permitting producers 
and consumers to share in the control of the management of theit 
means of existence. The machinery for attaining this result we 
believe is embodied in the plan outlined in the Sims bill. 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 535 


_ Our belief in the efficacy of this plan is profound. We embrace 
this plan with all the ardor of those who sought political freedom. 
In this plan we raise the banner of democracy in control of industry, 
we advance to a new crusade with the faith of the Pilgrims, with the 
convictions of the framers of the Constitution, and with the hope of 
America for economic independence. 

| The Cuarrman. Mr. Stone, I noticed in the papers of two days ago 
am announcement signed by yourself and by Messrs. Lee, Shea, 
Sheppard, and Jewell. In that statement these words were used: 
The railroad employees are in no mood to brook ihe return of the lines to their 


ormer control, since all the plans suggested for this settlement of the problems leave: 
abor essentially where it has stood and where it is determined to stand. 


What was the purpose and intent of that declaration 2 

_ Mr. Stone. The purpose and intent of that declaration was that 
ve were bitterly opposed to the railroads being returned back to the 
id plan of private ownership, with the struggle of organized labor 
0 Maintain that which it was justly entitled to. 
The Cuarrman. This committee is giving full consideration to 
»very plan proposed by organizations or even by individuals and are 
fiving you the same opportunity. Should the committee not indorse 
ihe os Plumb plan, what would be the action of your organi- 
‘ations ¢ 

Mr. Stone. The action of our organizations would be to try to 
reate enough public sentiment so that a majority of the membership 
xf both the House and the Senate would indorse and pass the plan. 

The CuatrMan. How would you create that public sentiment ? 

Mr. Stone. Through every means at our command, through the 
mublic press, through our organizations, through every channel that 
vas open to us. | 
The Cuarrman. Would you seck to develop it through a strike? 

Mr. Stonz. No, sir. I am speaking now only for the Brotherhood 
f Locomotive Engineers, of which I am the executive officer. We 
lave made no threat of any strike. We have not even asked for an 
nerease in wages. We have said to the President of the United 
‘tates that the time had arrived when we could no longer live on our 
resent wages, but we preferred a reduction in the high cost of living 
0 an increase in wages at this time. 

The Cmarrman. [ think in that you have struck a sympathetic 
ord. I wish'to state from my knowledge of your organization that 
tis one of the conservative organizations of the United States and 
as done much to stabilize wage conditions. If the attitude of your 
Tganization is not to use the strike power to develop public sentiment 
1 favor of the Plumb plan, it would be in accord with your ideas and 
our traditions ? 

Mr. Sronn. I do not think that any of these organizations are going 
o strike simply to enforce the Plumb plan. That is not my under- 
tanding. I think that some of the organizations are going to strike 
niess there is immediate relief, either in increased wages or in a 
aduction of the high cost of living. They did object to the plan 
toposed by the Director General of Railways. 

| The Cuarrman. You mean his recent plan offered last Friday ? 
“Mr. Stone. Yes, sir; because we believe it would take too long, and 
‘te temper of the working people at the present time is such that I 










536 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


do not believe they will wait that long, because they can not live 
during that period. 

The CHatRMAN. That is on the assumption that nothing can be 
done by the President, the executive departments, or by Congress in 
creating some material reduction in the cost of living? 

Mr. STonE. Yes, sir. 3 

The CuarrMAN. Should that be possible, would these other organi- 
zations that you speak about that are now striking or intend to strike 
withhold their efforts in that direction ? | 

Mr. Sronn. I am not authorized to say as to that, but I am of 
the opinion that when you bring about a reduction in the high cost 
of living you have solved the entire problem of industrial unrest. 

The CHAIRMAN. Have you any concrete suggestion to make to 
Congress for a reduction of the high cost of living, outside of the 
proposed plan that you sponsor? Congress is eager to get sugges- 
tions. 

Mr. Stonsr. The problem has not been worked out in any concrete 
form. We want to see, first, what the President and the executive 
officers of the administration are going to do. After they have 
failed to solve it, if they do, which I hope they will not, then a solution 
must be found somewhere, and if no one else can solve it—I say this 
in no spirit of ego—I am satisfied the labor organizations can solve 
it for the American people. 

Mr. Sus. You leave out Congress in enumerating those who can 
solve the problem. 

Mr. Stonr. I did not meati to. I believe Congress could solve the 
problem if they would. 

Mr. Sms. Following the President, you mentioned the executive 
departments, or the executive officers, but the executive officers can 
not do anything not authorized by Congress. 

Mr. Sronz. I did not mean to slight Congress at all. 

Mr. Suus. I know that; but your statement omitted Congress as 
though it was not to be considered in solving the problem at all. 

Mr. Stone. No; there are many things Congress could do. 

The CuarrMan. It was for that reason I asked the question: Haye 
you and your organizations any concrete suggestions to make to us 
to solve the problem of the high cost of livmg and do it within a 
reasonable time ? } 

Mr. Sronr. I think we might be able to offer you many suggestions 
that would help solve the problem, but we do not have them im & 
concrete form at this time. It might be that before we got through 
we would advocate a firing squad for certain people. 

The CuarrMAN. I saw that suggested in some country of Kurope. 
But you say that some of these organizations will not brook delay 
the solution of this problem, and yet if your organizations have not 
any concrete suggestions to make to Congress, would not that involve 
tat one ought to have a little time to try to solve these prob- 

ems? : 

Mr. Sronr. Mr. Chairman, I have no desire to be sarcastic, but 
unfortunately I have a short, sharp way of speaking. I am not the 
diplomat of the organizations. JI am simply an executive officer who 
takes 84,000 engineers to bed with him every night; but Congress 
should have known this was coming. The ordinary working man 
knew it was coming months ago, and Congress should have been busy 













RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 537 


all these months trying to find a solution for it. I realize, Mr. Chair- 
man, that it is the easiest thing in the world to criticize. The man 
-we are all looking for is the one who has something better to offer in 
place of it, and yet it impresses me very much that Congress was going 
‘to adjourn and go away and was going to take their summer vacation, 
reminding me very much of Nero fiddling while Rome was burning. 

The CHAIRMAN. So far as this committee is concerned, it did not 
intend to take any recess, and there are other committees who were 
to sit anyhow, recess or no recess, and we are eager to solve these 
problems and we welcome suggestions. 

Mr. Stone. And we are eager to help you solve them. We realize, 
Mr. Chairman, that an increase in wages is only temporary relief. 
Wages are only a relative term. Wages mean what you can buy 
with them, and if the time comes in America when it requires a 
bushel basket full of dollars for the American working man to live 
for eo days, then a bushel basket full of dollars must be his wages for 
30 days. 

_ The Cuarrman. That goes, of course, to the question of the depre- 

ciating dollar. 

_ Mr. Sroner. Prior to the war the dollar was worth 100 cents. The 

ee power of the dollar to-day is only 48 cents, according to 
overnment reports. 

The CHarrmMan. Of course, that is due to war conditions and the 
results of the war. 

Mr. Stone. No. 

_ The Cuarrman. And inflation caused by the war. 
Mr. Stone. Pardon me, I could not agree with that. 

The CuarrmMan. What is your view ? 

‘Mr. Stone. It is due to some men who desire to profit and make 
the war an excuse for it; that is, the system of profiteering which has 
developed since the war. Prices are higher to-day than they were at 
any time during the war and there is no excuse for it. We have in 
the city of Cleveland, if you will pardon me for a concrete example, 
what is called a rot train which is hauled out every day to the Wick- 
liffe yards and dumped into the swamps, and they haul out from 18 
to 25 cars of fruits and vegetables every morning and dump them 
into theswamps. They have not been put on the market for sale and 
have been allowed to stand in the cars to spoil. There is no excuse 
for that kind of work in order to keep prices up. 

The CHarrMAN. That would be a situation subject to the juris- 
diction of your municipality or the State of Ohio. 

Mr. Stone. It is only one of the concrete cases that are happening 
all over this country, Mr. Chairman. | 

The CuHarrmMan. That is true; and they are very regrettable cir- 
‘cumstances and ought to be remedied. I agree with you about that. 
__ Mr. Sronr. We have all been saying for months, Mr. Chairman, 
that these things ought to be remedied, but up to date no one has 
done anything. 

__ The Cuarrman. We are no worse in that respect than other na- 
tions, probably. 

Mr. Stone. But, Mr. Chairman, if we can not solve these prob- 
ae here in America, I despair of their solution anywhere else on 
earth, 


5388 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


The CuarrMan. I think we are capable of solving those problems, 
if any nation in the world is capable of solving them. + 

Mr. Doremus. Mr. Stone, relative to the vast amount of food 
products that you say are thrown on the dump in Cleveland, what 
would you suggest that Congress ought to do to relieve that situation ? 

Mr. Srone. I want to repeat again, that I have not any desire to 
be sarcastic, but unfortunately I am taken that way; but this is true, 
Mr. Congressman, if this nation of ours, or if the executive power of 
the United States can take my boy and send him abroad, 3,000 miles 
away, to fight for democracy, can limit my food supply and say how 
much I shall have and how much I can have to live on; and can go 
into my private affairs and tax every cent of my property and my 
earnings and my salary,'certainly this same power can fix the price 
of the commodities on which I live. | 

Mr. Doremus. That is hardly an answer to the question, Mr, 
Stone. 

Mr. Sronr. Our municipality in Cleveland says they have no 
authority or power to handle that question. 

Mr. Doremus. You know very well where Congress got its power 
to conscript the Army to fight in the late war. 

Mr. Stone. Yes. : 

Mr. Doremus. You know it was the exercise of the war power. 
Now I ask you what can Congress do to relieve the particular situa- 
tion in Cleveland to which you have just referred. 

Mr. Stone. I do not know that Congress can handle that one par- 
ticular question, but Congress certainly has the war power. ‘This 
is industrial war and it is not anything else. Congress certainly has 
the power to fix the prices of the commodities and fix the profits 
that men shall make on the commodities of life. | 

Mr. Doremus. I think if you can convince this committee that we 
have the power to do that, we will be very glad indeed to do it. 
That is the way I feel about it. 

Mr. Sronsz. I do not know whether I have the power, but I wish I 
could convince you to that effect, because I belieye we would have 
solved the problem. ; 

Mr. Winstow. Mr. Stone, I would like to ask you some questions 
for the purpose of clearing up doubts that might exist, whether in my 
mind or some other person’s, in order that we can start on right in 
the consideration of this bill and the whole subject. 

Mr. STONE. Yes, sir. Ye) 

Mr. Wrixstow. I agree with you, in the first place, that when it 
comes to the question of the cost of living, we are all mterested. ff 
there are men who would like to keep up their profits, they are but 
few in number, even if they happen to work great disaster. For my 

art, [ would be very glad to join you in any purpose to reduce these 
bills for the cost of living. i 

Will you kindly state what the Plumb League is and why it was 
organized. | q 

Mr. Sronr. The Plumb League was formed by the railroad organ- 
izations to formulate a plan for public ownership and the democracy 
of the control of the railroads of the United States. | 

Mr. Winstow. By what persons or organizations ? 

Mr. Stone. The 14 organizations that I have just read. 

Mr. Winstow. They are bound together ? . 








RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 5389 


was indorsed by the American Federation of Labor. I understand 
that it has since been approved by a number of farmers’ association 
_ Mr. Winstow. Has the plan been indorsed by referendum in any 
way or by the officers of the organizations ? 
' Mr. Stone. By the officers, with full authority to speak. for the) 
organizations. | 

r. Winstow. But not through individual referendum ? 

Mr. Srone. No; it was not necessary under the executive power[ 
of these organizations. 

Mr. Winstow. Are the men in the brotherhood organizations 
ufiliated with the American Federation of Labor? 

_Mr. Stone. In the four railroad brotherhoods they are not affili- 
ci . yet, but they will be affiliated with the American Federatio 
of Labor. 

_Mr. Wixstow. What part of the 3,500,000 men represented by Mr. 
Morrison, if I am correct in what you said, would be railroad men? 

Mr. Srone. I can not answer that question, Mr. Winslow. Mr. 
Morrison would probably be able to answer the question. . 

_ Mr. Winstow. Let me put it to you in another way. Are any of 
ihe 2,000,000 men whom you represent included in the 3,500,000 
nen whom Mr. Morrison represents ? 

Mr. Srong. Mr. Morrison includes only a part of the railroad men. 

Mr. Winstow. Would he indicate at this time to you just about 
10W Many ? 

_ Mr. Morrison. I can not give you an answer now, but I can get it 
or you. 

Mr. Winstow. I do not want to bother you with any detail, but I 
hould like to know whether or not we have 5,500,000 different indi- 
nduals represented here or whether there is a duplication which 
night reduce that number considerably below that? 

Mr. Stone. There is no desire on the part of either Mr. Morrison or 
nyself to pad our record at all. I think our figures are very con- 
ervative. Now that the women have the ballot I am sure that it 
vould be seven or eight million. ; 
_Mr. Winstow. I will take it as you give it without any reservation. 
tseenis to me it is pertinent based on this representation to know to 
vrhat extent there is duplication in the number, and quite likely you 
vill be able to furnish that. 

Mr. Sronz. We shall be glad to furnish the details of the entire 
\uestion. | 

Mr. Winstow. As I remember your statement, you thought that 
a the past the purpose of capital has been to keep all of the profits of 
adustry themselves ? 

Mr. Stone. Yes, sir. 

Mr. Wiystow. Was that the intent; that is not exact? 
_Mr. Stone. That is practically correct; yes, sir, 

Mr. Winstow. Assuming that to be true, for the moment, how 
bout the institutions and the stockholders of institutions during 
hat period so common in industry when they have made no profits 
nd declared no dividends? 

Mr..Sronr. That might be due to several things. It might be 
ue to mismanagement or overcapitalization, which is the common 
vwult with many of these organizations. 


- Mr. Sronn. Yes, sir; they have indorsed the plan. Later on :) 


540 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. | . 


Mr. Wrinstow. I did not have that part so much in mind as I had 
that part of your statement that in the past capital had taken all 
the fruits. Of course, if any industry runs, whether it is profitable 
or otherwise, it has to meet its pay roll, we know that, and it seems 
to me that the assertion is a little sweeping unless you are willing to 
allow for those industries which have not accumulated any capital 
and have not paid any dividends. 

Mr. Sronr. Before I would concede that I would want to know 
something about the particular industry or organization, how it 
was capitalized, how it was managed, and whether it paid the stand- 
ard going rate of the territory in a competitive district, and many 
other things that go with it. Labor always suffers whenever capital 
does not get its money. Very few of these organizations are oper- 
ated in a spirit of philanthropy; they are out for the profit. 

Mr. Winstow. I guess we are all alike. 

Mr. Stone. I think we are all human. 

Mr. Wrnstow. We can agree on that as common ground, but I 
do not like it to go that labor is damaged all the time and capital 
is benefited all the time. I do not think that is true. I think that 
capital suffers most of the time whether wisely or unwisely managed, 

‘Mr. Stone. If you want to go into sociology or political economy, 
then it is a question whether capital is entitled to any return. . 

.Mr. WinsLow. I do not want to go into that, not for the reason 
indicated, but because it would be too long. 

You have used the words commonly used, ‘‘demand and insist,” 
and I should like to get your interpretation of those words as you 
have used them in connection with your advocacy of this bill. 

Mr. Srons. That is the common phraseology used, that we de- 
mand and insist with all the power at the command of our organiza- 
tion. q 

Mr. Winstow. You use those words in the ordinary vernacular ? 

ae Srone. Yes, sir; there is no spirit of threat or anything like 
that. | 

Mr. Wrnstow. You also compared the situation of the labor 
unions in this particular, as I remember it, with the Pilgrim Fathers? 

Mr. STONE. Yes, sir. | 

Mr. Winstow. As I remember the situation of the Pilgrim Fathers, 
they dug out when they were not satisfied; they did not undertake’ 
to grab the whole country which they came from ? ' 

Mr. Srone. That is, perhaps, true. There is not any place for us 
to dig out to. We are here and expect to live and have something t0 
say about the conditions under which we live. st 

Mr. Winstow. I understand that. Will you kindly state what 
you think Congress could have done and when it could have done it! 

Mr. Stone. | would rather not answer that question. 1 have n¢ 
desire to criticize Congress. I do not want to antagonize any Member 
of Congress at the present time. A 

Mr. Wrystow. It will be mighty helpful to us for a person repre; 
senting directly and indirectly so many citizens and presumably) 
voters to point out to us on the level and in a friendly way what wé 
might have done and when we might have done it and when we dit 
not do it. You have made the assertion and I think it is up to you 
to make good. i 












f 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 541 
| Mr. Stone. I am generally understood to speak straight from the 
shoulder. Congress could have seen this coming months ago. 
‘yeryone who read the signs of the time knew it was coming and yet 
Jongress has been so busy playing politics for the past few months 
shat they have not had time to pay attention to the demands of the 
yommon people. 

_ Mr. Wrxstow. Is that your answer, really ? 

| Mr. Stone. It should have taken some action in regard to the 
oo of living, instead of talking about it. 

. Winstow. What action? 

Mr. Stone. It seems to me that if we have not laws enough on 
‘ihe statute books—and I think we have plenty of laws—then it is 
1p eC you or to Congress to put some constructive laws on the statute 
»ooks. 

_ Mr. Wrystow. Assuming that we could have taken action, what 
jaye you to suggest that we might have done and how might we 
ave done it? 

_ Mr. Stone. I can not say. I am not a lawyer. It does seem to 
ne that Congress could have done something to stop this profiteering 
shat a swept over the country, especially since the armistice was 
igned. : 

a. Winstow. You have made a pretty direct statement that we 
ave played politics and have not done things. I want to ask you 
rankly, man to man, person to person, what could we have done 
md when could we have done it ? 

_ Mr. Stone. You ought to have done it as soon as you got in session, 
‘aken some steps to control and stop the profiteering. 

Mr. Winstow. What steps could we have taken? 

Mr. Srons. I am not a lawyer. I am just an engineer out of the 
‘ab of a locomotive. 

Mr. Winstow. You are a citizen, and have put forward a very 
lecided opinion which would seem to have been based on a knowledge 
if the facts. | 

Mr. Sronn. After we have waited for a reasonable time to see 
vhat Congress does, then, if there is no constructive plan put for- 
vard | think we wil! be able to formulate a plan for the railroads. 
Mr. Winstow. That is in the future to be hoped for, perhaps, but 
0 substantiate your statement that we could have done things— 
vhat could we have done? 

Mr. Stone. I have no concrete law to propose this morning. 
| Mr. Wrxstow. Suppose Congress had been in the same frame of 
ze beg making greater investigation than, perhaps, you have 
aade ? 

Mr. Sronn. I should say that it was the duty of Congress to formu- 
ite some constructive plan. 

Mr. Winstow. Whether they can construct it or not? 

Mr. Stone. If’ they could not form a plan of construction, they 
ould, perhaps, offer some suggestion. 

Mr. Wixstow. They have not been able to. 

Mr. Sronr. You are hearing something about the high cost of 
‘ving. 

} Me Winstow. We have heard that all along; the remedy is 
nother question. 

rt. Stone. We take it for granted that you men are going to 

ormulate some plan. 





542 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Winstow. If you want to leave that idea with us—— 

Mr. Srone (interposing). We are going to help you pass any lay 
that you can formulate iz it is a solution of the problem. | 

Mr. Winstow. Can you tell us concretely what might be done? 

Mr. Srone. I have many very decided ideas which I do not cars 
to express at this time. 

Mr. Wrnstow. Please do. 

Mr. Srons. I do not know that that has anything to do with the 
case. Iam talking about Government ownership of the railroads. 
Mr. Winstow. I know; but the fact is you do not come here with a 
suggestion. ; 

Mr. Srone. If there is not sufficient law to regulate the prices ol 
commodities of living then you or some other Member of Congress 
should formulate a law and we will help you put it through. 

Mr. Winstow. We will agree on that. Are you prepared to say 
that there are not sufficient laws? | 

Mr. Stone. No; I am not prepared to say that there are not sufi 
cient laws if they were enforced. 

Mr. Winstow. Congress may think that there are sufficient laws 
if enforced. : 

Mr. Stone. Then the way to do would be to enforce them. 

Mr. Winstow. Shall we go into that question ? : 

Mr. Stone. Just as you like. 

Mr. Winstow. I do not think it is germane, but I am perfectly 
willing to go into it. 

Mr. Stone. If it is not germane there is no use to discuss it. 

4 Mr. Winstow. I do not think it would be a very pleasant thing te 
iscuss. 

Mr. Sims. I want to examine Mr. Plumb and Mr. Garretson at 
some length when they come before the committee about the bill. 
Therefore, I will not ask Mr. Stone any questions. J do not want to 
ask Mr. Morrison any questions, but it is not through any pre 
arrangement. I do not want to question the gentleman who framed 
this bill and who appeared before the Senate Committee and appears 
for it now, perhaps at more length than, I think, the chairman would 
be willing to yield at this time. | 

Mr. Coapy. If I understand you correctly, you say that capital is 
not entitled to any return ? 7 

Mr. Stone. I said that would be a question for discussion. 

Mr. Coapy. You said that awhile ago. 

Mr. Strong. | think I said something like that; I can not repeat it. 

Mr. Wesster. You said, as | remember, that from the sociologica 
standpoint it might be a question whether capital was entitled tc 
any return. 

Mr. Srone. Yes. I think you wiil find it so in the minutes. 

Mr. SANDERS of Indiana. What is your opinion with reference tc 
the question of the Government ownership of coal mines ? : 

Mr. Stone. I am not prepared to answer that question. I realize 
that the propaganda is being carefully spread over the country tha 
this is only a move to take over everything. I am simply deali 
with the question of taking over the railroads, because they areseni: 
public institutions. As to the question of the coal mines, the 
should be some regulation of the price of coal at least. As to whethe 
or not the Government at some future time will take over all thi 











RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 548 


‘aatural resources of the country, that is a question for the future. 
[do not think that we should project this several years ahead—I will 
not be here—but probably in\the future, 40 or 50 years, we may 
‘take over all the natural resources. I do not know what the country 
will do. I think the time is coming when they will regulate the 
price of coal so that the people do not freeze in winter so that a few 
men may get rich. 
' Mr. Sanpers of Indiana. Are you in favor now of a bill in reference 
io the coal mines similar to the submitted bill with reference to the 
‘ailroads ? 
_ Mr. Stone. I do not think that I would be prepared to approve 
mything of that kind at this time. I would be prepared to approve 
1 bill for the Government regulating the price of coal. 
| Mr. Sanpers of Indiana. Is there any other industry except the 
vailroads to which you think the Plumb plan should be applied ? 
' Mr. Stone. Not that we are dealing with at this time ; not that I 
im authorized to speak of. 
_ Mr. Raysurn. Do you believe in a general price-fixing scheme of 
werything by the Government ? 
| Mr. Stone. Unless we can find some other solution of the high cost 
if living, it will have to come on the commodities of life. 

Mr. Raysurn. Do you think that we are going to find that? 

Mr. Stoner. I hope so. 

Mr. Raysurn. You have no plan? 
_Mr. Stone. Not at this time. . 
_ Mr. Rayzurn. I notice here in the statement that Mr. Jewell gave 
ut, or an interview rather, on some proposals in the Hines letter, I 
resume [reading]: | 


Jewell made it plain that the railroad workers mean business. He said that the 
age board program, proposed in Congress, could not be accepted. 


Then, this is quoting Mr. Jewell: 


“The railroads will be tied up so tight they will never be run again if that legislation 
a he declared after the letter had been presented and the conference had 
ided. 





Do you know the part of the proposed legislation which he had 
sference to ? - 
Mr. Stone. No; I do not. While I have no authority to either 
yeak for or defend Mr. Jewell, I question very much if he made any 
ich statement as that. When a man states that the railroads will 
ever run again that is the rankest kind of nonsense, because the 
ulroads are going to run under some plan. 
Mr. Raysurn: The question was whether he made it or not. 
Mr. Sronr. That is the sheerest kind of nonsense, because we 
low that the railroads are going to run under some form or other. 
hot in any other way, the Government will open up the lines of 
mmunication and run them, because the people have to live. 
Mr. Raypurn. In answer to Mr. Sanders, you were not quite ready 
ay whether or not you believed in the absolute socialization of 
‘dustry ? 
‘Mr. Brox. I do not think that we have arrived at that time in the 
Story of our country. 
Mr. Rayspurn. Do you believe in the socialization of railroads ? 
. Stone. Because they are semipublic institutions and because 

ey are something in which the people are vitally interested. 


_  152894—19—vor 1——-35 


544. RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Raypurn. You realize that the Plumb plan goes further that 
the advocacy of the Government ownership of railroads ? 

Mr. Stone. It is Government ownership. 

Mr. Raysurn. That is the question. Of course, you realize that i 
goes further than the Government ownership of a post office, fo 
instance, where the Government retains absolute control ? . 

Mr. Sronr. It is the general belief that we have Governmen 
operation of railroads at the present time, but that is 

Mr. RayBurn (interposing). You believe in the socialization o 
the railroads ? 

Mr. Sronr. I believe in the Government owning the railroads. 

Mr. Raysurn. This Plumb plan goes further than that? 

Mr. Srone. It goes to a plan for operating the railroads and ho} 
they will be operated, but the Government owns the railroads. 

Mr. Raysurn. Yes; the Government buys the railroads and turn 
them over to somebody else to operate entirely ? 

Mr. Stonr. No. The Government has something to say as to wh 
it turns them over to. It provides this board to operate the roads 

Mr. RaysBurn. Who constitutes the board ? | 
/ Mr. Sronr. The board is made up of five appointed by the Presi 
dent, as I recall, five elected from the employees, and five elected by 

‘the management of the different railroads. J think that is correct 

Mr. Raysurn. The management of the different railroads ? 

Mr. Srone. Yes, sir. . 

Mr. Raysurn. Who will be the management of the different rai 
roads; it certainly would not be a question of ownership after t 

Government had taken them over ? | 

Mr. Stones. It would be the operating officers. 

_ Mr. Raysurn. And they would also be employees ? 

| Mr. Sronn. Employees of the Government in one sense, be 
\operating them and performing the duties of the railroads with whic 
(Ni were concerned. 

t 





Mr. Raypurn. The employees of the railroads would then operat 
em ? , 
Mr. Srone. Yes, sir. 1 
Mr. Denison. You said that the Government taking over the 1 
mines was a question of the future and that you felt you would me 
probably be here, but, of course, what is done in this case now befor 
us, the plan you recommend, and which if adopted would have 
great deal of influence on what is done in the future and after yo 
are gone, would it not? : ) 
Mr. Sronr. That might be true. Jf we could show that we coul 
operate the railroads under this plan better than they were ey 
ope ated before and could give the American people better servi 
than ever before, it would have a great influence on the other questid 
Mr. Denison. I have seen in the papers that the coal miners 1e 
that they are entitled to an increase in wages, but that they a 
going to defer their request until after peace has been restored & 
eclared. Now, if they should for the same reasons as the bro 
hoods demand an increase in wages and ask the Government to ti 
over the coal mines, what would be your attitude ? Ry 
Mr. Sronr. It would depend largely on the plan and whether’? 
not the Government could not reach the same result by fixing 










| RETURN OF TH RAILROADS TO PRIVATE OWNERSHIP. 545 
\ 
price of coal. You say that the miners feel that they should have an 
Increase in wages. There is no reason—— 
i Mr. Denison (interposing). I am not questioning the right to feel 
‘that way. 
Mr. eae There is no reason why the railroad companies should 
buy their coal for $2, $2.10 to $2.40 a ton while the laboring man has 
‘to pay $7 or $8 for the same coal, mine run. 
’ Mr. Dentson. I would not think there should be. 
_ Mr. Stone. That is actually what is happening to-day. 
| Mr. Dentson. What I am trying to get at is this: If the principle 
and the policy of this whole legislation is wise, then, for the same 
reason, it would be wise in reference to the coal mines. 
| Mr. Stone. I would not say that at this time. It would depend 
largely on how the plan works out. If it works out as we feel confi- 
dent it will [ can realize that it would have a very strong influence on 
the question you ask. 
_ Mr. Denison. Of course, what would be true of the coal mines 
‘would be true of all industries that are necessary for the public, Is 
aot that true ? 
_ Mr. Stone. It would probably work out that way in future years. 
_ Mr. Denison. Do you think it is wise for us now to continue that 
»olicy of the Government taking over all industries upon which the 
yublic necessarily depends ? 

_Mr. Srone. I would not say that. I think the time has arrived 
when the Government should take over the railroads, and I think 
wy other plan which proposes to turn them back simply means 
inancial panic and chaos. 

Mr. Denison. What do you mean by that? 
__Mr. Sronn. I believe that if the railroads were turned back to 
heir private owners to-morrow or next week, a number of the roads 
vould be in the hands of receivers inside of 30 days under the present 
mancial conditions. 

Mr. Denison. Why ? | 

Mr. Stone. Because from the way freight has been detoured and 
rom the way the railroads have been scrambled up to the present 
ime, they could not make their fixed charges as guaranteed at the 
resent time by the Government. 
_ Mr. Denison. Do you think that there is anything that we can do 
d relieve that situation except to adopt the plan that you propose ? 
Mr, Sronz. I understand that there have been four plans proposed, 
nd, in my opinion, the plan that we propose is the only piece of 
ustructive legislation that has been proposed on this important 
/uestion yet. 
Mr. Denison. In case that Congress should not think it wise to 
dopt the plan you propose at this time, could you suggest anything 
tat Congress could do that would tend to prevent this panic and 
‘ceiverships for railroads that you have just mentioned ? 
STONE. Yes, sir; if you adopt the plan proposed. by certain 
erests, you would subsidize all the railroads so that that might not 
















appen. 
“te Hee 
4 Denison. What interests do you have reference to? 


‘Mr. Stone. The capitalists, interests that are represented in the 


‘an proposed for the return of the railroads to private ownership 
ith a Government subsidy. 


546 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Drentson. Do you remember who proposed that plan ? 

Mr. Stone. I can not recall offhand. 

The Cuarrman. Do you not mean a guaranty instead of a sub- 
sidy % 

iy Srone. It means the same thing. If you guarantee them, it 
is the same thing. It amounts to a subsidy. 

The CuarrMANn. There have been several plans before the committee 
involving the guaranty plan. | 

Mr. Srons. Well, I, perhaps, used the wrong word, but that is 
what.it means when you come down to every day language. 

Mr. Denison. Do you refer to the plan calling for a guaranteed 
return on the capital? 

_Mr. Srone. Yes, sir. 

Mr. Denison. You do not think that it would be a wise policy for 
the Government to adopt any plan that would guarantee any return 
on the capital invested, do you ? 

Mr. Stone. I would not say that, but I do not see any more reason 
why capital should be guaranteed a return than that labor should be 
guaranteed its return. For example, the Federal administration 
agrees that in order for these men to live and have the same pur- 
chasing power for the dollar, they would have to have approsa 
a 25 per cent increase in wages; yet, they say that if they were to 
make it, it would mean a deficit and that they would have to come 
‘to Congress for the passage of a deficit bill. Now, Congress has 
already passed a deficit bill to take care of the guarantee to the 
ca Pacts who are guaranteed 64 per cent on the cost of operations. 

r. Dentson. What would you think of the proposition of guaran- 
teeing capital a return of 4 per cent and guaranteeing the laborers 
their present wages ? 

Mr. Srone. ‘Present wages” is only a comparative term. It 
depends upon what you can buy with the present wage as to whether 
the present wage is adequate, or not. 

r. Denison. That would be true, also, of capital, would it not? 

Mr. Stoner. Not necessarily. 

Mr. Dentson. The value of capital differs at different times. 
Sometimes it may be entitled to a return of 4 per cent, at another 
time to a return of 3 per cent, and at another time to a return of 5 
per cent. 

Mr. Srone. Yes, sir; that, of course, would differ at different 
times. It may depend upon how many risks they take, and, also, 
upon how much the capitalists have capitalized the clear sky and a 
few other things that go with it. | 

Mr. Denison. Do you not think that the same principle that is 
being urged here should be applied to all of the public utilities ? 

Mr. Sronet. I do not at the present time. 

Mr. Dentson. Why not? 

Mr. Sronz. I do not think we have arrived at that time in the 
history of our country. 

Mr. Denison. Why do you think we have arrived at that time s0 
far as the operation of the railroads is concerned, but not with respect 
to any other public utility ? 

Mr. Sronr. Because there are more men involved at the present 
time in the operation of the railroads, and because the railioads are 
semipublic corporations, anyway. 


RETURN OF THE RAILROADS TO PRIVATF OWNERSHIP. 547 
_ Mr. Denison. But that applies also to electric-light plants, street 
Tailways, and to all public utilities. If that is true, then the only 
‘difference is that more men are employed in the operation of the 
railroads. q 
_ Mr. Stone. No, sir; I would not say that. 
__ Mr. Denison. Then why do you think that that time has arrived 
in the history of the country so far as the railroads are concerned ? 

Mr. Srone. Because we realize that under the present conditions 
‘the railroads can not continue with this steady spiral climbing in 
Ree and other costs. If that continues, then something must be 

one. 

Mr. Denison. Is not that true of other industries ? 

Mr. Stone. | am not as familiar with other industries as I am with 

the railroad situation. 
_ Mr. Denison. But you are familiar with the industrial conditions 
all over the country ? 

Mr. Stone. In a general way; yes, sir. The time may come—and 
Ido not know what will happen—but the time may come when the 
‘Government will control all of the natural resources of the country 
and will not allow any man or set of men to control them. 

__ Mr. Denison. Of course, as you understand, Congress must act in 
this emergency arising out of the high cost of living, and it is one upon 
which it must act from the point of view of all laborers and not simply 
of the laborers on the railroads of the country. 

_ Mr. Stonz. I do not claim for a minute that the solution of the 
railroad problem will solve the problem of the high cost. of living 
for all of the American people. They are separate and distinct 
problems. | 

Mr. Denison. That is what we are interested in, and if, in the 

interest of the American people, you have any suggestions to offer 
ane that line, I am sure they would be welcomed. 
‘Mr. Stone. We will be glad to furnish you with some concrete 
suggestions later on when they have been worked out by the different 
labor organizations, if, in the meantime, you do not furnish a solution 
for it yourself, or if the present administration does not find a solution 
for it. I am anxious to see what the President’s suggestions will 
be Een he appears to-day, as I understand he is coming before you 
to-day. 
| a Denison. You do not care to offer now what you have in 
‘mind ? 
Mr. Stone. No, sir; I do not wish to offer any suggestions in regard 
to that until it has been taken up with all the other organizations. 
I would like to do that before offering any precise plan. 
'_ Mr. Coapy. You stated a while ago in answer to a question by Mr. 
Denison that the railroads paid far less for coal than domestic con- 
sumers. | 

Mr. Stone. Yes. 

eC Coapy. Is it not true that the railroads buy run of the mine 
coal ? 

Mr. Stone. That is all anybody else is getting. 
| Coapy. Does not the consumer have to pay the freight on the | 
coal ? . 
_ Mr. Stone. Yes, sir. 













548 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Coapy. And the terminal charges and cost of handling to his — 


home in the big cities. Does not that account for the difference? 

Mr. Srone. No, sir; it is true that he pays all of those charges, but 
that does not account for the difference. 

Mr; Coapy. Does he not buy lump coal? 

Mr. Srons. There is no such thing at the present time. There is 

‘no such thing now as lump coal. It is nothing but run of the mine, 
and half of it is dirt. 

Mr. Denison. Is that true all over the country, that the coal 
mines are turning out half dirt and half coal? 

Mr. Sronr. That is what we are buying at the present time m 
the cities. I do not know where it gets in 

Mr. Denison (interposing). Do you want this committee to under- 
stand that the coal purchased at the coal yards is half coal and half 
dirt ? 

Mr. Sronr. Yes; that is what I said. 

Mr. Coapy. What is the freight from the mine to the big cities? 

Mr. Stonr. Somewhere between 90 cents and $1.10 per ton. 

Mr. Coapy. Do you know what the terminal charges are? 

Mr. Srone. From about $2 and $2.50 per car up to $3 per car, 
carrying 50 or 60 tons. ¢ 

Mr. Coapy. It costs something to unload it at the yards and deliver 
it to the homes of the consumers. 

Mr. Stonr. Yes; it costs something to deliver it to the homes of 
the consumers, but I do not believe that it costs $5 or $6 per ton. 
Prior to the war we bought the same coal for from $3 to $3.25 
per ton, and now we have to pay $7.50 and $8 per ton. Now, I do 
not believe that the miner gets all of that. I know that the cost of 
mine labor has not increased that much. 

Mr. Monracur. How much have the wages of mine workers 
increased ? 

Mr. Stone. They have increased, but I can not tell you exactly 
how much. But they have increased. 

Mr. Monracur. Do you think that under your plan there would 
be anincrease of wages? You desire an increase of wages, do you not? 

Mr. Stonr. Under the plan proposed here there can be no increase 





in wages except as we show profits on the efficiency of the employees. 


Mr. Montacusr. Suppose you do not show any profits? | 

Mr. Sronr. But we are going to show profits. There is no argu- 
ment about that, because we are going to show them. We know 
that we can show profits. From our viewpoint that is not a uestion 
for argument at all, because we know that we can show profits. 


Mr. Montacur. I think there is a very serious question as to 


whether you should not get other people’s ewe on that subject. 
Mr. Stone. If they give us a chance to make a practical demon- 
stration of it, I know that we will convince them. As you know, 


Congress would have the power to revoke the charter at any time 


and change the plan again. 


rates ? . 
Mr. Sronr. Yes, sir. We are basing our whole hope of the future 
on being able to do that, at any rate. b 
Mr. MontacuE. On all the roads? 


Mr. Coapy. Do you think you could show a profit at the prevailing 


: 


“RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 549 


| Mr. Stone. We would make profits on the railroads as a whole, 
jut [ am not speaking for any particular road. As to a road built 
or strategic purposes, or in order to hold some territory, or a road 
eading from nowhere to nowhere, we probably could not show any 
ywofits on that particular road, but we are speaking of the Govern- 
nent railroads as a whole, and not of some particular line. 

Mr. Sims. You mean the railroads operated as a single plant? 

Mr. Stone. Yes, sir. 

_Mr. Montraaur. To what do you think the present high cost of 
iving is chiefly attributable ? 

_ Mr. Stone. To the system of profiteering that has grown up during 
he war, and to the fact that everybody has ceased to talk about cents 
md dollars. We do not talk of anything but millions. 

_ Mr. Montacus. Do you know of anybody who is not trying to get 
werything that he can out of the war? : 

Mr. Stone. No, sir; I know of some people who got more than any 
nan’s fair share. 

Mr. MonracueE. I was asking as to the fact, and not for any justifi- 
ation of the fact. Did you notice what term I used—‘ everybody’’ ? 
_ Mr. Stone. No, sir; I do not know of anybody that has not been 
retting all that he could get. 

Mr. Montague. Except the soldier who fought in Europe. You 
lo not think that» he got all that he was entitled to? 

Mr. Stonr. They did not get half what they were entitled to, 
jut somebody got what they should have had. 

: Mr. Monracur. Do you think that, with the process of each man 
jetting all that he can that we can ever reduce the cost of living ? 

Mr. Sronz. It is a continuous cycle, with the cost of living keeping 
bout two jumps ahead of wages and with wages never catching up. 

Mr. Montacue. Suppose they should catch up, would it stop then 3 

Mr. Stone. No, sir; because if we got an increase of 55 per cent 
n wages to-morrow, they would raise the prices that much more. 

Mr. Monracur. Suppose you got an increase in wages of 25 per 
ent to-morrow, and after two years the cost of living was reduced 
0 per cent, would you be willing to reduce wages ? 

_ Mr. Stone. If you could show the men that they could stand 
hat much 

Mr. Monraause (interposing). Do you think that the wages would 
ver go back? 

Mr. Stonn. Of course, we know that human nature is very much 
he same the world over, and everybody wants to keep everything 
hat he can. The great trouble when we commence to talk about 
he cost of living is that they want to measure the standard of living 
osome locality here with the standard of living of some foreigners 
‘ho come over here, and there is absolutely no comparison. 

Mr. Montague. I agree with you about that. 

Mr. Watson. Directly after the Civil War, all of the commodities 
‘ere higher in price than they are now. Do you know how they 
vere reduced ? 

' Mr. Stone. I was only a boy then, but I recall that there was a 
‘anic later on. | 

Mr. Watson. I do not think it was immediately after the war. 
Mr. Stone. No, sir; but it was three or four years after the war. 








550 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Watson. Will not American history repeat itself? I do not 
think that the panic came until 1873, and prices were very much re- 
duced in 1873. Tea was 80 cents a quarter of a pound and calico was 
60 cents per yard. Do you know how they were reduced ? 

Mr. Srons. Probably they did not have profiteering down to as 
fine a system as they have now. That is one thing. 

Mr. Watson. Do you think that civilization has advanced since 
then ? 

Mr. Stonkr. In many ways. 

Mr. Watson. In profiteering ? 

Mr. Stone. Yes, sir; I think so. There is no question about that. 

Mr. Watson. Do you think that the philosophy that reduced the 
prices of commodities after the Civil War would not be as true in its 
application now ? 

Mr. Stone. If that were true, I would suggest that Congress put 
that same philosophy into effect at once. 

Mr Watson. It is in effect now. | 

Mr. Srone. Then it has failed to function properly. 

Mr. Watson. If that were true, Congress would not be required 
to take any action whatever upon the question of the reduction of the 
prices of commodities. 

Mr. Stone. Gentlemen, I want to say one thing to you 

Mr. Watson (interposing). Congress did not take any action then, 
as I recall. 

Mr. Srong. I want to say this to you, and it is not in a spirit of 
threat that I make the statement that unless Congress or someone 
finds a solution of this problem within the next few months—and | 
do not mean in two or three years, but within the next few months— 
you are going to see the worst time that we have ever seen in this 
country, because the people are not going to fold their hands and sit 
themselves down while starving, but they will die fighting. 

Be Watson. Would not the solution of 1864 satisfy the people of 
to-day ? 

ie Srone. I do not know whether that solution would work or 
not. I can remember the Civil War, although I was only a young 
boy, but I can not remember it well enough to know what the plan 
was, 

Mr. Watson. But it is a matter. of history. 

Mr. Stone. Yes, sir; and history is largely what those who write it 
make it. 

Mr. Sweet. How much have the wages of railroad men increased, 
taking the prewar period as the basis ? 

Mr. Sronr. Approximately about 37 per cent, and the cost of 
living has increased about 82 per cent in the same time. iA 

Mr. Swreer. And the purchasing power of the dollar has decreased 
about 40 per cent. 

Mr. Sroner. Forty-two per cent, according to the Government 
reports. 

Mr. Sims. I would like to ask you one question: Do you know 
whether, or not, the owners of the mines have decreased or increase 
the royalties that they were receiving before the war, or are they 
recelying anything over what they were receiving before? — 

Mr. Srong. I do not know, but I can easily get that information. 





RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. Bor 















) Mr. Merrirr. Of course, I agree with you, Mr. Stone, that the 
fundamental question here is the question of the cost of living. Now, 
all of us agree that the present condition of the world has never been 
jexampled before. The world war has resulted in a tremendous 
}merease of consumption and a tremendous decrease of production. 
| That is right, is it not? 

Mr. STONE. Yes, sir. ' 
| Mr. Merrirr. Now, is not that the fundamental reason for the 
reat increase in the cost of food ? 
| Mr. Stone. No, sir; I do not think so. 

|. Mr. Merrirr. You do not think that the question of supply and 
jlemand has anything to do with it? 
). Mr. Stonz. That has something to do with it; but, for example,. 
|. saw the proprietor of my hotel buying vegetables this morning. 
| de was paying $3.50 for a bushel of tomatoes. All of us know that 
) omatoes are plentiful in the month of August, and last year he was: 
|yaying 40 cents per bushel for them in August. Now, I know that. 
| here is a plenty of tomatoes rotting in the fields for want of a market. 
the same thing is true of shoes. It is said that shoes are going to 
1:20 per pair. It takes three square feet of leather to make a pair 
vf shoes, I am told, and 30 days ago it was worth 50 cents per square 
oot, while to-day the price is $1.50 per square foot. Yet I can 
how you out in the western territory that there are thousands of 
ity hides piled up as high as box cars, all along the way, that they 
)an not get a bid for. It is not a question of supply and demand, 
jyecause those dry hides are there and are not used. 
? as Merritt. There is a tremendous demand now for all food- 
| tufis. 

Mr. Stone. Yes, sir; that is true. 

Mr. Merritt. And the people who own those foodstuffs naturally 
et the going price for them. 

Mr. Stons. They get all they can for them. 

Mr. Merritr. Your remedy for that is a general system of price 
xing ? 
_ Mr. Stonz. It will have to be. If we could regulate those prices 
uring the war, and we are practically under war conditions now, 
here is no reason why we could not regulate them now. 
| Mr. Merrirr. Do you think that the war regulation of food prices 
jas successful ? 
Mr. Stons. To a great extent; yes, sir. I think that is the only 
fy we could have gone through the war with the supplies that we 
jad. 








) Mr. Merrirr. That involved, not only the fixing of prices, but the 
uaranty of prices to the producer ? 
) Mr. Sronz. Yes, sir; and speaking of wheat, if they were to take 
ee off of wheat to-day it would go to $3 per bushel. 
‘Mr. Merrirr. Would that tend to show that price fixing during 
le war was effective ? 
Mr. Sronr. Price fixing, so far as flour is concerned, had nothing 
) do with it. At the present price of wheat flour should sell at $10 
er barrel, but by the time it goes through the retailer and is sold in 
nall quantities it is sold at $16.50 per barrel. 
: ha Merrirr. Then, is it your view that the real profiteers are the 
| tailers ? 


5b? RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Srone. No, sir; I would not say that. It is all the way down 
the line, and one of the great ptoblems now before us is that of 
bringing the producer a the consumer closer together without 
having so many middle men. 

Mr. Mernuirr. If, in process of time, when we begin to produce 
ereater quantities of food and other necessaries, there should get to 
bea surplus all around the world, do you not think that that would 
have an effect in cutting down prices ? 

Mr. Srone. It would, unless some few individuals got a corner on 
the commodities, as it appears they have at the present time. 

Mr. Merritr. Do you know of any ‘‘corner” which has succeeded 
in the end? 

Mr. Stone. Well, the ‘‘Big Five’”’ packers seem to have succeeded 
fairly well for the last year or two so far as the price of meat is 
concerned. | 

Mr. Merairr. [ do not think we have 

Mr. Srone (interposing). It must be, when beef cattle are sellin 
at 124 cents per pound and beefsteak is selling at 40 cents per pound, 
The farmers do not get all of it, nor do the stock growers get it. 

Mr. Merritt. That, of course, is a complicated question. What I 
was going to say was that it seems to me that it is a question that is, 
at least, worthy of consideration by you gentlemen and by all citi- 
zens, Whether the present condition of prices is not the result of 
world conditions which, when natural law, as Mr. Watson suggested, 
becomes operative, will be controlled. I am about in your class as to 
age, and I can remember when the Civil War was just over. I know 
that prices then were higher than they are now, and I know that 
through the operation of natural law they came down. Now, of 
course, this World War produced world sacrifices, and we are getting 
our share of them. 

Mr. Stone. We are coming back to the same fundamental prin- 
ciple. People have to live. Yesterday’s press reports carried a news 
item to the effect that so many million children—I do not remember 
the exact number—were going to bed hungry every night. 

Mr. Merritt. That is an easy thing to say. 

Mr. Srone. It is an easy thing to say, ae perhaps, to prove. 

Mr. Montaaus. In America ? 

Mr. Srone. Yes, sir. I read an item in a Baltimore panes or 
Washington paper yesterday saying that 3,000 school children in 
New York City went to school every morning without their breakfast. 

Mr. Merrirr. That particular statement was made several years 
ago, and it started a movement for providing school lunches, but 
investigation showed that the allegation was not true at all. 

Mr. aa Is your plan for the permanent solution of the 
railroad question based upon the temporary conditions that now 
exists with respect to the cost of living, or is it a long-thought-out 
plan which has no connection with the present exigency ? 

Mr. Sronr. We had been thinking and working on it long before 
the railroads were taken over for Government operation and then wé 
finally came to the crisis at the present time I think it is the 
solution for one phase of the high cost of living. I do not undertake 
to maintain for a minute that the adoption of the Plumb plan wut 
solve the problem of the high cost of living. That is something that: 
affects every man, woman, and child in America to-day. : 



























| 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 553 


‘Mr. Barxiey. Do you think it would be safe to adopt as a perma- 
nent plan for the operation of the railroads a plan based merely upon 
he present situation with reference to the cost of living ? 

-Mr. Stone. No, sir; not based upon that alone, but it is offered as a 


solution of the whole question of Government railroad operation, 


‘here are two separate and distinct questions, but one has a bearing 
(pon the other. There is a tendency to confuse the two questions 
ogether, or to confuse this with the Government control of com- 
aodities. ‘The adoption of the Plumb plan will not solve the problem 
f the high cost of Heine’ but it will be one of the agencies that will 
elp to solve it. wear 
_ Mr. Montacue. Will there be any reduction of railroad rates ? 
' Mr. Stone. Under our plan? 

Mr. Monracur. Under any plan. 
_Mr. Stonn. Not at the present time, but I believe that if our 
lan was adopted, it would eventually result in a reduction of rates. 
| Mr. Montacur. What do you mean by “eventually”? 
_Mr. Stone. As soon as we got the plan to working and got some 


\xamwork, which is vitally needed at the present time, we would get 
etter results. 

| Mr. Montacur. How many years, would you say, before there 
ould be any reduction of rates? 


_Mr. Stone. I would not undertake to say. It would depend largely 


pon local conditions. One thing is sure, and that is that there 


ould be no increase in rates unless the rate-making body said it 


jas necessary, because the Interstate Commerce Commission would 
jave the same power under our plan that it has at the present time. 


\TATEMENT OF MR. FRANK MORRISON, SECRETARY OF 
| THE AMERICAN FEDERATION OF LABOR, A. F. L. BUILD- 
| ING, WASHINGTON, D. C. 


| Mr. Morrison. Mr. Chairman and gentlemen of the committee, 
| am here representing the American Federation of Labor to testify 


ee it stands behind labor’s stand for the reorganization of the 
ulways. 

At the convention of the American Federation of Labor at Atlantic 
ity, on Juné 17, 1919, the following resolution, which was intro- 
|1ced by representatives of the International Association of Machin- 


|ts, the Amalgamated Sheet Metal Workers’ International Alliance, | 
je International Blacksmiths and Helpers, the International Broth- | 
| hood of Boilermakers, the Switchmen’s Union, the United Brother-_ 


od of Maintenance of Way and Railroad Shop Laborers, and the 
rotherhood of Railway Clerks, was considered: 


Congress the political solution of the railway problem; and 
Whereas every human and industrial activity, the life of every community, and 
|? happiness and prosperity of every citizen are dependent upon the solution of 





tears and ; 
| VRereas it is demanded by the private owners of these properties as the condition 
Which they will resume the control and operation thereof, that the people of 


@erica guarantee them privileges which they have not heretofore enjoyed, to wit, 







> night to earn a guaranteed return of the property investment account of the rail- 
.Y Companies; and 

Whereas such a guarantee would make valid as a direct obligation of the people 
the United States all fictitious securities, stock dividends, and discounted bonds 





Whereas there is now pending before the American people and their representatives | 


\ 


554 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


issued by the railroads without consideration and representing no service to th 
American people; and 

Whereas in order to make good such guarantee, rates must be raised far in exces 
of the level now fixed, or, in default of such increase in rates, wages must be reducet 
far below the level now fixed, or both; and 

Whereas there has been presented to the Senate Committee on Interstate Commerce 
and will shortly be introduced in Congress the plan fora reorganization of this industry 
originating with the railway employees; and . 

Vhereas labor’s plan so presented provides for immediate public ownership of thes 
properties, the production of every honest dollar actually invested, and the assuranc 
of an adequate return on such investment without any increase in rates; and 

Whereas labor’s plan provides for joint control of the industry through a board 0 
directors representing equally the wage.earner, management, and the public; and 

Whereas, said plan guarantees to the public the protection of its interests in procurin 
ultimately service at cost, and at the same time secure to the wage earner a fair shar 
of the prefits produced by his skill, efficiency, and economy; and 

Whereas labor’s plan provides for the full protection of all the rights and privilege 
of the wage earners as a class without invading the rights of any other classes of societ: 
and at the same time throws wide the golden gate of opportunity for the full develor 
ment of the powers of initiative, inherent to every individual: Now, therefore, bei 

Resolved by this Thirty-ninth Convention of the American Federation of Labor, Tha 
we hereby approve, indorse, and adopt the plan for the reorganization of the railwa 
industry presented to the Senate Committee on Interstate Commerce on behalf of th 
railroad employees represented by the following organizations: International Assoc: 
ation of Machinists, Brotherhood of Locomotive Engineers, Brotherhood of Railwa 
Carmen of America, International Brotherhood of Blacksmiths and Helpers, Inte 
national Brotherhood of Electrical Workers, Brotherhood of Railroad Trainmer 
Switchmen’s Union of North America, Brotherhood of Railway Clerks, Brotherhoo 
of Locomotive Engineers and Enginemen, Sheet Metal Workers, International Orde 
of Railroad Conductors, Order of Railroad Telegraphers, United Brotherhood of Mair 
tenance of Way and Railroad Shop Laborers, International Brotherhood of Boile 


makers, Iron Shipbuilders and Helpers of America, by shee chic 
of the Order of Railroad Conductors, and Glenn E. Plu ir counsel); and, be: 
further a 


Resolved, That we hereby pledge ourselyes to use every legitimate endeavor to pr 
mote the enactment of this plan into law. 


The resolution committee submitted the following report on th 
above, which was unanimously adopted: 

With reference to the subject matter contained in the executive council’s repo 
and in the above resolution, your committee, in submitting a declaration in favor 
ownership or control of railroads by the United States Government, recommends th 
inasmuch as the details connected with the same are at present in a formative stag 
the subject matter be referred to the executive council with instructions to coopera. 
with the organizations representing the railroad employees. | 

President Samuel Gompers, of the American Federation of Labo 

cepted the honorary presidency of the Plumb plan league organize 
among the rank and file of the 14 railway national and internation 
organizations and generally among the organizations affiliated wil 
the American Federation of Labor to carry to the public and” 
Congress the principles of the plan now embodied in the Sims b 
which has been indorsed by the chief executives of the 14 railwé 
organizations. | 

In all discussions of this question it would be well to bear in mir 
that quasi-public corporations are created for service and not I 
ee A long line of decisions, from the Supreme Court of the Uni 
States down, have invariably held that the fundamental purpose 
these corporations is to serve the public and that they are only entitl 
to a fair remuneration. ; 

Hardly anyone will deny that under private management the r 
roads have been financial footballs and that they have been dire¢ 
by interests whose wreckage of numerous railroad systems is comm1 









RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 555 


‘nowledge. This wreckage has been accompanied by a debauching 
f legislature and other political activity that tested democratic 
stitutions. 
The times call for new arrangements in the management of proper- 
‘les that are only made possible by the public’s consent. 
The passage of the Sims bill will reestablish the theory that rail- 
ads Bionid be operated for public service rather than for private 
rofit. 
Aside from the application of democracy in these properties, and 
aeir handling by practical railroad men, the Sims bill wil squeeze all 
ctitious value out of these properties. This will affect living costs 
ad reduce charges the cublio must now meet, for then it will no 
»mger be necessary to compel the railroads to earn dividends on mil- 
ons of dollars of watered stock. 
_ Gentlemen, that is the message which I bring to you from the 
‘Merican Federation of Labor upon this question. 
We represent about 3,700,000 members who have paid, and with the 
vembers that have not paid it would take us up over the 4,000,000 
ark, and with the brotherhoods added to that, I am safe in saylng 
jat that represents fully 4,700,000 organized workers, and the 
merican Federation of Labor claims that they also represent the 
torganized workers of this country, because there is no other body 
iat can speak for them. 
So in bringing to your attention the indorsement of this paln we 
id that it is the indorsement of the wageworkers of the country. 
‘I might add that the convention of the American Federation of 
bor declared for Government ownership of railroads; that is, the 
ecutive council did, and when it came to the convention this plan 
as introduced, and the convention decided that the Federation would 
operate with the wishes of the workers that this law would affect. 
y understanding is that the question of Government ownership, the 
evention of the railroads from going back into private ownership, 
is voted upon by the membership of the organizations affiliated with 
2 American Federation of Labor. 
The Cuarrman. Mr. Morrison, you believe in the socialization of the 
Uroad systems of the United States through public opinion as 
[pressed through Congress; is that right ? 
/Mr. Morrison. Through Congress ? 
‘The Cuarrman. Yes. In other words, if you are going to get it, 
| mare, it has to be through an enactment of Congress; is that 
“ht ? 
| Mr. Morrison. Oh, yes. 
)The Cuarrman. What method do you think would be proper to 
ivelop that public sentiment which would bring about, through 
pnogress, the socialization of railroads? 
|Mr. Morrison. That was expressed very fully by Mr. Stone— 
‘ough any method that can be used to convince the people of this 
Antry that this course is necessary to be taken. 

@ CuarrMAN. That is to say, it would be an appeal to reason; 
shat right ? 
Mr. Morrison. Labor organizations never do anything else. 
\ The CuarrMan. They would not use duress of any character ? 
Mr. Morrison. That is not a part of the plan of the labor organiza- 
ns, 











T 





556 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


The Cuarrman. The American Federation of Labor has always 
insisted, as I understand it, in not organizing a political party te 
carry out its plans and purposes; is that right ? 

Mr. Morrison. The position that they have taken in the past 
has been that they are partisan to a principle but not to a political 
party. We have men who are favorable to our legislation in al 

arties, and we have supported them. If a man is a Republican and 
iad stood for the measures we wanted, he was supported. If he 
was a Democrat, the same course was pursued. : 

The Cuarrman. And you will doubtless continue in that policy. 

Mr. Morrison. That is the policy that has been in operation since 
1897, and the action of the last convention indicates that still is the 
opinion of a majority of the delegates representing the affiliated 
organizations. 

The CuarrmaAn. Notwithstanding the fact that there have been 
attempts to organize labor parties within recent months. . 

Mr. Morrison. Notwithstanding that fact ? 

The CHAIRMAN. Yes. 

Mr. Morrison. There is the right of a central body or a State body 
to nominate an independent to run against. either of the old parties 
or even to start a labor party in a city or State. That is within the 
province of the States, but the American Federation of Labor takes 
the position, or stands on the proposition, that they are a non- 
partisan organization. We vote for our friends irrespective of party 
affiliations, and we have'been very consistent in that course. 

The CuarrmMan. So that in case this Plumb plan is not adopted 
by Congress during the current session, or possibly next winter, it 
would be the effort of your organization to secure the adoption of 
that plan by one or the other or both of the great political parties 
next year ? 

Mr. Morrison. By both of them. 

The CuarrmAn. I said by one or both. 

Mr. Morrison. Yes. 

The Cuarrman. And in that way submit your proposition to 4 
national referendum; is that your thought? | 

Mr. Morrison. What do you mean by a national referendum ? 

The Cuarrman. If it is put in as a plank of a party platform, tc 
that extent it is submitted to a referendum. ; 

Mr. Morrison. Yes. You mean we would go before the two great 
political parties or three if you happen to have a progressive party 
again % | 

The CHAIRMAN. Yes. 

Mr. Morrison. And get them to endorse it. 

The CHarrmMAn. As you have done on other measures. ; 

Mr. rig om That would probably be the course that would be 
pursued. 

The Cuarrman. That would be the peaceful and the American a 
the constitutional method of procedure, would it not? 6 

Mr. Morrison. That is the procedure that labor organizations 
follow as exemplified by the American Federation of Labor. , he 

Mr. Barxiry. Suppose both political parties should putea 
pee in their platforms, how would you be able to tell, / 

eing able to win, which represented the sentiment of the America® 












nd) 
Be 


oth noi 

















: x | 
, 
i 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 557 
| people; or suppose that neither put it in their platform, how would 
boa be able to estimate the opinion of the American people on that 
‘subject. 

Mr. Morrison. Well, if they both put it in their political platform 
‘we would feel that the conventions believed that the people wanted it. 
| Mr. Barxury. So that whichever party one you would think it had 
, been indorsed by the people of it was in their platform. 

Mr. Morrison. Well, political parties do not win on one issue. 

Mr. Barker. That is what I was leading up to. 

Mr. Morrison. At least I have foimnd that to be true. 

_ Mr. Barktry. In other words, what I suppose was in Mr. Esch’s 
| mind was what is the best way to get an expression from the American 
people upon this very important and unique plan which has been 
|proposed by Mr. Plumb and your organization ; and as you state it, 
\no one plank in any go Sate ever wins an election or very seldom 
: at if you are planning, in the event this pill 
should not pass at this session, or in this Congress, to secure a sort 
|of referendum from the American people on the subject, how are you 
sure that you secure that by appealing to the platforms of political 


NTE 
; 
1 


Mr. Morrison. Well, if we secured it, I do not know that we 
would bother very much as to just who was responsible for it. You 
\anderstand what I mean ? 

Mr. Barkrey. Yes. 

Mr. Morrison. Both parties would probably claim it, and all 
\;hose who voted for it, their votes would show where they stood, 
ind those who voted against it, their votes would show their con- 
tituents where they stood. The representatives in Congress usually 
}<now pretty nearly what their constituents want and [ think they 
; ae carry that out as near as they can. 

. Barker. If no political party indorsed this plan or included 
tin their platform, what method would you then suggest to obtain 
he consensus of the American people’s opinion on the subject. 

Mr. Morrison. Well, the labor organizations would simply carry 
jm educational campaign among their members to an extent that we 

lope would influence their representatives. | 
| . Barkiey. And they would do that in the same manner which 
jhey have adopted heretofore in the spreading of information con- 
erning legislation which they desired. 
. Mr. Morrison. Yes, sir; we would circularize our people with the 
formation we have got and allow them to judge whether that was 
that they wanted. We use no coercion on our membership. 

r. Syms. I would like to ask just one question in that connection. 
fr. Morrison, I do not suppose you intend that the impression should 
© out that in order to obtain national legislation favorable to this 
lan that either one or both of the great national political parties 
Aould make it a part of their platform? You do not mean to imply 
lat one or the other or both would have to do that in order to secure 
1e legislation 2 
Mr. Morrison. No. I was just answering the question that was 
‘ven to me. 

“Mr. Sims. Now, I want to recall some concrete cases to your mind. 
) either the Democratic National Party nor the Republican National 
| arty indorsed woman’s suffrage, as I remember it, yet woman’s 


ee 


—" a 


558  ®ETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


suffrage has come, and neither of them indorsed prohibition, and yet 
prohibition has come, and neither of them may indorse your plan, yet 
your plan may materialize into law without any reference to national 
political platform indorsement. | 

Mr. Montacur. Judge, I think both parties indorsed woman’s 
suffrage. 

Mr. Sims. If I am wrong, I want to be corrected. 

The CHarrMAN. Yes; both of them. 

Mr. Sims. Well, show that to me. 

Mr. Monragus. You do not need anything but ordmary memory 
‘to recall that. 

Mr. Sms. I do not recall it, if they did. I mean the last national 
conventions. 

Mr. Monracue. Both national parties, as I understand, at the last 
‘conventions indorsed woman’s suffrage and both of them referred it 
to the several States. 

Mr. Sims. I did not mean woman’s suffrage by State action. What 
I meant was woman’s suffrage by national action. So I stand pat 
upon my former statement, that as a national proposition neither ol 
the national parties in their national conventions ever demanded 
-woman’s suffrage or prohibition by national action. 

Mr. Monracur. Both of them in their national conventions fa- 
-vored it distinctly. | 

Mr. Sms. But by way of State action. 

Mr. Morrison. | might say in reply to your question that there 
have been cases where both parties have declared in favor of certain 
measures, and still Congress did not adopt those measures. But il 
would point very strongly to the fact that the representatives of the 
different parties believed that that legislation should be enacted. 

Mr. Smuts. What I had in my mind was that you would not regarc 
your plan as doomed provided none of the national political partie 
next year should make it a part of their respective platforms? Yot 
would not regard that as ending it or settling it? 

Mr. Morrison. No. 

Mr. Srus. Or regard that as in any sense a referendum to the people 
upon these particular issues ? 

Mr. Morrison. The labor unions when they believe they desire 
legislation that should be enacted for the benefit of the workers are no 

discouraged if a political party refuses to enact that legislation. They 
just simply keep on their agitation and educational campaign unt 
such time as the parties do indorse it, and we secure the legislation. 

Mr. Sims. And do not contemplate any resort to violence under an} 
circumstances 4 ‘ : 

Mr. Morrison. As I stated before, the American Federation 0 
Labor is a federation of international unions. The international 
have full jurisdiction and autonomy, over their members. 
believe in collective bargaining, the adjustment of all differences 

to hours and wages and conditions by the employers sitting on on 
side of a table and the representatives of the employees on the other 
and where the employers are willing to meet the representatives ¢ 
employees, there is very little difficulty experienced in securing # 
adjustment. I mean it is possible; but great bodies of employ 

like the Steel Trust, that absolutely refuse to permit their employee 
to organize and who have gone to the extent that our men are pr 
vented from holding publio meetings in cities in Pennsylvania, 









RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 559 







\that it is impossible for them to organize—it is just such acts of 
jrepresentatives of great corporations that have assisted in creating 
‘an unrest in this country that is at the danger point at the present 
moment, and we feel that this bill should be enacted for the purpose 
and for the benefit of the public, for the benefit of the workers, and 
|30 be helpful in stemming the tide of unrest which is rising rapidly. | 
| Mr. Denison. I would like to ask you, Mr. Morrison, how the 
|yassage of this bill would affect the unrest among the steel workers, 
or would it? 
} Mr. Morrison. It would bring about a cessation of the unrest 
|wmong the millions of railroad workers. 
| Mr. Denison. You were just speaking about the unrest among 
| he steel workers. 
_ Mr. Morrison. I said stem the tide. I mentioned the Steel Trust 
is the one great, leading organization that had kept itself-in defiance 
if the Government and of the law of the land. 

Mr. Denison, This legislation would not help that situation in the 
| teel industry, would it ? 
| Mr. Morrison. It would ans hope to the workers that at some 
/uture time conditions might be rought about that would be helpful 
,0 them and do away with their long hours. 
| Mr. Denison. Do you mean by that give them hope that the same 
}Jan would be adopted with reference to the steel industry ? 
) Mr. Morrison. [ am not authorized to make a statement as to the 
/ature in other industries than therailroads. I speak for the American 
\ederation of Labor and not for myself. 
| Mr. Dentson. You would not care to give us any of your individual 
|pinions on these matters ? 
| Mr. Morrison. Well, I believe that the labor movement, with its 
}rowth of over 1,000,000 members in the last year, with its continued 
jgitation, that we will organize the steel trust and establish the 
\ight-hour day in that industry. | 
a: Denison. I did not have reference to that. 
| Mr. Morrison. I say that is just what I think can be accomplished. 
| Mr. Denison. I was not asking you in regard to that. hat I 
‘as asking you in regard to was, do you think this same principle or 
lan you are asking to be applied to the railroads should also be 
oplied to the steel industry because steel is an absolute necessity to 
‘ie American people and is a monopoly ? 
| Mr. Morrison. Yes; it is a monopoly. I am not authorized to 
ake a statement in regard to that particular industry. I do know 
iat the United Mine Workers’ policy committee declared in favor 
| the nationalization and democratic management of all coal mines. 
} Mr, Denison. Similar to this plan, you mean ? 
Mr. Morrison. Well, the resolution does not state that. It simply 
jakes that statement; that is, they want something more than 
‘ernment ownership. They want some say, the people who are 
orking, in how it is going to be handled. 

Mr. Geiison. That is what is commonly called socialization. 
‘Mr. Morrison. Well, I would not want to say that that is what is 
eant by it. There are so many terms and so many definitions of 
‘ose terms that I might be in error. 
Mr, Denison. Would you mind, Mr. Morrison, expressing your 
dividual opinion—not your representative opinion—but your in- 
152894—19—vor. 1 36 


















560 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


dividual opinion—as to whether or not it would be the wise thing i 
the Government to do, if we adopt this plan with reference to ra 
roads, to adopt a similar plan with reference to all other pub. 
utilities such as street cars. 

Mr. Morrison. I believe that if this plan works out satisfactori) 
that there will be no question about its being extended to oth 
quasi public institutions. 

Mr. Dentson. If the Government adopts this plan and it is four 
that it succeeds, the tendency would be and the demand would 
that it be extended to other public utilities first, would it not? 

Mr. Morrison. I think so. That would be the natural result. 

Mr. Dentson. Then the legitimate and natural result furth 
would be to extend it to all those industries that are necessa 
to the public welfare. f 

Mr. Morrison. The position of the American Federation of Lab 
on that is that it is a matter that should be left to the people in t 
industries themselves. They know best what they want. 

Mr. Denison. I assume that if we should set a precedent ai 
adopt this plan in the railroad. industry, and it should prove to_ 
successful, that the men in these other industries Msg inevitah 
demand it, and the policy would be to ask for it; do you not thi 
that that would be true? 

Mr. Morrison. The Federation is favorable to the Governme 
ownership of telephone and telegraph wires and for many years h 
so declared at each convention; it has also declared in favor of waté 
ways and water power being owned by the Government for t 
benefit of the people. 

Mr. Denison. May I ask you one question with reference to % 
last statement in your formal statement. You said the Plumb pl 
would result in squeezing out all fictitious values of railroads. 

Mr. Morrison. Yes. 

Mr. Dentson. I think everyone wants to do that. Have you giv 
any attention at all to the plan that has been adopted by Congré 
and which is now being executed for the purpose of getting at t 
real value of the railroad properties ? 

Mr. Morrison. I know that a number of years ago two represent 
tives of the commission came to see me in regard to the project: 
valuation of railroad properties; that is, they were going to get t 
valuation of all the rolling stock and buildings, etc. 

Mr. Denison. Yes; that is being done now under an act of Congre 

Mr. Morrison. It has been quite a number of years since th 
started. | 

Mr. Denison. Yes; they have been at it for some time, as I und 
stand. Are you familiar with their plan ? : | 

Mr. Morrison. No; Iam not. I only know that Congress pass 
a resolution authorizing it and they started to do it and there h 
been no report made. 

The CHArrMAN. They have been working at it four years. 
will take another year and possibly three or four months to do t 
field work. After the field work has been done, of course, it will ta 
probably several months or possibly a year in the offices to exté 
the valuations based upon the units, so I think Judge Prouty b 
estimated that the valuation may be completed by the 1st of Janual 
1921. 


" 6 
a 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. | 561 


Mr. Morrison. That would be available for this plan when it was 
yat in operation, would it not? 
| The Cuatrman. I did not get your point. 
» Mr. Morrison. I say it would be available for this plan when it 
vas put in operation, if it is adopted by Congress; I mean, the valu- 
ition. 
‘The Cuarrman. They have made many tentative valuations in 
heir office now. 

(The committee thereupon took a recess until 2 o’clock p. m.) 


AFTER RECESS. 





| At the expiration of the recess the committee resumed its session. 
The Cuarrman. Mr. Morrison will please take the chair. 




















TATEMENT OF MR. FRANK MORRISON, SECRETARY AMERI- 
: CAN FEDERATION OF LABOR—Resumed. 


Mr. Sanpers of Indiana. What, in brief, is the plan’ of the Sims 
ill for dealing with wages ? 

Mr. Morrison. I would suggest that that question be taken up 
ith the representative who drafted the bill, Mr. Plumb. 

| Mr. Sanpers of Indiana. I just wanted to know in a general way ? 
Mr. Morrison. I would suggest that that be taken up and worked 
ut, because there will probably be considerable to say in regard to 
. It is in the hands of the representatives appointed by the Presi- 
ent, the representatives appointed by the management, and the 
)presentatives appointed by the employees, and they will work out 
1e wages of the employees. The idea of the whole plan is to reduce 
le cost of running the railroads, so that the rates can be lowered, 
id where you lower the rates you will benefit the public, and of 
Jurse the idea will be that the employees shall receive a wage that 
ill enable them to live in reasonable comfort. 

You know, and we all know, that during the time of the war, or 
ace 1914, the cost of living has gradually increased. From 1914 to 
18 it increased about 80 per cent; that is, it will take $1.80 to buy 
bat $1 would buy in 1914. N ow, the expectation of nearly every- 
le was that with the signing of the armistice and the ceasing of the 
ar, there would be a trend down in the cost of food products. That 
S$ not occurred. In fact, during the past six months, since De- 
mber, 1918, the Government reports will show that there has been 
Increase of at least 2 per cent, making it about 82 per cent; that is, 
€ increase in the cost of living since 1914. It is not at all improb- 
le that if the Congress does not take action to stop profiteering, 
P speculation in foodstuffs, and stop the hoarding for speculative 
| es of the necessaries of life, that it will show an increase of 
ably 10 per cent during the next six months, My idea is that 
|S Congress should take action to stop profiteering and to stop 
culation in foodstuffs and necessaries that go to make up the daily 
dget of a family. Action should be taken immediately to stem 
» tide of the rise in prices and to prevent a still further increase in 
» cost of living. There is another thing, if the question is asked 
4, that I think could be done to reduce the cost of living. 


562 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Sanpers of Indiana. That is not what I am driving at. 

Mr. Morrison. All right. I just wanted to get that point before 
the committee. 

Mr. Sanpers of Indiana. What I am driving at is the labor, ques- 
tion. The reason I want to get your view is because of your long 
association as one of the labor leaders. In general, the Plumb plan 
provides for some tribunal to determine the question of wages ? 

Mr. Morrison. There will be a committee of 15 that will have 
general supervision. In my opinion the administration would 
arrange the question of wages. | 

Mr. Sanpers of Indiana. A committee of 15? 

Mr. Morrison. Yes; I think a committee of 15. 

ection 4 of article 3 of the bill introduced by Mr. Sims provides: 


hat the board of directors shall create by negotiation with the employees through 

eir duly elected and authorized representatives not less than three boards of adjust- 
ment, to consist of not less than eight members each, one-half of whom shall be selected 
by and from the classified employees coming within the jurisdiction of the boards 

' severally, and the other half of whom shall be selected by and from the official em- 
pee coming within the jurisdiction of such boards severally; that said boards shall 
| e classified in their jurisdiction over bodies of employees in such manner as the board 
| of directors, by negotiation with the employees as above provided, may determine; 
' that said boards shall hear and determine all controversies growing out of the interpre- 
| tation of established wage rates and wage awards and working rules, discipline cases, 
| and all other disputes arising between the official employees and the classified em- 
| ployees, when properly submitted. The decisions of such boards shall be final, ex- 
| cept that where no majority decision can be obtained an appeal shall lie to the board 


of directors. 
Then the next section of the bill provides: 


That the board of directors shall create, by negotiation with the employees Foe 
their duly elected and authorized representative, a central board of wages and work 
ing conditions, to be composed one-half as selected by and from the classified employees 
and one-half as selected by and from the official employees. It shall be the duty of 
said board to hear, investigate, and determine matters presented by official and 
classified ioe ae ha respecting the broad questions of salaries, wages, hours, and other 


conditions o j 











employment throughout the unified railway system. The decisions 
of said board shall be final, except that where no majority decision can be obtained 
an appeal shall lie to the board of directors. 

Mr. Sanpers of Indiana. Then, it is the purpose of the Sims bill 
to create a tribunal which will finally determine the amount of wages 
that the employees shall have. Is not that true? 4 

Mr. Morrison. As set forth in the bill; yes, sir; and under the 
conditions. : 

Mr. Sanvers of Indiana. Suppose you have shopmen who think, 
after considering the matter, that they are not receiving a wage 
commensurate with the work that they are performmg— ue 
they will have labor organizations the same as now—and they, 
through their organization, demand an increase, say, of 25 per cen 
or whatever per cent they may demand, and this internat h 
tribunal fails to reach a unanimous agreement with reference to i 
and an appeal is made and the ultimate tribunal decides that at 
shall not have an increase, what would then be the result? | 

Mr. Morrison. The appeal shall lie. to the board of directors. 

Mr. Sanpers of Indiana. Suppose that the board of directors 
determines that they shall not have the increase? ; alk 

Mr. Morrison. Well, it would appear that that would be the mua 
action and that the only way they could get an increase would bé 
to convince the board of directors that they were entitled to 10, 






| 
=| 










RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 5638 


“Mr. Sanpers of Indiana. Would you provide that in the event 
hey were not satisfied with the decision of the final tribunal that 
-hey should not strike? . 

' Mr. Morrison. There is nothing in this bill that contemplates 
trikes that I know of. | 

_ Mr. Sanvers of Indiana. Suppose they did strike, suppose they 
vanted this 25 per cent increase and from their viewpoint they were 
ustly entitled to it, and suppose that they demanded it and the 
‘emand was refused ? 

Mr. Montacue. By the board of directors ? 

Mr. Sanpers of Indiana. And the board of directors finally | 
> there is nothing in this bill to deprive them of the right to 
trike ? 

Mr. Morrison. No, sir; nothing except the idea of the bill that| 
| this is put into operation the feeling is that the conditions of the 
mployees will be worked out in a manner that will be satisfactory | 
|) them and that there will be no occasion for a strike. 
| Mr. Sanpers of Indiana. We have a tribunal now that passes on 
ifage questions. They have recently failed to reach an unanimous 
|greement and we now have men out on strike ? 
| Mr. Morrison. Yes, sir; but they are not out with the sanction — 
'{ the officers of the organization. 
| Mr. Sanpers of Indiana. I know. 
| Mr. Morrison. You find in political parties that a fight may 
jevelop along certain lines—it is not satisfactory to the creat num- 
\er of Democrats or Republicans and they split off from the Repub- 
(can Party. That is a strike of the Republicans against the admin- 
jtration. It did not come about because the people at the head 
)' the Republican Party wanted it, but in spite of them and becasue 
ley would not follow along the lines that they wanted. You can 
fot change that. That is the same principle of the individual 
|serting his right as a citizen to do what he thinks ought to be done. 
Mr. Sanpers of Indiana. The real thing that I have in mind is 
jis: I assume if the legislation embraced in the Sims bill substan- 
jally as it is should pass through Congress that the millions of 
jaployees representing the dozens and more different classes of 
jaployees receiving different wages that these employees would 
we disputes about whether a particular class was receiving the 
jage that it ought to receive in comparison with some other class. 
\P instance, the section man might claim that he was not receiving 
) much as he ought to receive in comparison with the railroad 
mductor. You would still have that situation if this legislation 
enacted. What I am driving at is what remedy do you propose 
¢ the labor problem ? 

Mr. Morrison. This bill is for the purpose of running the railroads 
Such a way that they will be run without profit. The wageworkers 

d the Bablic are going to get all the advantage there is through the 
eration. The public will get a lower rate than they are getting now 
d the employees will receive a remuneration that will enable them 
live in reasonable comfort. That may change from year to year, 
sording to the dollar, until you stabilize the dollar and bring the 
llar to the point where it will buy so much food or so many units 
food that goes to make up the living of the individual. You can 
tsay what the wage should be from year to year. It is according 
what the‘dollar will purchase. 













564 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Sanpers of Indiana. It will never be uniform for all employees? 

Mr. Morrison. The trend of organization where the men are 
organized has been, that they have received substantial increases in 
wages, and if they were all organized there would not be that great 
difference between the skilled and unskilled trades in the amount of 
the remuneration, for this reason: The unskilled manis married and 
has a family to educate just the same as the skilled man. The general 
trend of sentiment among all men now is that every citizen should be 
enabled to live in reasonable comfort and that all children born should 
have equal opportunities as nearly as possible. That is the trend of 
legislation. That is what all the Representatives in the House and in 
the Senate, I think, would like to see exist. That is what the labor 
unions are working toward—that end. That is the end that all the 
workers have an opportunity to work, first; and, second, that they 
receive remuneration that will enable them to live in reasonable 
comfort. 

Mr. Sanpers of Indiana._Do you think that the ultimate end of this 

lan, looking into the future, would be to level the wages that exist 

rade the comparatively low rate paid to the man who is engaged 
in unskilled labor and the comparatively high rate of wage paid to the 
man who is a skilled workman ? 

Mr. Morrison. It would not prevent the skilled man’s wages from 
keeping step with progress. ‘a 

Mr. Sanvers of Indiana. There will always be a difference between 
the skilled and unskilled labor, as far as remuneration is concerned } 

Mr. Morrison. It will be a very long time before the unskilled will 
receive the same wages as the skilled. The unskilled labor, in my opin- 
ion, during the war has received increases greater than the skilled. 
Perhaps the unskilled workers are the only ones that in some instances 
did receive the 80 per cent, although I question whether very many of 
them received the full amount to cover the increased cost of living. 
The increase in some trades has been very slight, and it is not to the 
credit of the Government that the employees working for the Gov- 
ernment here have not received a wage to meet the increased cost 01 
living. I just want to call your attention to one class of employees— 
the postal employees. They not only have not received an increase 
to meet the increased cost of living, but I am informed that the Posta 
Service is losing men who are compelled to go out of the service 
order to secure wages that will help meet the increased cost of living. 

Mr. Sanvers of Indiana. I am inquiring about the solution of thir 
labor problem, because it is advocated that there ought to be a tii 
-bunal created by Congress having full authority to finally regulati 
wages, not only to arbitrate labor difficulties, but to finally settk 
them. I was wondering if in your plan you had some way of settlin; 
labor problems, because if the plan goes through you would have thi 
same problem; you would have to settle the labor problem so that 
would stay settled ? ty 

Mr. Morrison. The Federation as a body is opposed to what i 
termed compulsory arbitration. That has been ne in New Zealand 
it has been tried in Australia, and it has not worked out. 14 
\ Mr. Sanpers of Indiana. That is what I had understood; but? 
seems to me that this Sims bill provides in effect for compulsor 
arbitration. } 
































a 
te RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 565 
| Mr. Morrison. Well, this is a plan where the employees are repre4 
ted, and where the management is represented, and where the\ 
(resident appoints five, and it is not run for profit, so there is nothing | 
“essitig upon the management or the five representing the President 
, the United States to refuse to give to the workers a wage that would 

: eo ored reasonable and on which they could live in reasonable 
‘Infort. 

Mr. Sanvers of Indiana. But suppose the demand is such that this 
‘tbunal concludes that it is not just? 

| Mr. Morrison. That may occur and there will be a compromise, 
Oobably, and it will be worked out just the same as all other problems 

| this character. As I stated this morning, where the representatives 

| the employers and the representatives of the employees sit down 
‘tthe purpose of coming to an understanding, there has never been very 
jich difficulty in reaching an understanding; but we do not desire 


jat, then the employees must have the right to refuse to accept it. 
lo not think it is right, but the railroad men—the men who are the 


sater advantage than if the railroads went back to their private 
ners. 

|Mr. Raypurn. Mr. Morrison, how many of these organizations that 
|ve been read here this morning that stand for this Plumb plan 
+» members of the American Federation of Labor? 

(Mr. Morrison. Ten of them, and two of the other four have made \ 
(plication for affiliation, and another has been authorized to | 
/zotiate for affiliation. | 
! Vir, RaYBuRN. What are the two? 

Mr. Morrison. The conductors and the engineers have their appli- 
ionin. The trainmen have been authorized to negotiate with the 
cers of the federation for affiliation. 

Mr. Raypurn. The board of directors under the Plumb plan consist 
|15 men, 5 to be appointed by the President, 5 from the classified 
| Ployees of the lines below the grade of appointed officials, and 5 to 
elected by the officials of the employees. That gives the employees 
he railroads 10 members on this board of 15 and 5 to be appointed 

the President, does it not? 

|4r. Morrison, I think not. I think that gives them five. I have 
er found the officials of the Government, or any Officials of any 
| blishment, where they could hold that they thought along the 
ite lines as the employees. That has not been our experience. 

/{. Raysurn. Do not these gentlemen, Mr. Stone and Mr. Garret- 
}, think along the same lines about as the rest of the employees ? 

fr, Morrison. They represent the employees, and they are 
‘Tucted very often how they should think. 

i. Raysurn. But it necessarily follows that these other five men 
| employees of the railroads. They are working for them. 

itt. Morrison. They are working for them, but their trend of 
(d will not be in harmony entirely, so far as the rate of wages is 
\cerned, with the employees, in my opinion. We hope it will be, 
| the experience or the natural trend will be that every man who is 
/Ointed to any position, who is an honest man, and we have got to 
ume that, although there may be men who-are not, they are going 











ay) / 


566 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


to be honest and carry out the work which they are appointed to do 
in an honorable way and for the best interests of the public. These 
men will be running the railroads. They will be the management, 
and they will try to run it in a way that will redound to the benefit of 
the citizens, and also they ought to run it with the idea that when it 
comes to the question of wages and hours and conditions, they ought 
to be fair to the employees and see that they get the conditions they 
should have. 

Mr. Montacus. Mr. Rayburn, may I ask one question right there 
to get something clear in my mind. Who elects these managing 
officials of the road under this plan? 

Mr. Morrison. They are selected from the managements of all the 
roads, five of them. 

Mr. Montacusr. Who does the selecting ? 

Mr. Morrison. I would take it 

The CuarrmMan. The board of directors ? 

Mr. Monracusr. No; they constitute the board of directors, I 
want to know who elects the board of directors. 

Mr. Prums. If you would permit me, I will answer that question 
when we come to the bill. 

Mr. Coapy. I would like to hear that answered now. 

Mr. Piums. I am thoroughly familiar with the provisions of the 
bill while Mr. Morrison may not be. 

Mr. Monracus. Very well. 

Mr. Raypurn. Mr. Morrison, let me ask you this question: Would 
you be in favor of the recommendation of Mr. Hines that a board be 
appointed to fix the wages of the employees of the railroads, either 
by expanding the powers of the Interstate Commerce Commission 
or appointing a separate board? 

Mr. Morrison. In the first place, speaking as a representative 
of the Federation, that is a matter for the employees themselves to 
decide; but as a general proposition unless the board consisted of 
the same number of employees as it did of the management, it would 
not work out satisfactorily. | 

Mr. Raypurn. We are not presuming that this board will be 
selected from the management of the railroads and the employees. 
It will just be a board. 

Mr. Morrison. You mean the general public? 

Mr. RayBurn. Yes. 

Mr. Morrison. Oh, no. 

Mr. Raypurn. It is to be presumed, of course, that the President, 
if he were given the authority to appoint five, will in all probability 
appoint somebody who has worked for a railroad and somebody 
probably who had not; but I mean a board as usually constituted as 
a governmental agency. 

r. Morrison. That would be compulsory arbitration, and we are 
opposed to that. 

Mr. Raypurn. You are for the wage setting, though, that would 
come about under the Plumb plan. 

Mr. Morrison. Yes. ‘ 

Mr. RayBurn. Wherein, under my construction, it would be cer- 
tain that you would have at least two to one of them employees. 

Mr. Morrison. Of course, that is where you and t differ. I 
imagine that it is possible that the five representing the management 





i 
Bi, 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 567 


would be considered so by some because they are salaried officers 
working for the railroads and that their position with regard to what 
‘the employees wanted would be the same, but I do not agree with 
that reasoning. I do not believe it will work out that way. 

_ Mr. Raysurn. I quite agree with you or with your line of thought 
in answer to Mr. Sanders that if the Plumb plan were put into effect, 
‘the way I look at it, with 10 representatives of employees and 5 
outside representatives that there would be very little reason for 
haying a prohibition against strikes on account of wage increases 
being denied, and that is one reason why I look with apprehension 
‘on this Plumb plan. 

Mr. Morrison. Do you come to that reasoning through your 
thought that five will take the same view as the five representing the 
employees? 

_ Mr. Raysurn. I stated that they would all be employees of the 
railroads. 

_ Mr. Morrison. You reach it from that point of view and I reach 
it from another. 

_ Mr. Raysurn. I know you do. 

Mr. Morrison. That without having any profits and the desire 
only to be just to the employees and to the citizens they will be in a 
position to get higher wages than they could under private ownership 
and give lower rates to the public. In other words, the employees 
ae a higher rate and the public would get a lower rate through 
this plan. 

YH RayBuRN. But you are going in the face of history there, Mr. 
Morrison, about Government owned and controlled railroads, are you 
not ? 

Mr. Morrison. There has never been 

Mr. RayBurn (continuing). In the countries that have government 
owned and controlled railroads, according to the best statistics I can 
get hold of, they have a poorer service and a higher rate. 

Mr. Morrison. The government controlled or government owned 
railroads in those countries, outside of where their employees are 
organized, are run for profit by the government and not with the 
idea of giving the employees a wage on which they can live in reason- 
able comfort. 

Mr. Raysurn. I have never heard of them turning a very great 
deal of money into the government in those countries that have 
government ownership of railroads. 

Mr. Morrison. What they got usually was through their 
ston. 
_ Mr. Raypurn. Now, Mr. Stone said this morning that the most 
acute thing facing us was the high cost of living. 
Mr. Morrison. Yes, sir. 
_ Mr. Rayzurn. If the committees of Congress were for this plan 
proposed in the bill introduced by Judge Sims—and he said also 
that that question had to be reached within a very few months— 
i they were all favorable to this Plumb plan and wanted it enacted, 
it would take some time to do it, would it not? . 
__ Mr. Morrison. Yes. 
_ Mr. Raysurn. And how do you figure that the enactment of this 
legislation would reduce the cost of living ? 





568 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Morrison. In my statement I said that my position was this: 
That it could be run more economically in this way ae by individual 
or private ownership, and that lower rates would grow out of this 
plan to those who were using the railroads for transportation, and 
when you have lower rates for transportation, food products, and 
other things, that would mean, providing you stop profiteering and 
stop speculation in food products, a lower price for those products, 
and in that way assist in reducing the cost of living. 

Mr. Raysurn. Of course, stopping the profiteer 1s a very hard 
matter. The middleman says the original producer is the profiteer 
and the original producer says that the middleman is the profiteer, 
and the consumer says that both are profiteers, and that is hard to 
define. 

Mr. Morrison. But I think you will find this to be true, that in 
nearly all the industries that have been operated during the war 
the profits made have been greater than during the prewar years. 

Mr. Raysurn. Yes; that is true. 

Mr. Morrison. Showing that the fortunes that were amassed by 
the individuals or the profiteering was something enormous. Some 
people say that a very large per cent of the cost of living is due to 
the excess of costs taken by each individual or corporation through 
which the product passes, not all by one, but every one taking all 
that it will bear. 

Mr. Rayspurn. Yes; that is the disposition of most people. 

Mr. Morrison. I will change that word “bear” and say ‘‘all they 
can get.” 

Mr. Raypurn. That is probably better. Now, the employees 
pave demanded recently an increase. Do you remember how much 

at is? 

Mr. Morrison. The last increase that they have asked ? 

Mr. Raysurn. Yes. 

Mr. Morrison. I do not know that that came before me. What 
was the last increase? In his statement this morning, Mr. Stone 
says they have received a 37 per cent increase. Now, some of these 
employees in the maintenance of way receive wages which are very 
low, but he says there had been an increase of 37 per cent in wages. 
That was about the increased cost of living from 1914 to 1917, 
Since that time these men have been working under the burden of a 
still further increase in the cost of living from 1917 to 1918 of about 
43 or 45 per cent. The money that they get won’t buy within 43 or 
45 per cent of what it ought to, and in all justice to these men they 
should have received that increased cost of living as the increase 
came about. They should have received it from the railroads and 
the employers without asking for it. ; 

The Government after war was declared, the Council of National 
Defense, issued a declaration that the standards of living should not 
be lowered, and practically stated in so many words that the wages 
should be increased to meet the increased cost of living. The Goy- 
ernment officials have not kept faith with the workers. ire you say 
that there is a circle going around all the time, but while this cirele 
is going around it is not just to require the workers to bear the burden 
of the increased cost of living. The employers are not reducing their 
standards of living to meet the increased cost of production. It 18 
always the workers. Just bear that in mind. We hold that if this 


! 


-circle must be continued, then until a remedy has been reached which 
will stop the increasing cost of living, the wages of the workers should 
.correspond with the increased cost of living, and taking into consid- 
eration that they should have an increase every few years to keep 
pace with the progress of the Nation. Workers that have been 
exploited through being brought into this country and paid less than 
a living wage—so declared by investigations made by representatives 
of the Government—should be given an increase to meet the increased 
(cost of living, and it should be based on what would have been a rea- 
sonable wage for them in 1914, and not upon what they received. I 
‘mean ‘s be just and to work out a just solution. That is what I have 
‘in mind. 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 569 










\ 


.s, the men who know. They are not in the room now. 


L 


jinyway from $800,000,000 to $1,000,000,000. 

. Mr. Morrison. I will say this, that taking it for granted that the 
‘igures of Mr. Stone are correct, that they have only received 37} per 
ent, their demand is not sufficient to cover the increased cost of 
\iving if granted. 

| Mr. Raysurn. That would mean about $10 for every man, woman, 
| ind child in the country, would it not, assuming it is $1,000,000,000 ? 
_ Mr. Morrison. I do not know. 

| Mr. Raysurn. There are 100,000,000 people in the United States. 
| Mr. Morrison. That is in dollars, but a dollar now does not mean 
vhat it did in 1914. 

) Mr. Raysurn. Well, a $10 bill is $10 now. 

| Mr. Morrison. And you must remember you are covering a tre- 
| aendous number of employees. The newspaper proprietors of New 
(Cork City did me the honor of selecting or agreeing on me as an 
\itbitrator affecting about 2,200 printers. I gave the printers what 
‘hey asked for, an increase of $9 a week, and told them they were 
yntitled to $10 more. That award gave to those 2,200 printers an 
/Qerease in wages of about $1,250,000 in a year, but you are speaking 
\f about 2,000,000 employees, and of course the amount will be im- 
j2ense, but because it is immense is no reason why these men should 
ave their wages, conditions, and standards of 1914 lowered. 

) Mr, Raysurn. I am just talking about the high cost of living, and 
) Say that would be $10 for every man, woman, and child in the 
Jnited States 2 : 

|, Mr. Morrison. Yes; although I do not know that that is exactly 
jrhat it would amount to. — 

» Mr. Rayspurn. Some one asked me if anybody had answered this 
/ Uestion: Suppose this increase is not granted, what is going to be 
)ouradvice to your people, or have you formulated what you intend 
‘0 advise them ? 












; 
: 





570 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Morrison, So far as the Federation is concerned, the inter- 
national unions have complete autonomy over their hours, wages, 
and conditions. We are a federation, but they have what they call 
the railway department, and into this department are all the organi- 
zations whose members are employed on railroads, and they handle 
the agitation, but that is a question that each organization would 
decide for itself. . 

Mr. Raypurn. Have any of them determined yet that they are 
going to strike if they do not get this increase? 

Mr. Morrison. The information that I have is that no such action 
has been taken, but I understand that they have some proposition 
that they are submitting to their membership. 

Mr. Raypurn. They are submitting some proposition to their 
membership ? “ 

Mr. Morrison. Yes. There has been no action taken along those 
lines. ) 

Mr. RAYBURN. Well, it seems to be the general consensus of opinion 
that their referendum is being taken on whether or not they shall 
strike if this increase is not granted. 

Mr. Morrison. I have no such information. 

Mr. Merritt. Mr. Morrison, I was interested in your reference to 
the relative rise of the wages of unskilled labor as compared with 
skilled labor. I had noticed that myself. Now I call your attention 
in that connection to a bill which I believe is before the Congress 
either restricting or prohibiting immigration. I take it that will 
prevent any addition, practically, to the ranks of unskilled labor i 
this country. Would that be the effect, do you think? 

Mr. Morrison. Of course, if there is no immigration that would 
prevent any kind of labor coming over. | 

Mr. Merritt. Yes; and principally unskilled labor. 

‘Mr. Morrison. Of course, that is the propaganda of the people 
who want cheap labor; that is, to bring in unskilled labor so as to 
keep the wages down; but there is a great deal of unemployment in 
this country at the present time and the reason that the unskilled 
labor received the increase was not so much on account of the scarcity 
of it, but was answered by a representative of the publishers associa- 
tion in New York, when the printers were asking for an increase which 
was about 30 per cent—they had received 15 per cent prior to that—- 
he said, we have given all the way up to 75 per cent, and he said, 
‘We had to give it to our lower-paid people because they could not 
live if they did not get it.” The wages of the unskilled laborers m1 
this country were so low that it was absolutely necessary to double 
their wages to enable them to live at all, and it was not because of 
the scarcity. It was due to the necessity of giving them enough 
money to enable them to live. Do I make clear the thought I have 
in mind ? 

Mr. Merritt. You make your thought clear; yes. I have heard, 
however, that there has been great scarcity of labor for getting in the 
crops and I assumed that if immigration should be stopped that 
scarcity would increase. n 7 

Mr. Morrison. Of course, to me, although it may not be to you, 
that is an old, old story. Every time an effort is made to increas 
wages the cry is raised about the necessity of having men to hand] 
the crops, to put them in and to harvest them. Now, if you will sto 





RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 571 


and think that harvesting is a seasonal trade, and if you take the 
‘men out of the cities and put them into Kansas and the different 
‘States, after they pay their railroad fare and their board they have 
ey little left for their families; in other words, it is a seasonal trade 
‘and it not possible to work out a solution whereby they will have 
employees, unless they will take the men on the farm and keep them 
there all the time and give them a wage that will enable the workers 
and their families to live in reasonable comfort. 

Mr. Merritt. Do you think it would tend to decrease the cost of 

living to keep men employed on the farm all the year round when 
there was no work for them. 
_ Mr. Morrison. No, sir; I do not; but that is the condition that is 
existing, and that is the difficulty about having farm labor to cover 
just those periods. But the Department of Labor, through its 
‘employment agencies, was quite successful during the war in cover- 
ing that, and if Congress would give the United States Employment 
Service sufficient money to work out a system whereby the farmer 
could secure workers during the periods that they are most needed, 
‘Iam sure a plan could be worked out that would be successful. 

In addition to that, if the Government would do as Canada and 
Australia are doing, and put people back onto the land—that is, 
make it possible for the young men to purchase a farm on long pay- 
ments. The ‘“‘back to the land” proposition that we have heard of 
is working successfully in other countries. I advocated the proposi- 
tion as one of the remedies to assist in the demobilization of our 
‘troops. Congress has done nothing along those lines. I believe that 
public and semipublic utilities should be owned and operated for 
the benefit of the public; that the waterways and water-power legis- 
lation should be enacted, providing that the governments—Federal 
and State—should own, develop, and operate all water power over 
Which they have jurisdiction. The power thus generated should be 
supplied to all citizens at rates based upon cost. The water power of 
the Nation, created by nature, must not be permitted to pass into 
private hands for private exploitation. 

Mr. Merritt. That same thing would apply to coal mines. 

Mr. Morrison. The coal miners have already declared in favor of 
sovernment control of the mines or the Government owning them 
orovided they are run in a democratic manner, and provided that 
ihe miners have something to say in regard to the conditions, hours, 
ind wages, and the way in which they are handled. 

Mr. Merrirr. Then, your view is that the time has now come for 
‘he socialization of all industry. | 

Mr. Morrison. Well, what do you mean by socialization ? 

. Merritt. I mean substantially what you are proposing with 

eference to the railroads—that the Government shall own all means 
if eo and turn them over for operation to the workers. 
' Mr. Morrison. All quasipublic utilities. The Federation has for 
jome time been favorable to their being owned, operated, or con- 
tolled by the Government, but we want some safeguards about it so 
‘hat the wage workers will be protected. We do not want a condition 
‘Xisting similar to the Post Office Department where the representa- 
‘ive of the Post Office—Secretary Burleson—decides the wages and 
/efuses to hear grievances and acts in an autocratic manner. We do 
ot want autocracy by the Government or anybody else. 











572 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Merritr. Not even by the workers ? 

Mr. Morrison. By the workers ? 

Mr. Merritt. Yes. 

Mr. Morrison. There is no possibility of anything like that coming 
to pass. The workers are submerged but they are coming up; 
that is civilization and progress, and the Congressmen here I am sure 
will be glad to assist in bringing about this change from undesirable 
conditions to better conditions. 1 know the trouble is to devise ¢ 
way to do it without disturbing too many people and too many 
interests. 

Mr. Barxiny. Mr. Morrison, this bill contemplates, I believe, the 
purchase of the railroads from their present owners by the Govern- 
ment? 

Mr. Morrison. A certain sum being set aside until they are paid 
for; yes. 

M ‘i BarxiEy. That would necessitate the issuance of bonds by the 
Government to pay the owners cash if they demanded it, would it 
not! 

Mr. Morrison. In some way to meet it. 

Mr. Barxwey. I think it is estimated by the Interstate Commerce 
Commission and by general.opinion through public statements that 
the value of the railroads of the United States is something like 
$20,000,000,000. I do not know how much of that represents water, 
but assuming that one-fourth is water and by this Plumb plan the 
water is wrung out, so it would be reduced to about $15,000,000,000, 
what is your idea as to whether it would be possible, under the pres- 
ent state of public opinion, to issue bonds by the Government to be 
purchased by citizens of the United States to the extent of fifteen or 
twenty billion dollars for the purpose of paying for these roads? 

Mr. Morrison. I believe if this action is taken by the Congress, 
there would be no difficulty about securing the money. 

Mr. BarxiEey. Assuming these bonds would be purchased by the 
people, it would be necessary to raise the money by a sinking fund 
and so on, in order to retire them within a certain period of time, an 
that would have to be done by taxation. Is it your theory that the 
profits the Government would obtain by a division of whatever profit 
there was between the Government and the railroad men or employees 
would be sufficient to take care of this enormous indebtedness without 
taxing ine American people in addition, after it became thoroughly 
operated ¢ 

tee Morrison. As I understand, it is believed that the amount set 
aside in a certain number of years would take up all the bonds which 
would be issued; otherwise, that the Government would own thi 
railroads. 

Mr. Barxuey. That is, the amount set aside from the operation 
of the roads? 

Mr. Morrison. That is the proposition. The proposition is to sé 
aside a certain amount. 

Mr, BarxLtey. How many years, do you recall? Are you suffict 
ently familiar with the plan to say how many years it would take? 

Mr. Morrison. I did not work it out., I am familiar with the pl 
as | have talked with Mr. Plumb several times and heard him ex ae 
it, but there are a number of things that he feels—in fact, he don’t 
feel, because he makes the statement that in the matter of runni 









RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 573 


expenses the saving would indicate the amount that will be saved 
‘within a certain number of years which would be sufficient not only 
‘to give to the employees a wage that would enable them to live in 
‘Teasonable comfort, but there would be enough set aside so that the 
Government would own the roads in a certain number of years, and, 
of course, when the Government owns the roads they would be in a 
‘Position to reduce the rates. The amount set aside, other than the 
amount for upkeep, would be used for the benefit of the public and 
the Pao 

_ Mr. Barxwey. The reason I asked the question is because it has 
been stated it was with difficulty that the Government under the 
stress of the great World War was able to sell $20,000,000,000 of bonds 
which were purchased by the American people under the impulse of 
patriotism, and in that connection it has been suggested that now that 
‘the war is over, keeping in mind the difficulty during the war which 
May or may not occur, whether the effort would be successful, and 
that in view of the fact that the people bought $20,000,000,000 of 
bonds during the stress of the war that now they are not prepared to 
‘Invest a similar amount in an enterprise of this sort. I want to get 
your idea as to whether you think such bonds could be sold if this 
plan were adopted ? 

_ Mr. Morrison. I do not believe there will be any difficulty in 
putting it into effect. I think Mr. Plumb will tell you that no matter 
what happens, even going back to private control, that the Govern- 
ment would have to take care of a great number of the railroads. 
‘That is an intricate proposition, but my opinion is that there will be 
no difficulty about putting this plan into operation, so far as the 
money is concerned. It will be a great benefit to the public, and it 
will certainly be a great benefit for the Government to take action 
that will mean so much for a couple of million of their employees, 
because those 2,000,000 employees represent very nearly 10,000,000 
people, and having them in a contented state of mind means a great 
deal. The function of the Government is to do that which will make 
their people happy and contented, or a majority of them. 

Mr. Barxiey. That is all the questions that I care to ask, Mr. 

Chairman. 

_ Mr. Wrivstow. I judge from what you have said and from what I 

dave read of you and your organization that you are aiming to 
2stablish in this country what is regarded as an ideal democracy ? 
Mr. Morrison. Yes, sir. 
Mr. Wrnstow. Can we agree that an ideal democracy would be a 
sovernment under which every person would get fair play ? 

Mr. Morrison. Equal opportunity. 

Mr. Winstow. You call that fair play ? | 
Mr. Morrison. Well, yes; but there is a difference as to fair play. 
Mr. Winstow. What ‘do you regard as equal opportunity, as a 
‘eneral proposition ? 

Tt. Morrison. [ think I will take the time to give you an idea of 

vhat I believe is equal opportunity. 
_ Mr. WinsLow. Just take all the time that you want, because I 
‘ink it will be of interest to the members of this committee. 
Mr. Morrison. I think it will answer your question. You know 
hat people have different ideas of what democracy is. I was coming 
tom Chicago to Washington about 10 years ago and there was a 










i 


574 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


young man on the train. He was one of the finest looking young 
‘Americans I had ever seen, with a clear eye and a face indicating m 
dissipation of any character whatever. What you would call ar 
ideal young American. I heard him say to a group of men: ‘Any 
young man can become rich if he wants to. I was bar in Virginia 
L went to the university; I then went to New York in a bank, anc 
then to Oklahoma, and I am worth $75,000. Nobody ever gave m 
acent. Anyone can become rich if he wants to.” I turned arounc 
and said, ‘‘ Well, my friend, I just heard what you said, and I beliey 
that you believe you are telling the truth, but I would like to as! 
you this question: Did you go to a common school ?” He said, “*. 
certainly did.” Then I asked him, ‘‘Did you go to the high school?’ 
He said, ‘‘Yes.” ‘‘Did you go to the university?” “Yes.” ‘Fou 
rears??? ‘‘Yes.” ‘‘What did it cost your father?” He said, ©: 
was frugal; I was not a spendthrift, and it cost him about $700 : 
year.’ Then I said, ‘‘You went to New York and worked in a ban! 
and your father paid most of your expenses?” He said, “' Yes, sir.’ 
Most any young man would be glad to work in a bank in New Yor! 
for three years for the experience. Then I said, ‘‘You went t 
Oklahoma and your father was rich, and he said, ‘Treat him right.”’ 
“Yes.” he said, ‘‘but nobody ever gave me a cent.” Then I said 
“T want to ask you this question: Can the little boy that went int 
the textile mill in your State when 9 or 10 years of age and who 1 
now at your age—29—could he become rich?” He said, ‘‘Of course 
I did not mean that.’’ Then I said, ‘‘You meant any young mai 
who graduated from common school, high school, and a university 
and received a vocational training, and whose tather was wealth; 
could become rich? We are not interested in those young men 
they represent but 2 per cent of our young men. We are interes tet 
in the 98 per cent, and we will never rest satisfied until the 98 pe 
cent have had the same opportunity to receive a common-schoo 
education, a high-school education, and a university traming as yol 
have had.” That is my idea of democracy. That is my idea 0 
equal opportunity. 

Mr. Coapy. You heard this young man. Perhaps his father ha 
been a very poor man, had made his money himsellt ¢ 

Mr. Morrison. That is true. : 

Mr. Coapy. And he could use the money to give his son oppor 
tunities and advantages. Would you do that? 

Mr. Morrison. That may be true. That young man said, ‘Am 
young man could become rich.” Now, when he said, ‘‘Any youn; 
man,” he did not consider the boys working in the mines, mills, am 
factories. The labor movement is looking after the 98 per cent. “I 
tell you the truth, I do not know that there is any special or funda 
mental reason why property should pass from father to son. I 
might be used to better advantage in building schools, good roads, ani! 
better railroads to cheapen transportation for all the people, and Je 
these young men start off with the other young men with the sal 
advantages to look after their own interests and not be burdened wit 
great wealth. : 

Mr. Coapy. A large part of it is being used so now; income te. 
excess profits, and so forth? 

Mr. Morrison. That is true. That is one way of disposing of i 
I am very much in favor of taxes of that character. 

Do you understand now what I mean by equal opportunity ? 







a RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 575 


| Mr. Wrnstow. I did not understand that you had arrived at a 
onclusion. I thought that you were merely reciting an incident. 
| Mr. Morrison. This young man did not take into consideration the 
reat mass of the workers when he said that any young man could 
jecome rich. My idea is that they should all have an equal oppor- 
‘unity. 
_ Mr. Winstow. I can see the difficulties ahead. 
_ Mr. Morrison. I can, too. That is the goal of the labor move- 
lent. 
_ Mr. Winstow. I thought if I said ‘‘fair play” perhaps we could 
et together on that. Going into the other, I can see that it would be 
seless to follow that up. You think that in a democracy there 
ould be fair play extended to all the people ? 
Mr. Morrison. Democracy means equal opportunity, that each 
1an has the same rights as the other. 

Mr. Winstow. And to that end you are putting forth your best 
adeavors in the world, are you not? | 
_Mr. Morrison. As the best of my knowledge will permit me to do. 
| Mr. Winstow. And I am acting in the same spirit in asking these 
luestions. 
Mr. Morrison. I think so. I so understood. 


4 





Mr. Winstow. I want to suggest that I agree with you that the 
ar has brought together the relative interests of the different 
asses of people—lI do not use ‘‘class’’ in an offensive sense. 

Mr. Morrison. I understand. 

Mr. Winstow. And relative conditions have become better known. 
think we all agree that we ought to equalize the blessings of this 
fe more than they have been Sqialived before and that, I think, 
1e Members of Congress are anxious to insure, if they can through 


1 


slation and that, I assume, is what you have in your mind ? 

r. Morrison. Yes, sir. 

Mr. Winstow. So we can get together on that. I want to ask 
ju this question, can you state any direction in which the operation 
_the railroads by the Federal Government has been improved and 
come more efficient ? 

Mr. Morrison. I will say this, as the railroads were not run by 
‘ivate ownership concurrently during the time that the Government 
as running them so as to ascertain how they worked under the same 
‘mditions, it would be very difficult to make a statement. When 
,ar was declared the railroads and the public were not prepared, 
td when the railroads were taken over it was not a question of cost 
| all in regard to running the railroads. Cost was not considered. 
/1e question was how to use the transportation facilities so that we 
|uld get coal to the people and products to the people and our 
ldiers across to France. There was no thought, in my opinion, of 
|onomy. 

The dict that the Government took over the railroads and Congress 
,reed to it was notice to the public that the private ownership of the 
ilroads was such that they would be incapable of doing the work 
Yuired of them, and Congress and the Government took them over 
der one management so that they could do this work which must 
done in a hurry, and so that the Government could have carte 
ane to do anything that they wanted to do and to go to any expense 
at they desired, which would have been very difficult for the 


152894—19—vo1 1——-37 







576 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 

rivate corporations to do. In my opinion that question should n¢ 
He raised at this time, because there is nobody who can say the 
during the war private ownership could have run the railroac 
cheaper than the Government did. That is my viewpoint. 

Mr. Winstow. I did not mean to bring up the question of expens: 
I referred to efficiency in operation. 

Mr. Morrison. Efficiency during the war was weakened in ever 
other industry, because we took out 4,000,000 of our ablest and be: 
men. Youcan not take 4,000,000 of our men out-of all the industri 
without putting in new men, and where you put in new men, even | 
bright, or women, it takes them some time to learn the busine: 
so that they can be as efficient as those who left. 

Mr. Winstow. The reason why Congress passed the legislatic 
it did was because the President said it was necessary, in order i 
him to run the war. 

Mr. Morrison. That may be. I think the President was right. 

Mr. Winstow. I think so, too. \ 

Mr. Morrison. I think that was the proper course to pursue. 

Mr. Winstow. Regardless of the conditions, have you seen ai 
evidence during the Federal operation of the railroads of a tendene 
toward more efficient methods ? 

Mr. Morrison. I have not made a study of it. I am not qualifie 
to say, yes or no, to that question, because [ have not the knowledg 

Mr. Winstow. Mr. Stone said that the wages of the men had bee 
increased about 37 per cent, as | remember it ? 

Mr. Morrison. Yes, sir. 

Mr. Winstow. And that the living cost had increased about 82 pe 
cent ? { 

Mr. Morrison. Yes, sir. You referred to that. } 

Mr. Winstow. Yes. Did you ever stop to think what would hay 
pen if wages were lowered horizontally 25 per cent all around, whe 
effect it would have on the cost of living? 

Mr. Morrison. If wages went down 25 per cent? 

Mr. Winstow. Yes; the reverse proposition ? 

Mr. Morrison. Let me explain my view of that and it will answe 
your question. ' * 

Mr. Winstow. Certainly. 

Mr. Morrison. In 1918 the cost of living went up about 30 to, 
per cent. During that time we had wheatless days, we had meatle 
days, we had the Government calling upon everybody to husband 01 
resources and our people did not buy clothes and did not refurnk 
their houses. They used substitutes for what they had been acca 
tomed to. They reduced the standard of living for the purpose” 
helping the people across the seas to win the war. Because of tht 
those who were receiving a good wage were able to come within # 
wage or nearly within the wage with the credit they had. After t 
armistice was signed and the men began to buy meat and use fl 
things that they had used before the war, dropping the substitute 
and purchase clothes for themselves and their families and to fix t 
their homes they found they did not have the money to do it. Tat 
realized then that the standards they had in 1914 had been destroyé 
and they were facing a condition where they must have an increas¢ 
wages. I feel that such being the case that the Congress should s: 
to it that every employee of the railroads receives wages which Ww 














? 


i i 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. ye! 


five him the same purchasing power that he had in 1914 and then they 
night add a little to that because of the burden they have carried 
ince 1914. 

_ Mr. Winstow. I think that labor is worthy of its hire all the time, 
yut that is not coming to the question that I raised. I do not know 
hat you can answer it. I think that it is worth thinking about. If 
ve took 25 per cent, or any other per cent, horizontally off of the wages 
t might attect the cost of production to an extent which would 
ower the price of commodities. We can not tell that exactly until 
ve know the amount paid for wages and the cost of material. 

Mr. Morrison. There is no question but that you are right about 
hat. If you cut the wages down 25 per cent, 1t would mean that 
he worker would have to buy just 25 per cent less than before and 
hat he would have to use substitutes. 

_Mr. Winstow. No; not at all. Take 25 per cent out of every 
vay roll in the country. 

Mr. Raypurn. You are speaking of all wages? 

Mr. Winstow. Yes, sir; not the railroads. 

Mr. Raysurn. The wages of all men. 
_ Mr. Winstow. Yes; take 25 per cent. 

Mr. ee Take the Government employees in this city, as an 
xample. 
| . Wixstow. I would not want to do that. Take productive 
bor. 

'Mr. Morrison. Take your own employees which you have? 

| Mr. Winstow. I will be glad to do that. 

| Mr. Morrison. The Government employees, not your own per- 
onal employees. I spoke of you as a Representative in Congress. I 
1ean the Federal employees. Take them and take off 25 per cent 
7om their wages. 

Mr. Winstow. I admit that was not a wise suggestion in the first 
stance. 

Mr. Morrison. If it is not wise for them, why is it wise for others ? 

Mr. Winstow. When you reduce the scale of wages of the people 
ho mantfacture the articles—produce the articles—you cut down 
me of the cost of bringing those articles before the public. How 
uch Ido not know. I simply throw that out as a suggestion as to 
hether or not as an economical proposition anything could be worked 
ut by reducing the wages as contrasted from increasing the wages. 

In spite of what you have said about the purchasing power of the 
‘ollar, I want to ask you a question which I have reduced to writing 
‘order that I might be accurate about it. I want you to be thought- 
il and to bear in mind statistics, as far as you have them at your 
mmand, before answering. | 
Has labor, including railroad labor, at any time in any country 
‘ver been as well fed, as well clothed, as well housed, as well enter- 
ined, and as well furnished in their homes as is labor in the United 
‘ates to-day ? 

/Mr. Morrison. Labor, the great mass—— 

' Mr. Winstow (interposing). The next question which I will ask 
Uso you may consider them together is, has labor ever been so well 
Tin respect of bank deposits and other evidences of sayings and 
“osperity as now? | 






“ 


578 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Morrison. Those two questions ? 

Mr. Winstow. Yes, sir. , 

Mr. Morrison. Let us devote ourselves for the moment to the 
Shien of being so well housed as they are at present. In 1914— 

think the statistics will bear this out—the great mass of our wage 
workers’ wages could purchase more with what they received in 1914, 
than they can with what they are receiving now. 

Mr. Winstow. They did not have the money in 1914? 

Mr. Morrison. Those who were working. 

Mr. Winstow. There were not many working. 

Mr. Morrison. This is what happened and it is worth considering 
in the matter of deposits When 2,000,000 people had been place 
in the Army a representative of the press asked me what effect that 
would have—a million or two million. I said that it would not have 
any effect until after we had over 2,000,000 people in the Army, that 
we would not notice any particular effect, efi it would simply take 
up the slack of the unemployed in this country. I think that is 
true. When we had 4,000,000, or almost 4,000,000, men in the Army 
withdrawn from industry, the men, women, and children of this 
country were employed more regularly than ever before, although in 
some of the industries there was unemployment, but they could get 
a ene in others. 

Just before the armistice was signed our people were pretty well 
employed and in some cases they worked long hours and received 
extra compensation. That was given first, because they wanted 
the extra hours of work, and, second, the idea of the employer was 
that if he gave them overtime a couple of hours and even paid them 
the price and half they would not make so strenuous an effort to get 
an increase for the regular eight-hour day. In other words, during 
that period our people were employed and our boys in the trenches 
were taken care of by the Government. I will admit that nearly all 
of our people were working, with quite a number of unemployed, as I 
said before, but not in proportion to the past years. They received 
their wages and worked all the time with overtime at particular 
industries, if not their own, some other. That was a war condition. 
As soon as the armistice was signed and demobilization started they 
were talking about demobilizing the army at the rate of 300,000 a 
month, I called-attention to the fact that if they did that we would 
have bread lines in this country by May. They did not doit. They 
took the course of bringing them in gradually, but we have unen- 
ployed in this country now and our people are not all demobilized 
yet. For that reason the American Federation of Labor held that 
immigration should be stopped for, say, four years, or until such 
period as all our soldiers and sailors and war workers had secured 
sustaining employment at wages which they could live in reasonable 
confort. Restriction to be limited until our own people secure 
work, not at long hours, but at eight hours or less. It is not fair 
point to the fact that because of the war every one here had work 
and did work. That proved conclusively one thing to my mind, 
that the statement that ‘‘there are a lot of people who do not want t0 
work”? was not true. It was only the opportunity. to work thoy 
needed, because hundreds of men, previously unemployed, went t 
work and results were good. It made new men of them. They h 
an opportunity to work. They did not have that before. So te 










RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 579 


condition that you have in mind is the result of the war and the 
tesult of 4,000,000 of our people being in camp or in France and not 
because of any special prosperity to our workers. 

Mr. Winstow. I expect you will agree that 4,000,000 men who 
went into the service in connection with the Army and Navy were 
10t breadwinners and nothing was obtained through their efforts 
xxcept in a small degree by their allotments? 

My. Morrison. Yes, sir. 

Mr. Winstow. Four million of the best earners that we had were 
maken out of the market They did not earn anything, they did not 
vontribute any saving. I would like to ask if you are willing to an- 
wer categorically those two questions which I prepared, thinking 
hat they could be fairly and willingly answered answered by yes 
no, as a matter of fact? 

' Mr. Morrison. As a matter of fact, I made the statement that 
vhile that condition existed at the time the armistice was signed 
here were a greater number of our ptople employed than ever before, 
can not say that that is the condition that exists to-day. 

Mr. Winstow. I should like to ask you that question as of to-day. 
will repeat it, if it will be of any service to you. 

Mr. Morrison. We have a great deal of unemployment through- 
ut the country at the present time, and a great deal of unrest. 

Mr. Winstow. Do you want me to assume, for the purposes of 
he record, that you prefer for some reason not to answer that ques- 
ion directly 2 
_ Mr. Morrison. You know, gentlemen, that a hypothetical ques- 
ion ae on a condition that existed in 1918 should not be an- 
were 

Mr. Winstow (interposing). I did not ask that question. 

Mr. Morrison. The first answer that I gave you in regard to 
Our question was that at the time the armistice was signed the 
forkers of this country were better employed than in any other 
eriod for a great number of years. That is true, but it is due to 
1e fact that there were 4,000,000 men inthe Army. The demobiliza- 
on has caused a disturbing condition in all the industries, and the 
Torts of some of the employers to turn back to longer hours and 
rewar wage rates, is causing unrest and strikes that could have 
een avoided if the employers would simply get the psychology of 
1@ time and come forward and assist in running their industries so 
iat the wages of the men would meet the increased cost of living. 
Mr. Winstow. I agree with that. Once more let me ask you this 
lestion: 

Has labor, including railroad labor, at any time in any country, 
fer been as well fed, as well clothed, as well housed, as well enter- 
aned, and as well furnished in their homes as is labor in the United 
sates to-day—not in 1918, but now? 

Mr. Morrison. Taking the fact that the railroad men have only 
Ceived a 37 per cent increase in wages and the cost of living has 
3 up 82 per cent since 1914, it is not possible for them to be in as 
od condition as they were in 1914. 

Mr. Wrystow. Has labor ever been so well off with respect to bank 

Osi 


ie ts and other evidences of savings and prosperity as now? | 
Morrison. Well, I have no information, accurate information, 
regard to that, but when we take into consideration the educa- 


' 








580 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


tional efforts that have been put forth by the Government through 
its various agencies in regard to thrift and buying Government 
bonds, it is but natural to feel that our men, being loyal, denied them. 
selves many things that they would otherwise have purchased for the 
purpose of buying the bonds and paying for them, and because ol 
that fact there is no question in my mind that labor has saved, in 
that way, more than she has before. 

Mr. Winstow. Do you have any idea that the public health is not 
as good as it has been at any time in the past? 

Mr. Morrison. The public health ? 

Mr. Winstow. Yes. . 

Mr. Morrison. Oh, I think that the propaganda of the representa- 
tives of the Government during the past years has been beneficial 
in every way. 

Mr. Wrystow. You spoke of the financial departments of railroads 
as being, as I remember it, a football for manipulation. I believe 
you used that expression. 

Mr. Morrison. Of course, I had in mind the Hartford Railroad 
investigation, and other investigations by the Government in the 
way railroads have been manipulated, and money expended and 
not for the benefit of the public. | 

Mr. Wrnstow. You used the expression, ‘‘ Like drunken sailors.” 

Mr. Morrison. Well, that would be a good expression. 

Mr. Wrinstow. You spoke of the public service to be rendered under 
the proposed arrangement of the Sims bill in such a way as to give a 
fair return. Now, what do you mean by a fair return ? 

Mr. Morrison. For the capital ? 

Mr. Winstow. Yes; or anybody. 

Mr. Morrison. Well, I should think that the interest ought not to 
be any greater than the Government is willing to give for money that 
they borrow. 

Mr. Winstow. Would you feel that the Government would be justi- 
fied in letting other people run their railroads with their money m 
them and for the ounnE to be taxed if they were not making more 
than the actual running expenses of the roads ? 

Mr. Morrison. After the Government owns the railroads, as | 
understand it, they would be run not for profit but run for the benefit 
of the public, so that the rates could be reduced and keep reducing 
them as long as it would be possible to do so. | 

Mr. Winstow. Would you think the Government would have any 
right to reimburse itself out of the earnings of the roads in case 
could make a little money out of operating them and giving a fall 
show to the public? 

Mr. Morrison. There is no necessity for the Government to make 
a profit. They get their money by taxation to pay their various 
expenses, and that industry ahold: be run without profit to the 
Government and just for the benefit of the public. 

Mr. Winstow. If I buy a ticket for 2 cents a mile on a private roat 
that is the end of my troubles. If I buy it for 134 cents on a Govern: 
ment-owned road and get taxed, so that my taxes plus my fare ge! 
to be 2,4; cents, where have I made anything? + 

Mr. Morrison. Well, you see that was a war condition. ¥ Y 

Mr. Winstow. I mean as a general practice. They unload the 
difference on the Government and it comes out of the taxes of tht 









RETURN OF THE RAILROADS TO PRIVATE OWN ERSHIP. 581 


eople. ‘That is what the war developed under the head of camou- 
age. They do not pay it for the mileage, but they pay it in taxes. 
“hr. Morrison. You take the taxes that come from incomes and 
he inheritance tax that is levied; that does not hurt the individual. 
‘he bigger the tax the better able the man is to pay it. 

Mr. Winstow. But you would not contend, would you, that if the 
‘tovernment put money into the railroads and then taxed the people 
yr the money that the public was getting off with just the price of 
1e service ? 

Mr. Morrison. Oh, I believe the Government in putting this bill 
ito elect, the purpose is to take over the roads and run them without 
rofit, and in time the Government would own them and then there 
‘ould be no expense other than the upkeep of the roads. 

“Mr. Winstow. If they ran behind a few years in dull times, of 
purse there would be something to look out for then ? 

Mr. Morrison. Well, I believe that along the lines that have been 
iggested here, that could be overcome. That is a detail. 

Mr. Winstow. You spoke about squeezing the fictitious values 
at. Just what did you mean by that. 

Mr. Morrison. Well, that is the proposition where a road may have 
‘Million or two million dollars in a road and issue stock against 
iture profits of probably an equal number of millions, and then you 
ave got to pay dividends on watered stock. That is an old term, 
ut the investigations show- that manipulation of railroads through 
ie issuance of what is called common stock for sometimes more than 
ie railroad costs, and then issuing to the men holding the stock, 
hen it is worth $800 a share, which does not look good to the public, 
ley will issue 8 certificates of $100 value to each holder of shares 
orth $800. 

Mr. WinsLow. You do not mean with respect to money put into 
ie road but with respect to securities issued against good will or 
ture earnings without being put into the road. 

Mr. Morrison. Yes; I am talking about issuing stock against the 
ture profits. : 

Mr. Winstow. In the meanwhile, these exploiters, of whom we 
ve had a good many, have sold the stock out to the unsuspecting 
tb, maybe a woman or a trustee—hardly a trustee—but somebod 
other for real money against the earning power of the road. We 
ill say it has the earning power but has not the property. Now, 
hat consideration would you give to the poor, unfortunate man, 
ho, in good faith, bought stock, legally issued under the laws of the 
ad, for good money, when you come to turn that over under the 
an suggested and provided in this Sims bill. Would not that 
fount to freezing them right out ? 

Mr. Morrison. Of course, that is not the first time people have been 
zen out. 

‘Mr. Winstow. But with our ideas of democracy and of fair play, 
at is what I want to find out. What are we going to do for the 
cat number of people who have unwittingly, but honestly, put real 
oney into the purchase of these watered stocks which might pay a 
vidend and so keep up the market price, but which have no real 
ety behind them. 

Mr. Morrison. Well, I do not believe that society should be burd- 
ed for all time with paying dividends on stocks issued against future 





582 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


profits, and I think if a person buys stock with the idea of getting 
future profits, they should take the responsibility of whether or not 
they are a good investment. 

Mr. Wrnstow. Yes; but that is legalized by the laws of the land 
and they buy under the stamp of approval of the State or National 
Government. What do you expect the ordinary person who has 
nothing to do with the financial affairs to do when théy go to buy 
stock which has the stamp of Government approval ? 

Mr. Morrison. That should estop the Government from bringing 
about a condition which would do away with that situation in the 
future. I do not like to see anybody suffer loss, but | want a condi- 
tion brought about in this country that will eliminate just that kind 
of manipulation. 

Mr. Winstow. As to the future? 

Mr. Morrison. As to the future. In regard to what the Govern- 
ment should do about those people, I would leave that to the Mem- 
bers of this Congress to work out. 

Mr. Wrstow. Well, that is an easy way, but do you think the 
Government would be dealing in good faith with its citizens if it 
should take this property on purely physical value and should freeze 
out all holders of securities who have put in good money in good 
faith ? 

Mr. Morrison. I should think they should take it up on physical 
valuation and put it into operation. As to how they should work it 
out as to the other details, that is immaterial. Let us get started on 
the right road and hold to that. 

Mr. Wrinstow. But you do not want to cling to that one particular 
branch of the tree. 

Mr. Morrison. Oh, no. J mean I would leave that to the Repre- 
sentatives in Congress to work out. 1 

Mr. Wrinstow. Now, if any other plan can be devised which will 
safeguard all interests, labor included, of course, would you be just 
as well satisfied with that plan if, in the judgment of Congress, ii 
was wise to adopt a plan other than this one? | | 

Mr. Morrison. Of course, this is the only plan that is in siglil 
that we know about, and this is the plan that we have decided shoulc 
be put into operation. 

Mr. Wrinstow. But that does not meet the requirements. We 
have five or six plans, apparently, that are going to be before us, anc 
we might work out a conglomerate from those plans which would 1% 
better than any one of them, adopting features of this one, that one 
and the other one, and if Congress, in its wisdom, can pick out a plat 
equally fair to everybody, but not this one, would you welcome + 
just the same as you would this one? | 

Mr. Morrison. Of course, if it were a plan that we believed woulc 
work out as well, that would be a matter to consider. We are nO 
wedded to any particular one. We want to get results, and we fe 
this plan will bring the results we want. } 

Mr. Winstow. : think we are all of the same mind. Now, goiis 
back to the high cost of living, I want you to answer this question 
if you will. Do you think the executive departments of the Gover 
ment have done all they could have done up to this time along the { 
of reducing the cost of living under the existing laws ? t 














‘“ 4 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 583 

_ Mr. Morrison. Well, that is a debatable proposition. If the exec- 

_utives have the power to stop profiteering, then, they have not done 

‘so. We feel that profiteering should be stopped. In my opinion, all 

“speculation in food products and hoarding them for higher prices 

Brould be stopped, even to the extent of eliminating exchanges in 
which this speculation is carried on. 

Mr. Winstow. The cost of living has been put up to Congress 

through private correspondence, of the President with several Mem- 
bers of Congress, as one of the alternatives presented by those who 
Teel they ought to have higher wages or its equivalent in lower cost 
of living. 

Mr. Morrison. Yes. 

Mr. Winstow. The executive department has rather indicated we 
‘ought to pass laws to meet the conditions, and I wanted to find out if 
‘you and your representatives, who have evidently given this ereat 
thought, had concluded as to whether or not the executives had done 
everything they could within the law as now enacted. 

_ Mr. Morrison. I believe that Congress should take action that 
‘would stop profiteering and stop speculation in food products and 
the hoarding of food for sale under a higher rate at a later date. 

Mr. Wrnstow. Well, we are under war conditions now, as you 
understand. 

Mr. Morrison. Yes. 

Mr. Winstow. And you understand we passed the Federal food 
‘act and created a department of which Mr. Hoover was the head, 
‘and he had power to do all those things. Would it not seem as if that 
power ought to be enough, vested by Congress in this board, to clean 
up all these matters ? 

Mr. Morrison. Well, it does not seem to be functioning just now, 
and if it does not, it is up to Congress, as the representatives of the 
people, to devise ways and means whereby this profiteering is stopped 
and speculation in food products is prohibited. ‘ 

Mr. Winstow. In the Washington Post this morning there ap- 
oeared an editorial note which reads as follows: 


Give everybody beer like the good old days and you’d see these strike clouds roll 
tway in an hour. 


You would not want to indorse that, would you? 

‘Mr. Morrison. No, sir; I do not believe there is any particular 
roduct that would have any effect on the conditions existing in this 
‘ountry at the present time. I have never had occasion to drink any 
deer myself, and I have got along very well without it. 

Mr. Winstow. Have any accredited labor bodies, so far as you 
mow, ever passed resolutions or otherwise indicated their inicention 
0 do unhappy and harmful things if beer were taken away ? 

- Morrison. Such statements have been made in the press, 
vut I do not think there is any organized body that has ever endorsed 
r taken such action. 
| Mr. Winstow. Well, one more matter and then I will conclude 
‘mith you, Mr. Morrison. You spoke of your purpose of going before 
he public in political campaigns to educate the public properly and 
/nth a view to getting them to vote for such candidates of any party 
$8 would be apt to sympathize with you in your desires for certain 
gislation. | 
- Morrison. Yes, sir. 











584 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Winstow. I would like to ask you if you have ever seen any 
real fruit born of that method of procedure in the past? 

Mr. Morrison. Good results ? 

Mr. Winstow. Yes. 

Mr. Morrison. Oh, yes; the political position of the Federation 
is very clearly defined, the political policy, in the reconstruction 
program. It might be worth while to read it, because it would 
only take four or five minutes and it would give you an idea of just 
the position we take politically and the political policy: 


In the political efforts, arising from the worker’s necessity to secure legislation 
covering those conditions and provisions of life not subject to collective bargainin 
with employers, organized labor has followed two methods: One by organizing politica 
parties, the other by the determination to place in public office representatives from 
their ranks; to elect those who favor and champion the legislation desired and to 
defeat those whose policy is opposed to labor’s legislative demands, regardless of 
partisan politics. 

The disastrous experience of organized labor in America with political parties of its 
own, amply justified the American Federation of Labor’s nonpartisan political policy. 
The results secured by labor parties in other countries never have been such as to 
warrant any deviation from this position. The rules and regulations of trade unionism 
should not be extended so that the action of a majority could force a minority to vote 
for or give financial support to any political candidate or party to whom they are 
opposed. Trade union activities can not receive the undivided attention of members 
and officers if the exigencies, burdens, and responsibilities of a political party are 
bound up with their economic and industrial organizations. 

The experiences and results attained through the nonpartisan political policy of the ~ 
American Federation of Labor cover a generation. They indicate that through its — 
application the workers of America have secured a much larger measure of fundamental 
legislation establishing their rights, safeguarding their interests, protecting their 
welfare. and opening the doors of opportunity than have been ee by the workers 
of any other country. . 

The vital legislation now required can be more readily secured through education 
of the public mind and the appeal to its conscience, supplemented by ener etic 
independent political activity on the part of trade-unionists than by any other method. 
This is and will continue to be the political policy of the American Federation of 
Labor if the lessons which labor has learned in the bitter but practical school of | 
experience are to be respected and applied. 

It is therefore most essential that the officers of the American Federation of Labor, 
the officers of the affiliated organizations, State federations, and central labor bodies, 
and the entire membership of the trade-union movement should give the most vigorous: 
application possible to the political party of the American Federation of Labor, 80 
that labor’s friends and opponents may be more widely known and the legislation 
most required readily secured. This phase of our movement is still in its infancy. 
It should be continued and developed to its logical conclusion. 


Of course the time may come when the great organized body of 
workers may decide on some other policy, but just now our slogan 1s, 
“lect our friends and defeat our enemies,” and we go to the political 
parties and ask them to incorporate in their platforms the legislation 
we want. We go to the Senators—or to the candidates, rather—of 
the different parties, and we ask them whether they are in favor of or 
against our legislation, and we also intend that an active campaign 
be carried on next year to elect more labor men, men holding union 
cards, to the House of Representatives and to the Senate, with the 
idea, of course, that the man who is a member of a union, who has 
worked as a trade-unionist and as a worker understands better the 
needs of the worker than does the prosperous merchant or the lawyer 
or the doctor or the minister, without any reflection on the good 
intentions of any one of those who may be a candidate or may be 
elected to office. 






RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 585 


_ Mr. Wesster.. Mr. Morrison, I am vastly more interested in the 
definite aspects of the crisis with which the Nation is now confronted 
and in finding a specific for that condition than I am in any general] 
policy which may bear on this problem more or less indirectly or in 
any general theory that may seem to afford a solution some time in 
the indefinite future, no matter how attractive or engaging the theory 
‘may be. Now, I want to get back to a few of the definite things that 
‘we are considering. It has been stated both by yourself and by Mr. 
tone, who preceded you, that organized labor appreciates that the 
yause of its present difficulty is the high cost of living. Is not that so? 
‘Mr. Morrison. That is true, sir. 

Mr. Wesster. It is also admitted, with commendable frankness, 
‘dy both yourself and Mr. Stone, that the solution for that problem is 
aot to be found in an increase of wages, but, on the contrary, that 
ihat course will have the opposite effect, in that it will start in motion 
f new cycle which will find its reflection in an increased cost of living; 

s not that a fact? 
) Mr. Morrison. Well, that is not just as I understand it. I do not 
Agree entirely with the fact that increasing the wages to the workers 
‘snot going to be helpful. The cycle will be going on to a certain 
xtent, but one of the chief troubles now, in my opinion, is the 
rofiteering. If that could be eliminated, and the hoarding of food 
or speculative purposes could be stopped, it would stem the tide of 
he increasing cost of living, and my position is that as the cost of 
(ving goes up, no matter how high, the wages of the worker should 
ye increased accordingly, and that he should not bear any part of 
his increased cost of living. 

Mr. Wesster. You and I are now engaged in the task of finding 
ot a palliation of this condition but acure. Now, since it is admitted 
hat a cure can not be found by increasing wages, but that an increase 
a wages will increase the cost of living, must we not, in our search 
or a cure, lay aside the question of an increase of wages and under- 
ake to devise some scheme for reducing the cost of living ? 

Mr. Morrison. No; my position is that you should first give to the 
rage workers the increase to harmonize with the increased cost of 
‘Ving and then proceed to secure legislation that will prevent a 
irther increase in the cost of living necessitating another increase 
1 wages. 

Mr. Wesster. In other words, you want us to engage simul- 
‘meously in the task of increasing and decreasing the cost of living. 
Mr. Morrison. Well, that is predicated upon the position, or 
laybe it is your position that the whole cost of living is because of 
Je increased cost of wages. I do not agree with that thought. 
| Mr. Wesster. Now, we have also been given to understand that 
jie cost of living has proceeded to the acute stage, and that labor 
)in not longer endure this condition of affairs, and that we must find 
immediate solution of that problem. N ow, you realize that how- 
ver wise fundamentally the Plumb scheme may be, it will require 
long period of time to acquire the railroad properties of this coun- 
y, either by voluntary purchase or by condemnation, and a still 
| nger time to put this plan into operation after they are so acquired, 
') you not? | 
‘Mr. Morrison. I do; but my position is that in the meantime the 
age workers should be protected and should receive an increase that 













586 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


would place them in the same position, at least, that they were in 
in 1914; that is, those that were receiving an American standard of 
wages. 

Mr. WxssterR. Now, it has also been conceded both by yourself 
and Mr. Stone that whatever other merits the Plumb plan may pos- 
sess, it is not a panacea for the high cost of living, and that while it 
may be one factor in solving that problem, it will not solve it in and of 
itself. I do not misquote you, do 1? | 

Mr. Morrison. The idea is that it will solve it so far as the 
employees of the railroads are concerned, because they will get a wage 
that will permit them to live in reasonable comfort. 

Mr. WessteER. Since it has been admitted that the Plumb plan 
can not be put into operation for some considerable time, and since 
it is likewise admitted that it will not cure the high cost of living when 
it is put in operation, and the high cost of living is now at the emer- 
gency point, do you not think it would be the part of good sense for 
Congress to lay on the shelf temporarily the Plumb plan and devote 
its energies toward the solution of this immediate condition by finding 
some immediate remedy, especially in view of the fact that the Plumb 
plan is revolutionary and experimental? I do not mean that in any 
offensive sense. I mean revolutionary in the sense that it overturns 
the settled policy of this nation in relation to transportation; experi- 
mental in the sense that it proposes a scheme that has never been. 
tried out, in this or m any other country. Do you not think that 
inasmuch as it can not be put into immediate operation, and that 
if it were in operation it would not afford a cure, before this country 
adopts that policy there should be afforded to the masses of the 
people of this country, regardless of class, an opportunity to express 
themselves upon this question? 

Mr. Morrison. Well, that reverts back to the first proposition, 
that Congress should devise ways and means so that the men working 
for the railroads should receive a wage that would meet the increased 
cost of living of 82 per cent since 1914, and we are here advocating 
the adoption by Congress of this bill known as the Plumb plan. 

Mr. Wesster. Now, Mr. Morrison, in all the suggestions that have 
been made, and I have no doubt of their sincerity, we have had pre- 
sented to us the humanitarian aspect of this crisis. Surely organized 
labor does not want this remedy applied and restricted in its benefit 
solely to the members of your organizations, if some remedy can be 
found which will redound to the interest of every man, woman, and 
child in America, do you ? 

Mr. Morrison. The proposition, as I understand it, which is before 
your committee is this bill, and the high cost of living affects every- 
body, and I take it there will be some legislation and hearings on that. 
As | said, there was submitted to every Congressman here, at least 
at the last session, the reconstruction plan of the American Federation 
of Labor which they had adopted. If it had been followed, it would 
have been very helpful. There was no attention especially paid to 
it or any plan enacted by Congress to help in the demobilization or 
taking care of the unemployed. In fact, it seemed as if they wanted 
to find out just what was going to happen before any action was 
taken. Congress did not work out a proposition that would 7 | 
helpful. In fact, they came pretty near taking away the United 
States Employment Service that was.doing good work, the only : 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 587 


‘avenue that the Government had for taking care of the returned 
‘soldiers and unorganized war workers that had been dropped out of 
the various industries. I do not understand it. I have never had 
‘it explained why more interest was not taken to safeguard this great 
body of 6,000,000 people. 
’ Mr. Wepsrer. You will agree with me that this is fair; that if a 
plan can be settled upon which will reduce the high cost of living and 
the benefit of that plan will be enjoyed by the people of the country | 
in common, that that would be uate bis to the plan of increasing 
the wages of the railroad employees ? 

Mr. Morrison. The railroad employees have stated 

Mr. WeBsTER (interposing). I wish you would answer that ques- 
tion. 
Mr. Morrison. I will answer that question in this way, which I 
think will be satisfactory. Sometimes it is very difficult to express 
just what you have in your mind. 

Mr. Wesster. I know that. 

Mr. Morrison. And Congressmen when they make a speech 
revise it. 
_ Mr. Wepsrer. And sometimes it is difficult to understand it then. 

Mr. Morrison. The proposition which I have in mind is this. I 
read in the papers that the representatives of the railroads went to the 
President and said to him, ‘‘If we can not get the cost of living re- 
duced, we will be compelled to ask for an increase in wages.” Of 
sourse, My viewpoint is that there are hardly any of the employees 
that are not entitled to 30 or 40 per cent increase in wages. If the 
tost of living was reduced 30 or 40 per cent, the pressure for an in- 
‘rease in wages would be lessened. Men are asking and insisting on 
mm increase in wages to-day and strikes are occurring throughout the 
sountry because the men have discovered that they can not live as 
pag did before on the wages that they are receiving. They are 

1 

r 





itriking for better wages and better conditions. 

Mr. Wesster. I still insist, Mr. Morrison, that you have not 
mswered my question. My question was, if a plan could be devised 
vhich would reduce to the normal the present high cost of living and 
vhich would redound to the benefit of the people of the country in 
‘ommon, would you not prefer that plan to a plan which affords 
‘¢lief only to the members of your organizations through increased 
Vages ? 

Mr. Morrison. The American Federation of Labor is working for 
‘ll the workers. They desire that rofiteering shall cease and also 
peculation in food products. Nobody is benefited by that except the 
ew profiteers. We realize that if we can get cheaper freight rates, 
\tansportation rates 

Mr. WessTer (interposing). [hat will be one factor in reducing the 
ost of living ? | 
Mr. Morrison. Yes, sir; and we are here with a bill that we hold 
ill do that very thing. 
Mr. WesstER. Would you concede this, because you say that the 
boring people of the country can not long endure the present 
ondition and it is apparent that this scheme could not be put into 
peration for a mentid arable time, that we should meet the task, if we 
an, by a more direct route—to draw on your imagination—if there 
%uld be devised some plan which would reduce the cost of living and 









588 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


the benefit of that plan would be enjoyed in common by all the 
people and all classes of people, would not that be a preferable plan 
to a plan which contemplated only the increase of the wages of the 
employees in the organizations for which you speak? 

Mr. Morrison. The employees and the workers are interested in 
the amount of foodstuffs that their wages will purchase. If the cost 
of living is reduced 20 per cent it would be equivalent to an increase 
of 20 per cent. 

Mr. Wesstrer. Mr. Morrison, are you reluctant in taking a position 
on a question of whether you are advocating relief to a class or ad- 
vocating relief to the Nation ? 

Mr. Morrison. No. I think that our minds do not meet. 

Mr. Wesster. That is quite apparent. 

Mr. Morrison. I really believe, from my viewpoint, that I have 
answered your question, but you have got your mind fastened on 
having “yes”’ or “‘no”’ rather than having an answer with an explana- 
tion. % 
Mr. Wessrer. It seems to me that the question could easily be 
answered yes or no. 

Mr. Morrison. Let us see. If the cost of living is reduced 20 per 
cent, that is equivalent to an increase of 20 per cent, and it makes no 
difference to them. 

Mr. Wessrer. That is equivalent to an increase of 20 per cent to 
your class, but it is also equivalent to affording relief to all of the 
people of the country, including your organizations % 

Mr. Morrison. They do not believe that will relieve the burden. 
The increased cost of living will still continue. We want an increase 
in order to meet that. > f 

Mr. Wesster. At the same time you are telling us that if we giv 
it to you we will increase the cost of living by doing so % 

Mr. Morrison. There is a proposition there as to what the in- 
creased cost will mean to the public. The plan which we have here 
we hold will not increase the cost to the public, but will reduce the 
cost to the public; that is, the freight rates. 

Mr. Wessrer. For the purposes of the record, let me ask you this 
question: Do you, as one of the executive officers of organized labor 
in this country, decline to make a categorical answer to this question: 
Would you prefer to have the present emergent condition of the 
country, due to the high cost of living, met by a plan which will 
reduce the cost in a way that will redound to the common people 
of the country, including all classes, as against a plan which conten 
plates only an increase in salary or wages to the men whom you 
represent? Do you decline to answer that question? af 

Mr. Morrison. No, sir; because I consider that I have answered 
it three or four times in another way. a | 

Mr. Wesstrer. Do you decline categorically to answer it—yes 
or nor ? ay 

Mr. Morrison. No. I will say this; as I said before, we are 2 
favor of legislation which will benefit all the people, and that wil 
lessen the cost of living to all the people, but during the time that) 
this plan is being worked out we have a remedy here that will <<) 

e 








is 


in reducing the cost of living. 
Mr. Wxsster. The Plumb plan ? | | 
Mr. Morrison. Yes, sir. Lg 


a St PRS 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 589 


__ Mr. Wessrer. You have just told me that it would require a 
long period of time to acquire these properties either voluntarily 
or by condemnation and to put in operation your plan, that the 
conditions are so acute that labor can not endure them any longer, 
‘and that they are now engaged in holding a referendum to determine | 
whether to call an immediate strike 2 
a Morrison. I did not make the statement as to the immediate 
strike. 
| Mr. Wesster. Well, a strike some time in the immediate future. 
Mr. Morrison. I have not that information. Tho angle is this: 
I do not want to get away from the proposition, that no matter what 
action you may take for the future, that the wage workers to-day 
who are working must be relieved of the increased cost of living that 
has been brought upon the people as a result of the war. 
| Mr. Wessrer. That is what [ understood you to Say. 
_ Mr. Morrrson. That action must be taken so that these men will 
‘secure an increase. 
Mr. Wesster. All right. 
Mr. Morrison. That is the proposition, but I want to say this, 
that the American Federation of Labor is ready and we have here our 
‘reconstruction plan, we lark it and sent it to every Member of 
Congress, that will be helpful in bringing about a decrease in the cost 
of living if carried into effect. 
| Mr. Wesster. Only a few days ago the President, with a view to 
supporting the policy outlined by the Director General of Railroads, 
recommended to the Congress that a board be constituted for the 
|purpose of making an investigation as to the reasonableness of the 
present demand for an increase of wages for those working for the 
‘Yailroads, and if an increase is found to be proper that it findings 
‘Shall constitute a mandate to the Interstate Commerce Commission 
so to increase present rates as to produce an adequate amount of 
money to cover the increase of wages. I notice in the press that that 
plan is not indorsed by organized labor. What fault do you find with 
that, if you are looking for immediate relief 2 
: Mr. Morrison. The fault would be the fact it would be a matter 
of legislation in the future some time. They want immediate relief. 
They have been bearing the burden since 1914. 
Mr. Wesster. You do not mean immediate relief without any 
investigation of the justness of the demand at all? 
| Mr. Morrison. This matter has been discussed for months and 
Months with the administration of the railways, with regard to the 
sonditions, and the increase in wages. 
Mr. Wessrer. But you are engaged now in appealing to the Con- 
tress, and asking it to do just what you tell us to do. 
Mr. Morrison. Oh, no. You will probably have people come 
»efore you that will say that labor has got enough, and does not need 











} Mr. Wessrer. I want to ask you this question. If it is assumed 
| hat the President and every department of the Executive branch 
|} the Government are bending every effort, using every energy, in 
/} Sincere, honest effort to reduce the cost of living at the earliest 
ossible date, and that both Houses of Congress are engaged in a 
imilar task, can you think of any benefit that will come to the 
ountry by the railroad brotherhoods calling a nation-wide strike? 


| 


590 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Morrison. Has anybody said that a nation-wide strike would 
be called ? 

Mr. Wexster. No. I asked you if you thought any good would 
be accomplished by that. It is in the formative period now. I 
thought your opinion might be helpful in determining whether they 
are to call it or not. 

Mr. Morrison. Mr. Stone himself said, in making his statement 
here, that that matter had not been considered; that they were here 
for the purpose of having this plan adopted which, if adopted, would 
prevent almost any possibility of a strike. 

Mr. Wessrer. Well, I say now that, assuming that every Govern- 
ment official, regardless of the department of governmental activity, 
in which he may be employed, is doing everything within his power 
honestly and conscientiously to reduce the cost of living at the 
earliest possiole date, can you conceive of any assistance that would 
be rendered in the performance of the task, or any benefit that 
would come, in calling a Nation-wide strike among the railroad em- 
ployees of this country? If so, what conditions would you impose if 
the men walked out? You have stated that an increase in wages 
would not be the cure, and if both of the departments of Government 
are doing everything that they can do to relieve the burden of the 
high cost of living, what conditions would the men have to gain in 
order to induce them to go back to work? 

Mr. Morrison. The fact of the matter is, the administration has 
not given to the workers the wage that they are entitled to since 1914. 

Mr. Barxitey. You mean the Railroad Administration ¢ 

Mr. Morrison. The Railroad Administration. There has been an 
increase in the cost of living of 82 per cent, Mr. Stone stated. I do 
not know whether he spcke for all the people or for the engineers, 
but they only received 37 per cent. ; 

Mr. Wesster. Now, Mr. Morrison, it has been very plainly and 
very frankly stated to this committee by Mr. Stone—whose senti- 
ments you seem pretty closely to indorse—that the laboring people 
are looking to Congress to meet this situation, and that they are not 

oing to tolerate these conditions very much longer, and that if this 

ongress does not meet its request with respect to the Plumb lan, 
that an effort is going to be made to elect a Congress that will indorsé 
its views., Now, just as a very humble member of this committee 
I want to be equally frank and state my position. 1 am perfectly 
willing to sit here and do anything within my power to afford your 
organization or any organization a fair and as intelligent consideration 
as I am capable of giving you; but I want it distinctly understood 
that I, as one member of this committee, will not be dominated or 
coerced by any threat, however vaguely conveyed, as to what organ 
ized labor is going to do to me as an individual if I do not do what they 
tell me to. ; 

Mr. Morrison. Let me make an answer to that. We have two 
great political parties, and if the Democratic Party does not do what 
the Republican Party thinks is right, they go to the people and ty 
to convince the people that they should elect Republicans to office, 
so that the political program of the Republicans may be carried into 
effect. If the Democrats are in power and the Republicans desire 
certain things to be enacted, and the Democrats as a party will not 
agree to it, they go to the public and set forth their claims of what 


a 





RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP, 591 


isright and mene. Your position as an individual—you can run as a 
Republican or a Democrat; of course it is not considered very good 
form to change from one party to the other; they generally try a 
secession movement first. As a body, the workers have just “as 
much right to elect a man who is favorable to them, a man running 
mm the Republican ticket or the Democratic ticket, whichever one is 
more iavorable. We will say ‘‘ Who is more favorable to our legisla- 
tion? We will vote for him. We will not follow our party affilia- 
rons.” 

Mr. Wesster. I am not challenging the right of organized labor 
30 vote for anybody it pleases, but | am challenging the right of 
ganized labor to attempt to control my vote as a Meriian of Con- 
ress by threatening me with what they are going to do to me if I 
jo not ‘so vote. 

_ Mr. Wiixs. Has anybody done that? 

Mr. Morrison. That is putting into the mouth of labor something 
hat has not been said. If you are a Republican and elected as such, 
md you vote for Democratic measures, your party will not reelect 
7ou. 

Mr. Wesster. Thatis true. Here is my feeling about this matter, 
Mr. Morrison. 

Mr. Morrison. Now, you are finding fault with labor-——— 

Mr. Wesster. I am finding fault. 

_ Mr. Morrison. For following the practice of the two political 
parties. 

_ Mr. Wesster. My thought about this matter is this: That if the 
‘oldiers in the recent war were willing to put on the uniform of their 
‘ountry and go into rat-infested and vermin-infested trenches, fore- 
roing all the comforts of life, and offer to sacrifice their health and 
heir limbs and their lives on the altar of preserving this Nation, that 
-can at least forego my political career in that same cause, and have 
ny life and my limbs and my health left. That is just the way I feel 
‘bout it. 

Mr. Morrison. And organized labor has been advocating that Con- 
ress should take measures to protect these soldiers, to see that they 
jet employment when they come back here, even to the extent of 
yaying them for a year after they are demobilized, or until such time 
8 they secure compensation on which they can live with reasonable 
comfort. 
| Mr. Wesster. That is all. 

_ Mr. Morrison. I want to say this—does anybody want to ask a 
uestion ? 

| The Cuarrman. Mr. Sweet, of Iowa. 

| Mr. Sweer. You presented this matter to the Director General of 
tailroads in regard to the increase of wages, did you not? 

_ Mr. Morrison. No; a committee from the railway department did. 
| Mr. Sweer. Yes. 

Mr. Morrison. I was not with that committee. 

sam Sweet. When did they do that? About what time did they 
0 that? 

- Mr. Morrison. The exact date I do not know. 

Mr. Sweet. Well, about how long ago? 


152894—19—vor 1 38 









592, RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Morrison. Well, I heard one of the members state that month 
avo they advised the administration that if there was not an increas 
of wages there would be considerable trouble, and urged it. Abou 
the first of the year, I am informed—lots of time to have taken action 

Mr. Sweet. Was that in the nature of a hearing? 

Mr. Morrison. No. I think that the committee was just ap 
pointed and called upon them. y 

Mr. Swreer. Was there ary evidence taken? 

Mr. Morrison. Why, I think not. I think it was just where the 
went and appeared before the director general and called his attentio: 
to the necessity for an increase in wages. I have never had occasio: 
to be before them, but I question whether he went to the trouble o 
taking it down as a regular hearing. He may, but I do not know. 

Mr. Sweet. Was it presented in writing or simply verbally to th 
director general ? 

Mr. Morrison. You will get that from the railroad men, but it i 
always presented in writing, I am informed. 

Mr. Sweet. That record is obtainable, is it? 

Mr. Morrison. Yes, sir; you can get it from the railroad mer 
There will be some of them here. 

Mr. Rayburn. You say, I believe, that the cost of living since 191 
has gone up 82 per cent, about? 

Mr. Morrison. About that; there are some places where it ha 
gone higher than that. For instance, in Baltimore it is 86 or 84 pe 
cent. 

Mr. Rayspurn. And you want to increase the wages up propo! 
tionally to the increased cost of living ? 

Mr. Morrison. Yes, sir. 

Mr. RayBurN. The question I want to ask you is this: If at, thi 
time, when living costs are high, we increase wages, or wages are In 
creased up to this full 82 per cent, and the cost of living is subse 
quently reduced, say, 20 per cent, would you be willing then 
recommend a 20 per cent decrease in wages ? 

Mr. Morrison. If the standard of the workers was an America 
standard at the time the increase took place, I think it would } 
favorably considered by the workers. 

The CHarrmMan. This concludes the hearing, Mr. Morrison, and w 
will not be able to start with Mr. Plumb this afternoon. : 

Mr. Morrison. I would like to say just one word, if you would le 
me ? 

The CuHarrMANn. Very well. & 3 

Mr. Morrison. Representing the American Federation of Labo! 
an organization that believes in collective bareeee and the ca: 
rying on of the work of the organization in a regular, lawful manne 
a peaceable manner, we have come before this committee with 
threats. The agitation for the election of such men to office as repr 
sent our views must not be taken as a threat by the representative 
in Congress, or the representatives on this committee. It is nots 
intended. It is simply the lawful, legal manner in which great issu 
are fought out, and the fact of the matter is that what we want | 
do is to educate the Representatives to our way of thinking, and 
am sorry that the idea has been injected in here that there has bee 
anybody coming with threats, either of a strike or of decapitation 








RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 593 


aman who is a Congressman. But this fact remains, that there is 
unrest; that the men are not receiving the increases that they should 
have; and the fact remains that great bodies of men have struck in 
this country despite the efforts of the officials, and there comes a 
time in the history of the workers, irrespective of their organization, 
When the burden is too heavy, and when that time arrives you may 
expect revolution, so far as they are concerned, to the extent at least 
oo steiking for the conditions that they desire. 

Mr. Wesster. How do you reconcile your statement that you are 
trying to educate and ‘enlighten the Representatives who are, at least 
temporarily, charged with the responsibility of meeting this matter, 
when, in answer to one of my questions, you said that you had been 
rging upon the Railroad Administration the matter of this increase 
{or some time, and urged that as a reason why there should be no 
telay. by Congress in providing a congressional plan to investigate 
the justice of your claims? 

_ Mr. Morrison. In this way. We are here on a specific bill, and I 
am speaking to that, but the Federation stands for increase in 
wages to meet the increased cost of living for all workers, organized 
and unorganized, and we advocate that throughout the breadth of 
Our jurisdiction. 
| Mr. Wesster. I want to say to you that I am just as ready as 
amy Member of this Congress to give organized labor or unorganized 

abor anything that they are justly entitled to receive, as much so 
is any man in this Congress, but I want to be advised, I want to act 
apon the matters presented upon my intellect and upon my con- 
jeience, and I want to have time for action, and I do want to have 
‘in opportunity to exercise whatever of conscience or intellect I have, 
membarrassed by coercion or intimidation, and I propose so to have 
t 





| Mr. Morrison. And I will say that I will help you do that, because 
ve do not want Congressmen that can be coerced to do that which 
hey do not believe is right, and we do not want autocratic employers 
1 labor in this country coercing our wageworkers and forcing them 
0 work long hours and under conditions that they should not work. 

That we shall resent. We want free men, men that will be able to 

ve voice to their consciences, and I am with you. We will assist 

EY cette your conscience, if it is not right with us now, so that it 

: 6. 

| The Cuarrman. The committee expresses its appreciation to 

Messrs. Stone and Morrison for the testimony they have presented. 

jtecess until 10 o’clock tomorrow morning. 

_ (Whereupon, at 4.50 p. m., the committee adjourned.) 







594 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


CoMMITTEE ON INTERSTATE AND FoREIGN COMMERCE, 
Hovust oF REPRESENTATIVES, 
Thursday, August 7, 1919. 


The committee met at 10 o’clock a. m., Hon. John J. Esch (chair. 
man) presiding. 


STATEMENT OF MR. GLENN E. PLUMB, GENERAL COUNSEL 
FOR THE ORGANIZED RAILWAY EMPLOYEES OF AMERICA, 
WASHINGTON, D. C. 


The CuHarrmMan. The committee will now hear Mr. Plumb. Givys 
your name and address and whom you represent. 

Mr. Prums. Mr. Chairman and gentlemen of the committee, fo: 
the record my name is Glenn E. Plumb, now of Washington, D. C 
I appear as general counsel for the organized railway employees of 
America, consisting of the organizations named by Mr. Stone yester- 
day. I will not repeat the names of the organizations unless the 
committee so desires. 

In the presentation of my testimony I have divided it into four 
parts. First, a presentation of the economic principles upon which 
the bill is founded, a discussion of the existingsystem, the evils te 
be overcome, and the remedy we suggest. | 

That much of my argument I should like to present as a whole and 
then be subject to cross-examination thereafter, if the committee se 
desires. Then I should like to take up the bill, if the committee so 
desires, paragraph by paragraph, and discuss the bill. Of course, in 
that matter I assume that cross-examination might occur as we 
proceeded on the features of the bill. , 

This will get the bill and my explanation before the committee. 

Then I want to take up an analysis of the other plans that have 
been presented, and during that analysis I should like to present that 
as a whole, subject to cross-examination thereon after the analysis is 
concluded. 

In addition, as the concluding part of my argument, I want to 
make an announcement now that will explain the last portion. 

During this week and since your honorable committee requested 
me to appear in order to present the case of organized labor with 
respect to its bill for public ownership and democracy in controt of the 
railroads, there has come into the possession of the railroad brother 
hoods and 10 affiliated railway labor organizations of the American 
Federation of Labor a state of facts never spread before the American 
people or submitted to the jury of public opinion. These facts tend to 
show that the wrecking and looting of the New York, New Haven & 
Hartford Railroad, the Chicago & Alton, the Rock Island System, and 
the Frisco lines are not sporadic examples of the highway robbery te 
which the American Nation has been subjected as to its public trans- 
portation highways. Leading directly from Wall Street and from 
the banking houses controlled directly by the Morgan and Rockefeller 
groups, these facts show that there has proceeded a systematizec 
plundering of virtually all of the public transportation highways 01 
the United States. 

We believe that a Congressional investigation will reveal that not 
one railroad system dominating any part of the 254,000 miles of rail 
yoad in the United States but has suffered and is suffering, in degreé 









RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 595 


f not to the same extent, from carefully deliberated manipulations 
of the sort that have wrecked and ruined the railroads I have men- 
tioned. It will reveal with emphasis the truth of the words recently 
attered before the bankers of Missouri by Elihu Root: ‘Surely some 
provision must be made to prevent the continuance of the steady 
progress toward bankruptcy of the railroads which characterized the 
lecade before the Government took possession in 1917.” It will 
veveal that these interests are again gathering their forces of private 
imd secret control and seek, after having gained from Congress a 
sanction to rehabilitate their railroad properties at public expense, to 
yegin again and follow through its corrupt and wicked cycle the sys- 
jematized plundering and looting of the public and the public interest 
n the Nation’s highways. 

_ In view of the gravity of this situation, and in order that we may 
iave the benefit of their counsel on behalf of the public in presenting 


yur statement to Congress and to the American people, the 14 affil-) 


ated railway labor organizations through ex-Congressman Keat-' 


ng and myself are summoning to Washington a national conference | 


’m railroad control. 
| On behalf of the public we are inviting to participate in this con- 
‘erence as members of the joint national committee on railroad 
ontrol, Frank P. Walsh, formerly joint chairman of the National 
Var Labor Board; Joseph W. Folk, of Missouri; Raymond Robbins; 
ohn Lind, of Minnesota; Edward F. Dunne, of Chicago; Dr. Edward 
V. Bemis; Felix Adler; Gov. Allen, of Kansas; Julia C. Lathrop, 
md Judge Walter Clark, of North Carolina. Frank P. Walsh, 
judge Walter Clark, Edward F. Dunne, Joseph W. Folk, and Dr. 
idward W. Bemis have already accepted, and with others who may 
‘et accept, will meet here with the representatives of organized 
abor on Saturday of this week. Every response to our invitation 
0 participate in this national conference on democracy in railroad 
ontrol has been accompanied by a wholehearted acceptance of the 
asic principle expressed in President Wilson’s message at the con- 
ening of this Congress, wherein he declares for ‘‘the genuine democ- 
atization of industry, based upon a full recognition of the right of 
10se who work, in whatever rank, to participate in some organic 
‘ay in every decision which directly affects their welfare in the part 
1ey are to play in industry,” and for a ‘‘genuine cooperation and 
artnership based upon real community of interest and participa- 
on in control.” 
In view of this action by the affiliated labor organizations which I 
present, and on behalf of organized labor and the public, I will 
ierefore ask to reserve this information which is in our possession 
atil it can be properly prepared and submitted to the jury of Con- 
fess and of public opinion. 

I will say that that is now being prepared and at the close of the 
iree formal parts of my presentment, I shall present to this com- 
“ittee specific, definite charges, giving names, dates and amounts, 
)) that there may be definite information, vouched for by all of the 
000,000 of railroad employees, upon which this committee may 
4 justified in asking for a full and complete congressional investiga- 
on. 

Now, if I may, I shall sit during the reading of this argument. 











~ 


| 


596 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


The discussion yesterday extended very widely over the entire 
field of economics. There was also a wide discussion of the extent 
of the interests which we represent. I shall state, so that the record 
will show, definitely just what interests are here and their extent. 
Then I wish to discuss the economic principles which were involved m 
yesterday’s examination in the way in which they have been pre- 
sented to the labor bodies, so that you may have their point of view, 
I do not say it must necessarily be your point of view but so that from 
their point of view you may be able to see this bill as it shall be 
presented. Without that preliminary discussion a great deal of time 
would be wasted, in that you would not know the position from whieh 
these men viewed the problem. 

These organizations number upward of 2,000,000 men employed 
inrailway transportation. They include all of the classified employees 
with the exception of, possibly, 10 per cent, or 200,000 employees, 
and the 20,000 official employees. Nine-tenths of all of the men 
engaged in railway transportation operations are embraced within 
these organizations. 

In addition to these men so employed upon the’ railways, the 
great American Federation of Labor at its national convention at 
Atlantic City in June of this year, has indorsed the plans submitted 
by the railway operatives for the reorganization of the railway indus- 
try, and instructed its executive council to cooperate with the railway 
employees by every legitimate means to procure the enactment of this 
plan into law. 

This vast army of producers is not divided. They present nc 
conflicting plans, no diverse theories for the solution of this problem 
but appear before you a united force profoundly convinced of the 
economic soundness of the principles upon' which their plan is built 
imbued with the crusaders’ spirit to support the principles upor 
which their faith is founded. 

The chairman of this commitive in opening the hearings statec 
that the only bill so far introduced was H. R. 4378, the Eseh 
Pomerene bill. This bill, as I gather from reading it, does not pur 
port to deal with the ultimate solution of the railway problem, anc 
does not provide for a return of the railroads to their private owners 
and certainly, it was not intended to provide for Government owner 
ship and operation or a continuance of the existing governmenta 
control. Yet I find that the most prominent headline of the repor 
of the hearings appearing on the cover is, ‘Return of the Railroad 
to Private Ownership.” The progress of recent events has brough 
us face to face with a crisis of tremendous importance. The con 
stantly rising cost of commodities to the consumer has far ou 
stripped the purchasing power of the consumer's wage. This diff 
ence between earning power and spending power of the great 
of the workers has compelled a corresponding lowering of the stanc 
ard of existence. ‘This is an influence entirely hostile to the interes 
of humanity, and to be resisted by all the powers of mankind. 

Such resistance is inevitable. Human nature can not do otherw! 
than oppose the universal lowering of the standard of living. T 
avoid the deprivations which loss of purchasing power necessaril 
inflicts, the first natural reaction is the denen for increased p 
chasing power through demanded raises in wages, yet this dema 
is acknowledged to be futile, because such increase in cost of produc 













i 


— 


ie 
P 
4 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 597 





















ion is immediately more than reflected.in the increased cost of com- 
‘nodities. 

' In answer to this first reaction—demand for increased wages— 
ve now find a hundred thousand railway employees refusing longer 
'0 render their services for these constantly diminishing returns. 
‘(his manifestation of revolt is but symptomatic of the entire industrial 
‘ituation. It is not unrest that confronts us, it is revolt because of 
ndustrial conditions no longer to be borne. 

_ The situation is so serious that although the House of Representa- 
‘ives had properly resolved to recess for five weeks’ vacation, in a 
‘Ingle day in response to the request of the Chief Executive that 
esolution is set aside. The session continues for the sole purpose 
if investigating the causes and discovering remedies for this situa- 
ion which at any moment may be beyond control. 

| The plan which labor presents had been prepared after a most 
areful study of the economic situation existing, the causes of the 
‘resent evils, and the proper correctives to be applied. The faulty 
| ystem may be improved by the regulation, but regulation of a sys- 
‘em long unprincipled merely delays its ultimate collapse. It is 
ot constructive. It lays no foundation for solid progress. It 
‘yalliates but does not cure. 
| We already number in the support of labor’s plan approximately 
/,000,000 adult producers—about one-sixth of the productive man 
ower of the United States, perhaps the same proportion of the politi- 
al power of the Nation, and a financial power which few comprehend. 
“hose employed on the railways alone represented in this movement 
eceive as their annual compensation for the investment of their life 
(md labor upward of two and a half billion dollars a year—two and a 
ialf times the amount of compensation paid for the use of the money 
/ayested in railways. | 

| It is claimed by those who represent the financial interests before 
jhis committee that they have investments of approximately 
| 20,000,000,000 in this industry. On this they receive a return of a 
illion dollars a year. How shall this investment of money be com- 
jared with that investment of life and labor that receives a return 
| £ two and a half billion dollars a year?’ By what standard can they 
‘e compared which gives to the investment of life a value less than 
hat allotted to the investment of dollars? In the words of Samuel 
Yompers, labor is not a commodity; it is human life. By what 
/eason can the interest of things exceed in value the interest of 
uman beings? He who speaks of the interests of property as con- 
isting of rights which the property possesses dissociated from the 
‘uman right of ownership reasons falsely. Our Government, 
jounded upon our Constitution, deals with individuals, not with 
|hings. It is not with the interest of capital with which we have to 
0 but with the human interests involved in the ownership of 
apital by human beings. The human beings who own the dollars 
lavested in railways are comparatively few in number—probably 
ot more than one or two hundred thousand different individuals 
/Te so directly interested as security holders in our national railways. 
| Let me interject there, it has been reported in the hearings before 
| oth the House and the Senate committees that there were 640,000 
olders of securities. An investigation of that statement made b 
he Interstate Commerce Commission reveals that every individual, 








598 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


corporation, association, or other holder who may own stock in two 
or more companies in that list is set down as two or more holders, so 
that the 640,000 holders of railway securities contains an infinite 
number of duplications. The Pennsylvania Railway Co., for instance, 
has more than 340 different holdings of securities, and in that list of 
640,000 the Pennsylvania appears as 340 holders. The same thing 
is true of all of the holders in that list. There is furnished by the 
Interstate Commerce Commission an analysis of the holdings oi 
railway securities so far as disclosed by their records, and in that 
analysis it appears that the railroads themselves own more than 46 
per cent of the outstanding stocks of all of the railway companies, 
and it also appears that the individual holders of securities reported 
to the Interstate Commerce Commission, those individuals being 
women, children, widows, and orphans, hold only two and a fraction 
per cent of the outstanding securities. I would suggest that ar 
inspection of that report made by the Interstate Commerce Commis. 
sion might be of great value to this committee. 

The CHarrmMan. We have all received copies, Mr. Plumb. 

Mr. Prums. Indirectly, a great number of human beings are affected 
by the value and return allotted to railway securities, but no moré 
affected by the value and return of these securities than they are 
similarly affected by the value and return of an equally large numbe1 
of other securities with an equal number of individual owners. | 

According to the information given out by Director General Hines 
1,700,000 employees of the railways of the United States in the thre¢ 
last national loans subscribed and paid for upward of $410,000,00( 

worth of bonds. The figures for the first two war loans are not avail 
able, but it is reasonable to assume that these same men subscribe¢ 
at least $200,000,000 for the first two loans. If this assumption bt 
true, then they are the holders of upward of $600,000,000 worth oi 
Government bonds, bearing interest return of from 3% to 44 per cent 

The other labor organizations indorsing this movement, number 
an equal number of men, employed in industries paying equally hig 
wages, doubtless have subscribed to an equal amount, for I assum 
that the railroad employees possess no higher amount of patriotisa 
and self-sacrifice than the great body of organized labor associates 
with them. 

These wage earners, as bondholders, together with the other indi 
viduals in the community who have subscribed to the Liberty loans 
are closely scrutinizing the course of events in Congress on railroat 
matters with an intelligence equal to that of the banking interests 
We are deluged with inquiries in regard to this matter. 

Put yourself in the place of a man owning $2,000 worth of wa 
bonds which he purchased at par. He notes that there are pendin 
before Congress many propositions whereby the public is asked t 
guarantee either in rates or returns an interest of not less than’! 
per cent upon $20,000,000,000 of outstanding railway securities, whic! 
now have a market value not exceeding $13,000,000,000. He hear 
it claimed by those urging this guaranty that a return of not less tha’ 
6 per cent will place these securities at par and provide a marke 
where many seeking investments can be induced to serve the publi 
in return for the further issuance of such securities. Such a guarant 
will mean an advance in value of from $13,000,000,000, their prese? 
value, to $20,000,000,000, their par value. 





CSAs 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 599 


_ Would you not ask yourself what effect this would have upon the 
bonds which you held, on which the same Government had guaran- 
teed only 34 to 44 per cent? Would you not believe that such action 
merely transferred from the market value of war bonds to the market 
value of railroad securities, six or seven billion dollars? Would you 
not believe that your Government bonds, if the desire of the railroads 
and the financiers was fulfilled, would be quoted at the average of 
present railway securities while the railway securities would be 
quoted at the present market value of Government bonds ? 

__ This committee may suggest a satisfactory answer to the question 
of these Liberty bond holders, but it must be an answer that will be 
satisfactory to millions of widows and oprhans, to every life-insurance 
company, savings-bank and trust company, and to every holder of 
these bonds who has paid for them at par and who will not witness 
their fallen values with any sense of satisfaction or with any feeling 
that his sacrifice has been entirely justified for the preservation of 
she Government that could work such iniquity. His sense of injury 
will also be deepened when he realizes that the securities to which his 
value has been transferred do not in every case, in fact, admittedly 
‘many cases, represent an equivalent sacrifice by the ones to whom 
ay were initially issued or by the one in whose hands they are now 
etd. 

_ The representatives of railway. executives, the railway security 
nolders, and the United States Chamber of Commerce appearing 
Sefore you have asserted that they speak for half of the citizens of 
the United States as being interested in maintaining the value and 
‘he credit of railway securities. By what basis they reach this con- 
“‘lusion I can not tell; but they assert that savings banks, trust com- 
yanies, and life insurance companies have large investments in railway 
jecurities; that every depositor in such a bank, every holder of a life 
‘msurance policy, and everyone in anyway affected by the net assets 
of such institutions are represented by them. If 50,000,000 people 
we indirectly affected by the market value of 20 billions of railway 
ecurities held by 200,000 individuals, how many people are affected 
vy the market value of 20 billions of Government bonds held directly 
‘vy 22,000,000 individual subscribers ? 

And to what extent are the holders of life insurance policies and 
lepositors in savings banks interested in seeing that the assets of 
hose institutions are not damaged by shrinkage in the market of 
yovernment bonds which they hold? I should blush if I asserted 
‘hat only half the citizens of the United States were so interested in 
reserving the credit of this vast volume of securities representing our 
‘ational debt. However, many of the fifty miliions which Mr. 
Varfield says he represents as being directly and indirectly affected 
'y the credit of railway securities will not hold him responsible for 
(he outcome. Likewise a great percentage of the holders of Govern- 
(rent bonds and those indirectly affected by other bonds will not 
‘old me responsible for the outcome, but this committee and this 
|ongress can not avoid its responsibility to the holders of both 
lasses of securities, and in order to face that responsibility must 
‘ccurately judge the extent of these conflicting interests and the 
/quities of the position which each interest possesses. What I have 
fud is merely to impress upon this committee the momentous 
/baracter of the interests which I am now representing. 













600 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Never before have so many individuals united in a single presenta- 
tion, and if the value of a labor investment be calculated by the 
return which it receives, in the same manner in which a capital invest- 
ment is determined, then that labor investment, measured financially, 
approximates a value of $50,000,000,000. 

In addition to that, at least 4,500,000 citizens through their labor 
representatives appear here as capitalists owning a large proportion 
of the national debt and seek to have their interests as such owners 
likewise considered and justly protected. Never before have so 
many capitalists appeared before Congress to assert their interests in 
any capitalistic venture. : 

‘The plan for the reorganization of the railroad industry which we 
present is intended to protect all interests with absolute justice, with 
equality for all and privilege for none. It is based upon the best 
study of existing economic conditions which we have been able to 
accomplish. An understanding of the plan requires that we should 
submit to you that analysis of the economic conditions which we 
have made so that you may have before you the basis from which 
our couclusions have been drawn. I hope I may therefore be par- 
doned for a short presentation of this analysis: First, of the funda- 
mental interests in industry; second, the economic conditions which 
now exist; third, the evils of the existing system; fourth, a correct 
analysis of the property rights which have been granted to the cor- 
porations owning these highways; and, fifth, may then present the 
plan expressed in the bill which is now pending before you. 

1. The fundamental interests involved in industry. Now, I use 
some definitions. ‘‘Industry,’”’ as used in this discussion—and that 
is the meaning of industry as I use it here—I wish to limit to those 
socialized industries which are now based on either a grant from the 
Government itself or upon a privilege of monopolistic nature. I do 
not include in this statement industries carried on by individuals 
under the competitive system without the aid or grant of privilege-— 
I use the word only as applied to those fields of production which have 
become socialized—and now I want to define the word © socialized” 
as L use it. By ‘socialized’? I mean industries which require great 
aggregations of workers, each performing a small fraction of the task 
of production and where the finished product is the result of combined 
cooperative, productive effort. | 

The word ‘socialized’? was used here yesterday in a sense whick 
we do not attach to that word as meaning the ownership by Gover 
ment of an industry and the control of that industry by the Gov- 
ernment. I do not use the word “socialized”? with that meaning 
at all. I deem that an industry is socialized when it can only } 
carried on by a grant of society and by organizations which elin: 
inate individual effort or competition. It is a function of societ 
when it has reached that development, regardless of its ownershi 
or management, and it is in that sense and that sense alone that . 
speak of ‘‘socialized’”’ industries. 

There are three basic interests in every such industry. ‘The firs 
interest is that of the public, which I define as the demand of th 

ublic for the products of that industry. It is the need of socie 

or those things essential to its existence which are produced alon 
by the organized, socialized, productive efforts of those engaged t 
meeting this demand. Without the existence of this deman 







RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 601 


society, that industry could not exist; without this demand capital 
would have no field for investment, labor would have no opportunity 
for employment. With either one of these: three fundamental 
interests lacking the other two could not exist within that field of 
production. 

_ The second interest is the interest of capital. Capital is nothing 
but the unexpended surplus of past human effort which is now 
available to furnish the tools for present human effort. It is essential 
to every organized industry in that it furnishes the tools for produc- 
tion without which the demand of society for the products of industry 
sould not be satisfied and without which labor or human effort could 
aot find employment. The third fundamental interest is that of the 
wage earner or producer. It includes all of those employed in pro- 
ductive efforts in those industries which have been socialized. 

~ That includes not only the man who works with his brawn, but the 
nan who works with his brain—all productive effort in that industry. 
[his constitutes the third interest which I have termed the interest 
wf the wage earner. ; 

The wage earner represents the human effort which must be ap- 
\dlied to these means for production, without which capital could not 
‘ind investment and secure its returns and without which the needs 
wf society for the products of industry could not be satisfied. 

These are the three fundamental interests in industry, each as 
lssential to the existence of industry as the other. Therefore they 
ire equal and must have equal opportunity, protection, and authority. 
| 2. The economic conditions which now exist. Under the existing 
‘ystem the owners of capital have monopolized the control of in- 
lustry and in their monopoly they have denied the public—that is, 
ociety—any voice in the management of industry. 
| They have likewise denied to labor as the producer any voice in 
ts management. 
: Nevertheless, both the public as the great body of consumers, and 
jabor as the producing element in society, have an interest in in- 
j\lustry each equal or superior to that of capital. I say superior, 
\ecause capital by itself does not mean present human effort. It 
jaeans control only of things, tools, materials, and means of pro- 
}uction. It does not mean in itself the expenditure of any human 
: ualities whatsoever, whereas labor\does mean the present expend- 
ture of human effort and the consuming public also represents an 
Xisting human demand. Those two elements, therefore, I deem of 
uperior primary importance, but that does not mean that the 
hird element, capital, does not have just demands. The owners of 
|apital for the service which they render are entitled to absolute 
rotection of that which they place at the service of society both 
s to the integrity of their investment and the return they are to 
8cure upon it. Now, as I said, the owners of capital have denied 
0 the consuming public and to labor any voice in the control of 
he industry in which that capital was employed. Nevertheless the 
ublic has sought to protect its interests by legislation imposing 

ulations upon the owners of capital. As applied to the railways 
ae public through legislation has said to the owners of capital who 
‘ere controlling the management of the industry: ‘‘ You may not 
cquire your property.except for the purpose of serving the public. 
ou may not equip your property as you desire but with due regard 



















602 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


to the safety of those who use your service and those who furnish 
the service. You may not charge for your service whatever you 
desire, but only such charges as may be determined to be reasonable 
by an impartial judicial tribunal.”” The public has even gone so 
far as to say: ‘‘You may not fix the hours or wages of your em- 
ployees. You may not compel your employees to work more than 
so many hours a day and you may not pay less than so much for 
the service rendered.’ All these regulations on the part of the 
public are limitations upon the monopolistic control which the 
owners of capital previously exercised over that industry and are, 
indirectly, a participation of the public in the control of industry, 
but it is only a limited and negative participation. 

Labor as the producing element in society having also a funda- 
mental interest in the conduct of the industry in which it was em- 
ployed and being denied any voice in the control of the management 
of that industry by the owners of capital employed has sought 
means to make its voice effective in the control of management. 

The labor employed in the railroad industry may now be said to 
be completely organized. 

The purpose of this organization is twofold. First, to secure 
for its members a greater share in the profits of production by de- 
manding increased wages; second, to secure greater safety and free- 
dom from accident by demanding safeguards, shortening of hours, 
insurance against diseases and accident by the adoption of mechanical 
devices and improvements. These demands of labor like the de- 
mands of the public have been limitations upon the control of opera- 
tion by the owners of capital. 

These owners of capital have resisted the enforcement of such 
demands even to the extent of denying to the producers the right of 
employment and to further share in the industry even by working 
for them. That is the lockout—the right to discharge without 
cause. This conflict has been marked by decades of strikes, lockouts, 
and blacklists. The owners of capital have relied upon the military 
arm of government to protect their interests devoted to public service 
against the demands of labor. Labor has enforced its demands by 
the power of its organization and its ability to inflict losses upon the 
owners of capital by its temporary refusal to cooperate with such 
owners in further productive efforts. al 

The owners of capital have resisted the demands of the public 
made through legislation. This resistance has been by refusal to 
comply with such regulations in which event the public has resorte 
to the police power to enforce its interests and to the courts for the 
enforcement of such legislation. This is a condition of industrial 
warfare. Under such a system there can be no harmony betweet 
the three fundamental interests. Each is on guard to protect its 
own without regard to the interests of others, each seeking to obtait 
any advantage that circumstances permitted at the expense of the 
other interests, but each relying upon the power of might as the 
ultimate arbitor in all disputes. bj 

The continuance of such a system can be based only upon a gover 
ment which can provide the might to enforce the demands of thit 
interest which at the time controls the government. A democratit 
government instead of controlling such an industrial situation is con 
trolled by one or the other of these warring fundamental interests 
and so can no longer function as true democracy in government. 










RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 603 


__ We exist under governments. We live by industry. To preserve 
democratic government we must extend to that by which we live the 
same power of democratic control which we exercise in the erection 
‘of the government under which we exist. That industry has advanced 
ander such conditions where the public, meaning the consumer, labor, 
‘meaning the producing element of society, and capital, meaning that 
Tuman element controlling the tools of industry, have been in continual 
‘warfare, gives fair indication of what our advance might have been 
ad these interests worked in harmony with due respect for the rights 
of each, with equal authority in the control of management and with 
qual responsibility one to the other. 
I have above announced the three fundamental interests which 
xist in industry. These interests, however, are common to all citi- 
yens in the community. [Every individual citizen is affected by at 
east two of these interests, and all by one, for all citizens are con- 
umers. Most citizens are producers. Those who consume and do 
‘ot produce are either beggars or capitalists. Many who produce are 
Jso capitalists. I have already shown that 1,700,000 of the wage 
arners on the railroads, producers, are capitalists in that they hold 
overnment securities. Many of those who hold investments in the 
ailroads, also, serve the jndustry in some capacity. It is said that 
aany of the organized employees on the Pennsylvania system also 
old stock in that system. Many official employees on all railroads 
re the owners of railroad securities. So that these three interests 
re commingled in the great body of citizens. Likewise all producers 
Te consumers; and again all consumers are producers, except those 
tho live by charity or those who live on interest alone. All of or- 
anized labor are consumers, and it is the failure of producers in in- 
ustry to recognize their interest as consumers that has made the 
ae of organized labor ineffectual in securing for its membership 
greater share of the profits of the industries in which they are 
mployed. Let me illustrate: 
| Suppose that the shoemakers were the first producers to organize 
mally, so that all men who were engaged in the production of 
10e€s as wage earners organized and demanded a larger share of the 
rofits of that industry by an increase in their wage. Assume that 
1e employers for whom they worked granted this increase, and 
/amediately added this increased cost of production to the price of 
jloes, together with a profit on that increase. The consuming 
\ablic, all who bought shoes, would pay this added cost, together 
.ith a profit to the manufacturer, and the wage earners would receive 
|1 Inereased wage. This would be an excellent thing for the shoe- 
|akers. The success of their organization would the next day 
duce the garment workers to perfect a like organizaticn, and 
crease their wages accordingly, laying a further burden upon the 
ablic, im which burden the shoemakers would begin to bear a share. 
fe suecess of those employed in these two industries would: im- 
jediately induce the packing-house employees to perfect a like 
ganization and receive like benefits. The benefits the public 
}ould pay—in the paying of which shoemakers and garment workers 
ould share. The cycle of all socialized industries being completed, 
‘Ose employed in those industries now find that every advantage 
ach they have gained as producers they pay for as consumers, 
lying not only the advantage which they have received but also a 










604 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


profit on that advantage to the owners of the capital employed in 
production. This cycle beg completed, the owners of the capital 
alone have benefited. Wages have been increased, but all com- 
modities which the wage earners must purchase have been more than 
correspondingly increased in price by the profit demanded by the 
owner of capital upon the increased cost of production. Under such 
a system earning power can never overtake buying necessity. But 
the necessity of purchase always outstrips the power of buying 
exactly by the profit demanded on the increased purchasing power, 
and to the extent of the profit compounded by each intermediate 
handling and transportation of the commodity. 

This constantly growing difference between necessity for buying 
and ability to pay must be compensated by a lowering of the leve 
of existence. In no other way can the sheet be balanced, and map- 
kind not only here but the world over refuses to accept that balances 
sheet. Organized labor now realizes that further advances in wages 
at the expense of a cost of living exceeding that of the values received 
are wholly futile. Equally, organized labor realizes that to corree| 
this vicious system the interests of both producers and consumers 
must be protected; that the great increase in the productive powel 
of human effort should be reflected equally in increased earnins 
power of those who produce and the decreased cost of the commodity 
so produced. 

In order to affect the price of all commodities by advances it 
wages to those who produce, then it would be necessary to completé 
the entire cycle of industrial production. An advance to the shoe: 
makers is reflected only in the advanced price of shoes. It does not 
affect any other commodity. But with transportation the situatior 
is quite otherwise. The cost in transportation is reflected in the 
price of all commodities, whether transported or not. The consume! 
pays the freight on everything that he consumes, although it maj 
be produced next door, and may never have passed over any line 
of transportation. Heretofore railroad rates have not been advancec 
universally. A commodity rate is advanced here, a classificatior 
rate advanced there, and only those commodities affected by suck 
local advances reflect the increased cost in their price. But with thy 
coming of the war a 15 per cent advance was allowed by the Inter 
state Commerce Commission, covering all rates and all commodities 
and reflected the next day in the purchase price of everything by 
which we live. Later the director general again advanced thes 
rates 25 per cent. This advance was again immediately reflectoc 
in the price of commodities, and the cost of living. 

The wages earned by those who produce constitutes the grea’ 
bulk of the purchasing fund of this Nation. When the price of al 
commodities is advanced, due to an increased cost of transportation 
and the wage fund is not correspondingly increased, the difference i 
exactly reflected by a restriction in the amount of commodities con 
sumed. This soon reacts on the producing agencies. They provi 
a restricted output to correspond with the restricted demand. Thi 
again, restricts the wage or purchasing fund, and the cycle of restr 
tion endlessly repeats itself, until we find production stifled, industr 
in stagnation, unemployment, and ‘inevitable political and socis 
revolution. Tt 






RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 605 


| Reverse this vicious system. Reduce rates. The costs of all 
commodities are then reduced accordingly. The purchasing power 
of the wage fund is then correspondingly expanded. A greater | 
volume of commodities is consumed. The demand on industry is 
ereased. There follows a wider field of employment, which, in 
jurn, increases the wage or purchasing fund of the community. 
This must inevitably follow, unless the savings of the cost of trans- 
vortation, instead of being reflected in the price of commodities, are 
uppropriated to swell the volume of profits of those who control 
‘apital. Insure the savings effected by a reduction in rates to the 
onsumer, and you will have turned the tide that now threatens to 
yverwhelm us. : 

Can this be done without depriving the owners of capital of any 
if their lawful or vested rights? As applied to railroads, this can 
‘asily be done. For the property rights which exist in railroads are 
yased entirely on grants which the public made to the holders of such 
mivileges. Only that which has been granted becomes a private 
nterest; that which was not granted remains a public interest. 

To demonstrate this principle requires an analysis of the property 
aghts which have been granted to private owners in the railways of 
he United States. 

The private interests in railroads analyzed: There are certain 
rinciples now well recognized and indisputable. These principles, 
or clarity, I announce as follows: mie 
-(1) Railways are public highways. 

_ (2) The construction, maintenance, and operation of public high- 
7ays is a function of the Government. 

(3) Railroad corporations are merely agencies permitted by the 
‘rovernment to exercise this function. 
| (4) The State retains full power to regulate the use and operation 
‘fits delegated function. 
| (5) The corporate agency exercising said delegated governmental 
mctions takes all its rights, powers, and privileges subject to the 
“Mitations imposed by the laws under which it is created. 

_ (6) Such corporate agency can not claim against the public, its 
itantor, any rights, properties, grants, or franchises not expressly 
| mferred by its charter or the laws under which it operates. 

It is upon these recognized established principles that our entire 
1eory of valuation rests. This is nothing but the determination of 
‘hat rights have been granted, andthe value of those rights. 
Railways are public highways. This has been so held from the 
eginning of railroad history and now will not be disputed. ‘True, as 
ud in the case of Olcott v. Supervisors, 83 U. S., 678, they are to 
2 used in a particular manner. It is the manner of their use alone 
tat distinguishes them from other public highways. The manner 
_ that use is prescribed by law, as stated in the Illinois constitution, 
id all citizens utilizing these highways are by law required to use 
tem in the particular manner which the law prescribes. 

The manner of the use so prescribed has provided that the title 
these public highways should remain in the corporation creating 
‘em, upon condition that such title shall by the very terms of its 
quisition be subject to dedication to the public for highway pur- 
ses. All railroad properties acquired under such charter limita- 
ms were dedicated to the public for highway purposes by the very 



















| 


606 RETURN OF THE RAILRUADS TO PRIVATE OWNERSHIP. 


fact of acquisition, no matter by what means they were acquired 
If acquired by condemnation, the very exercise of the soverel 
power of eminent domain devotes the property so acquired to the 
public use forever. If acquired by a grant made by any soverel 
power, that grant designates the use to which they are to be made 
and preserves the public easement over such lands for highway pur 
poses. If acquired by deed, purchase, or contract from privat 
owners, as between the corporation and the private owners, such tithe 
passes as the owner possesses or chooses to grant, but as betwee 
the State and the corporation, the lands are dedicated by thei. 
acquisition to the public, and all that remains to the corporate owne! 
is a fee which gives to it a right of reversion in case the public shoul: 
abandon or neglect its easement. f 

That reversionary fee in the hands of the corporate owner has n 
more value than alike fee remaining in the hands of the private owne 
whose lands have been taken by condemnation. The right of thi 
public to use these lands obtained by deed from private owners ii 
just as complete as it is to those lands obtained through the exercisi 
of the power of eminent domain. The public easement over all land: 
and properties acquired by such a corporation is complete, perfect 
and perpetual. By recognizing that these instruments of transporta 
tion are public highways, we immediately recognize that no privat 
interests can exist therein except those which have been granted b; 
the public. All interests not covered by the grant remain a part 0 
the public interest. 

In determining the value of private interests in these public high 
ways, we are to allot value only to the interests that have bee! 
eranted. We may not include in such a valuation any estimate: 
values inherent in the property that are not within the terms of th 
erant. The total value of the railroad includes not only the valu 
of the private interests but the value of the public interests. Privat 
value can not be expanded without a corresponding diminution 1 
the value of the public interest. 

It has been often said that railroads are private properties subjectu 
to the public use. A much truer statement 1s this: That railroad 
are public properties in which private interests exist.’ 

I have, theretofore, in the hearings before this committee in Janu 
ary, 1918, quite fully discussed this theory of charter and statutor 
limitations upon the interests held in railroad companies in the publi 
highways which they operate, afd will not repeat that argument her 
as [ deem it to be before this committee. 

T assume that is so, Mr. Chairman, is it not? 

The CrarrmMan. Yes; I think testimony on the subject was give 
before the Senate committee in February. 

Mr. Piums. This was a year ago last January. 

The CuarrmMan. Under the Federal control act 

Mr. Puums. Under the Federal control act. I placed a day 
testimony before the committee on this question of charter limite 
tions, which i have not here repeated. 

Without discussing in detail just what rights do constitute privat 
interests in rai!ways, | would state that our bill does not attempt t 
determine these rights, but requires only that all of the rights whic 
have been granted to these corporations by their charters and whic 
have accrued to them thereunder shall be ascertained and dete 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 607 


‘mined; that this shall be done by an orderly procedure before a body 
created for that purpose and subject to judicial review. That, in 
the determination of such value, this body shall not take into account 
yalues inherent in the properties which were not conveyed by the 
grants to the corporations owning and operating such properties. 
hat such unconveyed values should be deemed a part of the public 
interest in these railways, for which no compensation should be paid. 
__ Now, that is the direction to the body which we create, and if that 
direction does not accurately state the law, then that direction will 
be held to be illegal by the court, because the action of this body is 
‘subject to judicial review. We do not for one moment contend that 
we can by legislation to-day deprive any co1poration of the value 
of any right, privilege, or interest that it has secured under grant 
made to it and that has become vested, and our bill does not attempt 
to deprive any corporation of the value of anything which it now pos- 
Sesses. It simply directs a scrutiny to be made as to what it does 
possess, and to reject from the valuation those elements of value in 
the propery in which the public has an interest and that inhere, in 
the public interest and that were not conveyed by the grants which 
the public have made. ; 

Again considering these properties as public highways, it has always 
been the law that the owner of a public highway could recover from 
the public as compensation for its use only its value at the time it was 
dedicated to that use. 

In condemnation proceedings either payment or provision for pay- 
‘ment must be made i 





eases. So long as it is needful for the use of society it can not be 
told. Of course, that does not mean that you must have a legislative 


152894—19—vor 1——-39 





608 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


public needed, then does ane doubt that such a disposal of its 
property could be immediately stopped by the State or Government ‘ 

Property held by such a title has no value in exchange. It has 
only value in use. Exchange value being eliminated, it is only value 
in use that may be determined. To show how effectually exchange 
value is eliminated let me illustrate: The possessor of private prop- 
erty in which inheres value in exchange can reduce that value to pos: 
session only by parting with either the title or possession of his 
property. Value in use and value in exchange can not. possibly be 
enjoyed by the same person at the same time. The enjoyment 0! 
one value precludes the enjoyment of the other. This is in the nature 
of things, not by reason of any man-made law. Yet the owners 0! 
these railroads claim the right to enjoy as a proprety right value ir 
exchange, while retaining both title and possession of their propertie: 
and utilizing value in exchange as the basis for determining value 
in use. ‘ 

This is a wholly inconsistent position. It would give to the owner: 
of these properties an advantage not possessed by the owners 0 
private property, a special privilege for a certain class of owner: 
which could not be justified under our Constitution. 

There is no way in which the law concerning public highways cai 
be made consistent with the law concerning private property 
Property can not be both wholly public and at the same time whol) 
private. It may be partly private and partly public, in which even 
the extent of the private interest can not exceed that which th 
public have granted. | 

Take now our bill—Mr. Sims’s bill now pending before the com 
mittee embodies the legislative method for perfecting the plan whic! 
labor suggests. | 

Now, if the committee so desires, I can take up the bill paragrap! 
by paragraph and go through it with the committee, or I can take uj 
the bill and announce the general principles upon which it is con 
structed and then reply to questions, whichever method seems bes 
in the view of the committee. 

The CHarrMAN. I think perhaps that it might expedite the hear 
ings if the latter method was pursued. 

Mr. Sims. Have you finished your preliminary statement ? 

Mr. Ptums. I have finished my economic statement, and if th 
committee desires to cross-examine me on that, I would be glad a 
this time to answer any: questions. 

Mr. Sms. I would like to suggest that the latter part of you 
statement may be involved or connected with what you have jus 
stated. Therefore, would it not be best to continue with you 
statement until you finish it ? 

The CuarrMAN. I think you had better finish your statemeri 
Mr. Plumb. 

* Mr. Monracur. May I be permitted to make an observatiol 
Mr. Chairman ? 

The CHarrMAN. Certainly. 

Mr. Monracusr. The term that is in common use here, “cross 
examination,” is, I think, erroneous. 

The CuarrMan. If we use the word in a derogatory sense—— 

Mr. Monracus (interposing). We are not cross-examining wi 
nesses. It may be an examination in chief, perhaps, or 1t may be 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 609 


direct examination. Sometimes it may be a cross-examination, but 
merely asking a gentleman some questions when he is making a 
statement is not cross-examination. That term suggests the idea 
of hostility toward the witness. 

Mr. Sanvers.of Indiana. You would simply be asking for informa- 
10n. 

’ Mr. Pius. I accept the amendment. 

Mr. Montacue. I did not mean to apply that to you, but that 
erm has been employed ever since I have been on the committee, 
ind it is not the correct use of the term. 

Mr. Prums. I have simply followed the language that was used 
vhen I came before the committee a year ago. 

Mr. Sanpers of Indiana. Cross-examination is a compound word. 
_ Mr. Prums. I really think that the term ‘‘examination”’ is 
wreferable. 

_ Mr. Sanpvers of Indiana. Or interrogation. 

Mr. Prums. This bill begins with definitions, and I will read some 
if those definitions in article 1, section 1, because they are necessary 
0 an understanding of the bill: , : 
| Section 1. That for the purposes of this act the term ‘‘transportation properties” 
3 defined to include all of the private rights, titles, property interests, powers, and 
tivileges existing in any railway, light railway, or less than standard-gauge railway, 
anal, waterway, or inland navigation facility, harbor, or dock undertaking in the 


Jnited States and its possessions, together with all rolling stock, plant, appliances, 
rt equipment, whether fixed or movable, that form any part of such properties. 


Then we define “corporation owners”’ as including any corporation 
aterest in such transportation properties, individual owners—that is, 
My group of individuals, association, or copartnership not incor- 
jorated owning an interest in such transportation property. [Read- 
ag:] 

That the term “compensation” is hereby defined as being the amount of money 


»presenting the value of the rights, title, or interest of any corporate owner or individ- 
al owner in any transportation property above defined. 


In section 2 we provide that on a day to be fixed, it being left 
lank [reading]— 

There shall be vested in the United States every right, title, interest, and privilege 
‘anted by the United States or underthe laws of any State or territory of the United 
tates, or its possessions, to any corporate or individual owner of transportation 
roperties, the acquisition of which is by the railways board of appraisement and 
tension (the establishment of which is hereinafter authorized) deemed necessary 
ra unified national system of post and military roads and as a means for the regula- 
on of commerce between the States, and for affording facilities for locomotion and 
ansport. 


| 
That provides for the immediate vesting in the United States of 
| private interests in these public facilities so selected by this board 
s being necessary for a unified system. Now, I know that it is quite 
()pularly supposed that the Government has no power under our 
ostitution to take such property without first making compensa- 
on. I! wish to differ with that view, although I pay due respect to 
le eminent counsel who hold the contrary opinion. Private pro- 
| ty may not be taken for public uses under our Constitution without 
j 


; 











‘st ascertaining and providing for compensation. ‘The tanguage is 
ascertaining and providing,” but there is one great exception to that 
ile. 


i 


| 


j 
610 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Private property that has been devoted ‘by its owner to a public 
use may be taken and the compensation determined thereafter. 
These private propertics are held subject to public use. They were 
devoted to that use at the time they were acquired, and that is the 
consent of the owner to such use of the property. When. 2s to the 
property so held, the State or the Government or the sovereign power 
in taking the title, provides a forum for the determination of fair 
compensation and the means for the payment of that compensation, 
the Constitution has been complied with. Otherwise, the sovereign 

ower that created those corporations as servants of the public woul 
hee created a master of the public with powereven greater than that 
of the sovereign that created it. | 

Now, we provide for this railways board of appraisement and 
extension. After giving the power to the President to issue such 
orders as may be necessary to carry the bill into effect, in section 8, 

age 4, we create the railways board of appraisement and extension. 

his board is to be composed of the members of the Interstate 
Commerce Commission, and three added members from the board 
of directors of the corporations ‘hat we have created in the bill, one 
member to represent the public, one the employees, and one the 
managements, to be added to the nine members of the Interstate 
Commerce Commission. 

Now, on this matter, I want to say that if any better method foi 
the determination of compensation or any better body can be devised 
we will be only too glad to help in devising it, but we deem that the 
Interstate Commerce Commission, having already expended soms 
millions of dollars in ascertaining the value of these rights and havin{ 
accumulated a fund of information which it would take years yet t 
accumulate, is possessed of knowledge and information that can no: 
be thrown away or disregarded or transferred to some other body 
That body is in existence; it has collected this information which noy 
is largely classified, and which the chairman stated Minit Mr 
Prouty had said might be completed by 1921. So that there is | 
tremendous task already accomplished. The addition of the othe 
three members to that commission we suggest as being an essentia 
addition; so that we would have added to the commission the met 
most skilled in the management of railways; the men most skille 
in the determination and the adjustment of labor questions, and w 
ought to have men from the public most skilled in the need of ti 
public for transportation; so that there would be some element adde 
to the fund already accumulated that would be of value in th 
determination of those questions. Now, we empower this board t 
do everything that may be necessary for that determination; t 
employ agents and employees to aid it, just as the present Interstet 
Commerce Commission is authorized to use its employees for tb 
valuations. No doubt the same force of men could be utilized, | 
the Interstate Commerce Commission should find it advisable so t 

do. The fixing of compensation is left with the chairman and tk 
Secretary of the Treasury of the United States. 

I now read from section 3 of article 1, page 4, beginning with line 2 


That said appraisement board is hereby empowered, authorized, and directed 
investigate, ascertain, and determine the amount of compensation to be paid by tl 


United States to the corporate and individual owners of the several transportati' 
properties title to which is hereby vested in the United States, and also to investigat 


ascertain, and determine the compensation to be paid to the owners of said proper! 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 611 


‘or auxiliary plants or facilities for manufacturing or repairing, purchase, and dis- 
‘tribution of stores and supplies which may hereafter be deemed necessary or expedient 
in the operation or extension of transportation properties so acquired by and vested in 
‘the United States under the provisions of this act. 

_ I think that requires no explanation. 

Section 4, article 1, page 5: 

_ That in the determination of the amount of compensation to be paid to the corporate 
,and individual owners of transportation properties so vested in the United States 
the appraisement board shall ascertain the value of all the rights, property interests, 
powers, authorities, and privileges granted in and acquired under the charters of the 
several corporate owners and the laws under which they operate and the grants made 
‘to individual owners owning or operating such properties. 

That all values not included in the grants made in the charters of the corporate 
owners or the laws under which they operate or in the grants made to individual 
‘owners shall be regarded as values retained by the public in the public highways 
‘of the United States and not subject to compensation. 

Mr. Montacur. May I ask a question, there, Mr. Chairman, if it 
‘is agreeable to Mr. Plumb? 

Mr. Prums. Certainly. 

_ Mr. Montracue. The saving clause or the reserving clause begin- 
“ming on line 17, ‘‘all values not included in the grants made,” what 
‘values have you in mind as not included in the preceding portion of 
that section ? 

Mr, Proms. I will answer that question directly in just one sen- 
tence. It is claimed by the companies that they have a great many 
‘rights. They have not shown any grants on which the right was 
based. For instance, they claim that they enjoy as a property right 
the value of all lands now held by them for transportation, that value 
‘to be determined by the value of adjoining land, multiplied by some 
factor which represents the cost of acquisition. That is the value 
Which they claim. Now, if that be a value which has been granted 
to them, if their charter is broad enough to include that vlaue, it 
certainly belongs to them; but if it is not broad enough to include 
that value, then it is a value retained by the public; and our purpose 
here is to direct that this body shall investigate the grants made and 
shall scrutinize each claim of value to determine whether or not it 
has passed by the grant before allowing it. Then that raises the 
question for judicial review, which may be raised by either side, so 
that the court must pass upon that question as to whether or not 
that was a property interest or a property value which had been 
‘granted or had been retained. 

‘Mr. Montacue. I do not know that I clearly understand you. 
You mean the increased value or the decreased value of the right of 
way should or should not be considered ? 

Mr. Prums. I mean exactly that, that the increase in value—— 

Mr. MontacuE (interposing). Or the decreased value. 

' Mr. Prums. Or the decreased value—— 

_ Mr. Monracuse (continuing). Of the actual land included in its right 
of way should not be considered ? 

| Mr. Prums. Should not be considered. 

__ Mr. Montracur. What about the physical properties placed upon 
that right of way? 

(| Mr. a That has no increase or decrease either. 

_ Mr. Montacur. Suppose there is one single track in the charter, 
but they are given the privilege to improve their property, and sub- 














612 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


sequent there is a double track or three tracks or four tracks, would 
it be of less or more value, or should that be considered? — 

Mr. Ptums. The cost of the additional improvements ? 

Mr. Monracus. That is what I asked you and you said that should 
not be considered. | 

Mr. Ptums. No; I did not intend to say that. 

Mr. MontacueE. I misunderstood you. 

Mr. Piums. I do not intend at any time to question the validity 
of a single dollar that has been put into the actual service, but the 
rising value of lands adjoming, not subjected to this public use, does 
not measure the value of the use in those lands. 

Mr. Monracus; Yes, I understand your position on that. 

Mr. Prums. And an increase in the price of steel rails made 10 
years ago —— 

Mr. MontracueE (interposing). That is analagous to what is com- 
monly termed the unearned increment. 

Mr, Ptums. The unearned increment never was conveyed by those 
grants. 

Mr. Montague. I just wanted to catch your full viewpoint. 

Mr. PiumB. Yes. 

Mr. Montaaus. You would not take anything relating to the 
development of the physical property and costs incident to that 
development ? 

Mr. PLumB. Yes; all costs incident to the development is included. 

Mr. MonracukE. Is included in the value? 

Mr. Piums. Yes; all costs incident to the development. 

Mr. Sweet. And the value is to be determined as of the day when 
the grant was made? 

Mr. Ptums. No, Congressman; the value is to be determined as of 
the day the thing was acquired. It is acquired under a grant that 
may have been made 50 years ago, but tbe interest did not vest until 
the acquisition. If they buy a locomotive to-day under a charter 
80 years old, like the B. & O., the public have no interest in that 
locomotive until to-day when it is furnished. 

Mr. Sweet. Then your answer is, as of the time when it was 
acquired? 

Mr. Piums. As of the time it was acquired. 

Mr. Monracus. Mr. Chairman, if Judge Sweet is through, 1 would 
like to ask one other question which I omitted. The language is, 
‘Call values,’’ it is in the plural, and you have stated one which we 
shall term for brevity, the unearned increment of the values of the 
land or the rights of way—have you in mind any other values, Mr. 
Plumb ? 

Mr. Piums. Yes; I have. 

Mr. Montacus. Will you exhaust that. What other value have 
you in mind to be included in this reservation which should not 
receive compensation ? 

Mr. Pius. I will be glad to exhaust all I can think of, but I 
might subsequently think of some more. Take, first, the unearned 
increment in lands, that we have disposed of. * 

Mr. Montacur. Yes; 1 do not want to repeat that. 

Mr. Piums. Then the rise in the prices of labor and materials can 
not affect the value of labor and materials previously furnished at & 
lower cost. Let me illustrate: For many years I was accustomed to 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 613 


purchasing rails at $22 a ton, subsequently at $28 a ton, and now I 

elieve they are quoted around $41 to $45 a ton. That advance in 
the price of rails to-day has not increased the value of the public 
use of the rails purchased at $22 a ton, and they ought not to have 
any value in the structure on the basis of cost to-day; but if they have 
to be replaced on the basis of cost to-day, then an additional invest- 
ment has gone into that property measured by the difference between 
the original cost of the rails replaced and the cost of those going in 
to-day, and that must be treated as increased investment. 

Mr. Montacue. Would you or would you not favor the actual cost 
of rails, no matter what that cost is? 

Mr. Piums. Certainly I would, modified, again, however, by the 
slement of depreciation, because there must have been applied 
sufficient funds to have maintained the integrity of the investment, 
and if there has been a lack in that regard, the Supreme Court has 
said it is equivalent to a withdrawal of investment. But, provided 
there has been due maintenance, then originally, in every event, 
whether it be high or low, that must be scataed in the value allotted. 

Mr. Montacur. Then you would not pay for an increase in value 
but you would pay for a decrease in value ? 

Mr. Pius. Certainly. 

Mr. Montacust. Have you any other item in your mind? 

Mr. Piums. Broadly speaking, the unearned increment in land, 
the increased or decreased unit prices of labor and material, I believe, 
cover every element that can be urged; but the application of those 
principles would develop a large number of specifications which I 
shall not attempt to outline. But if those principles are adopted, 
the application in every event can easily be made. 

Mr. Montacusr. You think they would cover all the details? 

Mr. Puums. I think they would. 

Mr. Montaaus. Or subdivisions ? 

Mr. Prums. Yes. 

Mr. Rayspurn. Mr. Plumb, let me ask you this question: Suppose 

railroad either under a grant given to a railroad or otherwise had 
bought land at 80 cents an acre to build a railroad upon it, there is 
nothing to prevent them boring a well and striking oil. What is 
roing to become of that oil well ? 
- Mr. Prums. That was decided, Congressman, in the Santa Fe 
tight-of-way oil case by the Supreme Court, where they held that 
‘under the charter of the Santa Fe Railway Co. it acquired these lands 
only for transportation purposes, and it did not acquire the oil under- 
‘neath, and the owner of the land from whom the right of way had 
‘been acquired recovered from the Santa Fe Right of Way Oil Co. the 
value of the oils which it produced, it having obtained the right to 
drill for oil from the Santa Fe Railway Co. 

Mr. Raysurn. But suppose there was nothing at all in the charter 
that might preclude a thing like that? 

Mr. Piums. Suppose there was nothing in the charter ? 

Mr. Raypurn. Yes. | 

Mr. Prump. If the charter is silent, then no grant passes, because 
no corporation gets anything by the silence of its grant. It gets only 
that which is expressed. 






i 


~ 


614 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Biepsor. Mr. Chairman, I would like to suggest that the 
gentleman be asked where that case is, which resulted in any such 
conclusion of law as that stated. 

Mr. Pius. I will be glad to furnish that. | 

The CHAIRMAN. Please insert that in your hearings. 

Mr. Pitums. Yes. , 

Mr. Raysurn. I had in mind a situation in Texas right now with 
reference to school lands, and other grants that had been made by 
the State, and I do not think the Supreme Court of Texas has held 
that. 

Mr. Piums. I do not think the Supreme Court of Texas has either, 
but I do not believe the question has been presented to the Supreme 
Court of Texas? 

Mr. Montague. I did not catch that. 

Mr. Piums. I say, I do not think the question has been presented 
to the Supreme Court of Texas. 

Mr. Raypurn. The question of the school lands has been presented 
to the Supreme Court of Texas, and my opinion is that they have held 
just exactly the opposite. 

Mr. Prums. I should think they would in the question of school 
lands, because there / 

Mr. RayBurn (interposing). What about this Santa Fe case you 
are talking about now. 

Mr. Ptums. As I remember that case, the Santa Fe, I think, was 
running through Oklahoma, and leased to the Santa Fe Right of Way 
Oil Co., or some such name as that, the right to drill for oil within the 
right of way of the Santa Fe Railway Co. It proceeded to drill for 
oil and found oil, and the owners of the adjoining lands, from whom 
the Santa Fe had obtained its right of way, brought suit to recover 
the value of the oils so taken from the Santa Fe Right of Way Co., by 
its lessee, and recovered on the ground that the title of the Santa Fe 
was not broad enough to give it the right to take oil from land which 
it had acquired for right-of-way purposes. +, 

Mr. Rayspurn. What about the land that they were granted and 
that they are not using for right-of-way purposes ? 

Mr. Prums. That is a different question entirely. 

Mr. Raysurn. Has that question been finally determined ? 

Mr. Piums. It has not. Now, Congressmen, I want to make this 
suggestion to you, because it is a suggestion that has not yet been 
presented to a court, and lam going to take the Southern Pacific Rail- 
way Co. as an example. The Southern Pacific Railway Co. is incor 
porated under the laws of Kentucky. It owns a few square feet of 
property in Kentucky, but no railways there. Under its charter, 
and under the constitution of Kentucky, it may not own any land 
except for railway purposes, yet it has received grants of vast mil- 
lions of acres from the United States. and from States in the south- 
western territory, not for railroad purposes, but areas of land to aid 
it in the construction of railways, and those lands it holds as a private | 
owner would hold them, although by its charter it is specially pro- 
hibited from any such holding; but the capacity ofthat railroad com- 

any to receive such a grant has never been tested and has never 
een urged in any of the fights concerning its title to southwestern 
lands, but there is no reason why any State official or any Federal 
official, being interested in the subject on behalf of a’State, or the 





RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 615 


Jnited States, should not urge that limitation, and there is a question 
‘hat has not been passed upon. 

_ Mr. Raygurn. Your belief then is that if the grant is silent on this 
yomt, or says nothing about it, that when a right of way is estab- 
ished the right of the transportation company goes only to its use 
or transportation. 

"Mr. Prums. I believe so. The Supreme Court said that in Blair v, 
The City of Chicago, repeating a dozen former decisions running 
ack to the Dartmouth College case. 

Mr. Monracor, I imagine you base that upon the general principle 
hat when property is acquired by Government authorization, by 
‘urchase or condemnation, for a given easement, any use or disposi- 
ion of that property other than to perfect or to carry out that ease- 
jent is not within the original grant? 

_ Mr. Proms. Exactly. Now, in the Blair case, I wish I could quote 
ne language of the court, I can come pretty nearly doing it—there is 
osuch thing as a silent grant. If a charter be silent about a power, 
hat power does not exist. 

Mr. Raysurn. I did not say anything about a silent erant; I said, 
If it were silent on the point.” 

| Mr. Prums. Yes; but that is the very point. If something is 
aimed under a grant, and in that grant there is silence as to that 
aim, then that claim does not exist. 

| Mr. Raysurn. Of course as a general proposition that is true. 
The Cuarrman. You may proceed, Mr. Plumb. 

‘Mr. Pius. In section 5, article 1, page 5, we authorize the ap: 
raisement board to agree as to the amount of compensation to be 
aid, “provided, that in such agreed compensation no amount shall 
e included as compensation for the values not included in the 
‘ants made in the charters of such corporate owners or the erants 
“rights and privileges made to such individual owners.” 

Then we provided that in the event the appraisement board fails 
y a majority to agree—with itself; that is, not with the corporate 
Wner—then the chairman shall fix the amount, and such finding by 
le majority or its chairman shall be final and conclusive, and 
nding, on all parties, subject, however, to the right of judicial review 
wreinafter provided for. 

Now, of course, in case there should be an agreement between the 
praisement board and the corporate or individual owner, there 
‘uld be no appeal and no judicial review. So that in the case of 
‘ich agreement we direct the board not to include the values of any- 
(ing not granted, just as we do in the other, but we have no right 
/ review if they make an agreement. We are bound by it subject 
that direction. : 

| Mr. Monracun. Suppose the amount found under such an agree- 
fent is so flagrantly unjust to either party, no matter if one is satis- 
jd with it, should not the public have some right or something to say 
sout it? 

‘Mr. Prums. If it was unjust to the corporate owner and he is 
‘usfied with it, the public could not complain. If it was so fla- 
‘antly unjust to the public and the owner is satisfied with it, that 


‘ttainly involves such a degree of fraud as would vitiate any agree- 
yent. 









616 RETURN OF THE RAILROADS TO P&LVATE OWNERSHIP. 


Mr. Monracur. In other words, the mistake must be so manifestly 
gross as to imply fraud ?. 

Mr. Ptums. Yes. Of course, any such agreement may be cor. 
rected for mistake or for fraud. 

Mr. Monracusr. What I had in mind was this, and of course, it is : 
very extreme case, that there might be collusion between the parties 

Mr. Piums. That certainly would destroy the efficacy of the agree 
ment. 

Mr. Monracue. If you can establish it ? 

Mr. Prums. If you can establish it, and in such matters wher 
we have the entire Interstate Commerce Commission and three mer 
selected in the method we suggest, I can not imagine how we could bi 
better protected against collusion or fraud; and i there were collusior 
or fraud with such men, the purchase price of such collusion or frau¢ 
would be so enormous that we could not fail to establish it. 

Mr. Sweer. Going back to the question we had up a moment ago 

Mr. Monracur. If you will pardon me, Judge Sweet, and alloy 
me to continue a moment. . In the event of the failure of the men t 
agree among themselves, the chairman of the board fixes the amount 

Mr. PLums. Yes. 

Mr. Montracgus. Who would be that chairman ? 

Mr. PLums. The board elects its own chairman for such term as 1 
may prescribe. 

Mr. Monracur. So it might possibly be that this one man woul 
determine that ? 

Mr. Pump. But then there is a right of appeal if he determines if 

Mr. Monracue. I understand that. 

Mr. Piums. He can not determine it on agreement. 

Mr. Monracur. I am not speaking of the justice or the injustic 
of the finding, but it is possible that this one appraiser, together wit! 
the corporate owner, could determine the value of the roperty ? 

Mr. Prums. Yes; and if he did determine it arigeiable one-half 0 
the board has been there to scrutinize his dealings and to disseu 
from such determination. 

Mr. Montacur. They have no right of review, though, have they 

Mr. Piums. Perhaps we ought to give them the right of review. 

Mr. Montacur. There is no right of appeal in that case unles 
you can come in and show fraud, or something of that sort. 

Mr. Pius. If it were deemed advisable, I doynot see why in th 
case of a chairman’s decision, there should not be the right of ay ce 
on the part of the board. It seems to me that might be justifiable 

Mr. Montacur. I beg your pardon, Judge Sweet, I just wanted t 
follow that particular line. 

Mr. Sweet. In Iowa, in many instances, railroads have acquire 
strips of land upon which they operate their roads. 

Mr. PLums. Yes. 

Mr. Sweet. And they have acquired them by warranty dee 
without any restrictions whatever. : 

Mr. Puums. As between the owner and the railroad company! 

Mr. Swert. Yes; as between the owner and the railroad com 
paany. Now, by what method would you determine the value ¢ 
that property? Would it be the amount that was paid by the rat 
way company ? ‘ 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 617 


- Mr. Prums. The actual amount paid by the railway company 
vith its costs of acquisition, for those are. all expenditures—I am 
‘ssuming honestly and prudently made, for the purpose of construct- 
ag this highway. Now, by such a deed, the owner parts with his 
ight of reversion to the corporation and under its charter it has been 
uthorized to acquire that right of reversion, but that right of 
eversion is of no more value in the hands of the railroad company 
han it would be in the hands of the adjoining property owner. It 
ras merely to facilitate the acquisition of property for this public 
ervice that the corporation was authorized to acquire the entire 
itle from the private owner, but when acquired, it became subject 
9 the public easement in exactly the same manner as property 
Basirod by condemnation. 


' (The committee thereupon took a recess until 2 o’clock p. m.) 
AFTERNOON SESSION. 


, At the expiration of the recess the committee resumed its session 
| The CuarrmMan. Mr. Plumb, you may proceed. 


TATEMENT OF MR, GLENN E. PLUMB, GENERAL COUNSEL 
FOR THE ORGANIZED RAILWAY EMPLOYEES OF AMERICA, 
WASHINGTON, D. C.—Resumed. 

| Mr. Pitums. Mr. Chairman and gentlemen of the committee, sec- 
‘on 6, Article I, page 6 
' Mr. Rayspurn (interposing). Mr. Chairman, do I understand that 
will be the policy to let Mr. Plumb go along through the bill and 
en ask questions, or to ask questions with regard to the sections ? 
The Cuareoan. I think it would be well to permit Mr. Plumb to 
) on and explain the bill and then for the members to call attention 
) anything which they consider essential. 

Mr. Rayzurn. You mean when he gets through? 

_ Mr. Cuarrman. Yes, sir. 

Mr. Piums. I might suggest, if it is agreeable to the committee, 
iat I believe we would save a lot of time in going back and picking 
» points if as we took up each paragraph members who wish to 
terrogate as to the paragraph would do so; we would get a more 
msecutive thought, perhaps, and a little more rapid action. 

Mr. Raysurn. That never saves time. 

Mr. Pius. Very well; whatever course the committee prefers. 

| Section 6 provides that if the owner, corporate or individual, does 
>t accept te decision of the appraisement board, it may within 60 
tys appeal from the whole or any part of the decision to the Court 
' Appeals of the District of Columbia, and if it appeals from a part 
) the decision may file a short record and provides that the appraise- 
ent board, if it does not agree as to the short record, may file any 
\lditional record it desires, and provides for the expedition of the 
peal, that it shall have preference over all other cases pending, 
-Cept criminal cases and cases involving personal liberty. There 1s 
ike provision for appeal of both parties or either party from the 
cision of the Court of Appeals to the Supreme Court of the United 
ates, again providing that the appeal may be from the whole or 
ly part of the decision. 






















618 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Following that lines 18 and 19, page 8. provide that it shall be law. 
ful for the President of the United States to remove any member of 
the appraisement board for cause. Then the appointing of officials, 
clerks, messengers, and valuers of the appraisement board with then 
compensation to be fixed by the chairman, with the approval of the 
Secretary of the Treasury. 

Section 7, page 9, provides for the giving of notice of any investiga; 
tion to the owner, such notice to provide for the information whieh 
the appraisement board desires shall be furnished it, provision foi 
the inspection of the property, books, documents, and records. | 

Section 8 provides for holding inquiries, summoning witnesses, an¢ 
punishment of a witness who without reasonable excuse fails 08 
refuses to attend or produce the required documents, with a furthei 
provision for a subsequent failure without reasonable excuse 01 
refusal to comply with the provisions of such order, upon like con: 
viction, such person shall be held in contempt and imprisoned unti 
he purges himself of the contempt by obeying the order, and tha: 
the notices of inquiry may be given and published in accordanet 
with such general or special directions as the chairman may give. 

Now, beginning at page 10, line 21, the last part of the paragraph 
is an important provision which I will read: 

That the appraisement board may require a separate assessment of any element u 
the determination of the amount of compensation to be paid to the owners wher 


there is lack of record evidence as to the actual existing investment. In suc 
separate assessment the appraisement board shall cause estimates to be made of th 


actual existing investment by comparison of the cost of reproduction new of th 


. 


properties under investigation with the cost of reproduction less depreciation ani 
the estimated original costs thereof to date. This, with the intent to ascertain hot 
much the owners have actually contributed in money or its equivalent to the publi 
service, subject, however, to the legal limitations imposed by law upon the rights 
powers, authorities, interests, and privileges accorded in and acquired under th 
charters of the corporation owners and the grants to individual owners. 

Section 8 provides for the payment of any capital sum arrived a 
either under agreement or by award by the appraisement board or} 
final judicial review of such award, or for new extensions and capita 
improvements directed to be made by such appraisement board, shal 
be discharged in whole or in part by cash payments, or, if the Seere 
tary of the Treasury so directs and said owners shall so agree, by th 
issuance to such owners of bonds as hereinafter provided of a pa 
value not exceeding in amount the total amount of such agreemen 
awarded by the appraisement board or by judicial determination. 

Section 9 provides for the issuance of bonds in the same languag 
as used in the Federal bond issue acts. | 

Paragraph 2 of section 9 following line 7 provides for the creati0 
in the Treasury of a cumulative sinking fund for the retirement ( 
all bonds issued and outstanding under this act. Said fund and a 
additions thereto are hereby appropriated for the payment of sue 
bonds at maturity or for the redemption or purchase thereof befor 
maturity by the Secretary of the Treasury at such prices and upe 
such terms and conditions as may be prescribed in said bond 
Said sinking fund shall exist until all such bonds are retired. 

The next paragraph, line 16, provides: 

There is hereby appropriated out of the operating revenues of th 
National Railways Operation Corporation, to be paid to the Treasur 
of the United States, the sums provided for in paragraph (c), sectic 
2, Article III of this act, or out of any money in the Treasut 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 619 


rot otherwise appropriated, an amount equal to 1 percent per 
mnum upon the aggregate amount of bonds outstanding on July 1 
ech year: Provided, That the amount of the annual payment into 
juch sinking fund shall in no year be diminished because of the retire- 
nent of bonds previously outstanding, and then for a report from the 
Secretary of the Treasury to Congress at the beginning of each 
‘egular session of the action taken by him. 

“The CHarrRMAN. Then, 1 per cent will be constant ? . 

Mr. Prums. It would be increased if there were issues of new bonds, 
yut it would not be diminished by the retirement of outstanding 
yonds. When you pass over the peak and begin to decline it would 
ihen be a constant. 

Section 10 provides that the appraisement board may approve and 
ihe Federal Government shall build new extensions and capital 
mprovements, including the construction of railroads along such 
oute or routes as the National Railways Operating Corporation shall 
lesignate and locate, and for the acquisition by contract or con- 
lemnation of all real and personal property necessary to carry out 
he purposes of this act. Then for the power of condemnation in the 
\ppraisement board for the acquisition of properties necessary for 
jerminals or for extehsions. 

_ On page 14, line 17, are some provisions which we are submitting 
or your consideration, not essential to carrying our plan into execu- 
ion, but from our experience in the past if it had been done it would 
lave been very beneficial to this country, provisions similar to those 
mbodied in the Alaskan Railway bill, differing only in language to 
juit it to this territory and to the situation, but the provisions are 
dentical with those of the Alaskan Railway bill. 

That the appraisement board is authorized, with the approval of 
ihe President of the United States, to withdraw, locate, and dispose 
vf, under such rules and regulations as it may prescribe, such area or 
‘wweas of the public domain along the line or lines of proposed new 
‘ailroads for town-site purposes as it may from time to time designate. 
' Section 10 reserves the granting of terminal and station grounds 
ind rights of way for railroads and telegraph and’ telephone lines 
hrough the public lands of the United States, and reserves such 
ighst of way and all patents for lands thereafter taken up or entered 
‘m, located in the lands of the United States and its possessions, and 
here shall be expressed that they are reserved to the United States 
or the construction of these facilities; also the appraisement board 
May, in such manner as it deems advisable, make reservation of such 
azids as are or may be useful for furnishing materials for construction 
ind for stations, terminals, docks, and for such other purposes in 
onnection with the construction and operation of such railroad lines 
1S it may deem necessary and desirable. 

That provision is similar to the provision found in many railroad 
tharters where they are authorized to appropriate timber and 
naterials on adjoining lands for their purposes. Of course, this is a 
‘eservation out of the public lands. 

Now comes a paragraph of very much importance, line 17, page 15, 
vhich provides: 

‘That it is hereby declared that the extension of railroad lines in new 
erritory shall be not only by the expenditure of capital funds by the 
JInited States but also by the exercise of the power of taxation 













620 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


imposed by local authority upon the territory benefited, whereby 
such territory shall contribute its portion of the cost of the extensions 
approximately commensurate with the increase in value which the 
land within that territory may realize by reason of the building of 
such extension. 

That if a certain region or locality desires an extension of railway 
facilities and organizes under local or regional special assessment 
laws, providing by local taxation for the cost of construction of the 
lines desired, the obligation on the part of the United States to build 
such extension shall be deemed by the appraisement board to be 
imperative. 

That if a certain region or locality will organize itself under regional 
or local special-assessment laws, and, having so organized, will assume 
that part of the cost of the construction and equipment of the new 
extension which may be apportioned to it by the appraisement board, 
and will provide such part of the whole cost as may be allotted to it 
by the appraisement board, then the building of such extension by 
the United States at the specified sharing of costs shall be deemed by 
the appraisement board to be imperative. 

That whenever the appraisement board shall deem it requisite to 
the public welfare to build an extension through territory which would 
receive no benefit therefrom, then, and in that case, the total cost of 
construction shall fall upon the public for whose benefit the extension 
is made. 

That it is declared that any expenditure made for extension out of 
funds provided by taxation may not be capitalized, nor shall any pay- 
ments for extension or improvements made out of operating revenues 
be capitalized. 

This series of provisions is intended to provide the means whereby 
any territory desiring facilities for transportation may compel the 
construction of those facilities by furnishing the cost of construction. 
I have had that figured out to see what it means. If you take a strip 
of virgin agricultural country 10 miles wide and project a railroad 
through the middle of it so that you have 5 miles of country on each 
side, and then an assessment of 25 cents per acre per year for 20 years. 
making a total assessment of $5 per acre to be spread over 20 years on 
that 10-mile strip you will have enough money to build and equip any 
line of road that has been constructed through agricultural country 
in this country. That will produce $36,000 per mile. There are) 
some sections of the country where the cost of construction and equip=: 
ment might exceed that, but that would not be agricultural country, | 

So the cost of such an improvement levied on the real estate bene=| 
fited would be realized by the owners of that railroad doubtless within | 
three years of the construction of the railroad and perhaps before that-} 
I have had experience with western land in northwestern Iowa and) 
have found that the increased valuation always followed the projection 
of a new line of railway and that the increase has always exceeded the| 
value within 20 years and usually has been realized within one year) 
after the construction of a railroad within 5 miles of the territory.} 
The benefit of such a construction is so plain and so fully realized by} 
the owners of the property that they would anxiously avail them-| 
selves of any local laws through which State assessments could he} 
levied so that they might command the building of such extensions. | 
The right to do that is unquestioned. The power of localities t0| 













RETURN UF THE RATLROADS TO PRIVATE OWNERSHIP. 621 


'ssess themselves to aid in the construction of railroads under State 
tws when constructed by private corporations has been upheld in 
very instance where there was no constitutional prohibition, although 
‘) was contested in the early cases because it was a grant to a private 
orporation, but in the case of Olcott against the Supervisors, which 
cited earlier, they said certainly the power of taxation may be exer- 
ised by a State to build this road, and although it is built by a 
(rivate corporation it is just as much for the public benefit as though 
were actually built by the State, and the right to taxation for such 
mnstruction was upheld on the ground that this was merely a dele- 
‘ated function to a private corporation to do that which really be- 
»mged to the State. I doubt if anyone will dispute the right of a local 
-writory under State laws to provide taxes for the construction of 
jaese highways. 

| Mr. Dentson. What right has Congress to do that ? 

| Mr. Piums. We do not give the right to Congress to do it; we 
terely provide that if this locality acting under local laws does 
ssess itself to provide the means for construction, then the United 
tates must build the line. 

‘Mr. Denison. What right has Congress to put that burden upon 
‘ie people of the United States ? 

| Mr. Prums. The Congress does not put that burden on the people; 
1e people assume it. 

Mr. Denison. What people? 

| Mr. Prums. The people in the territory that demand that the 
,mited States should build this extension. 

| Mr. Denison. They cause the expense and do not pay all the 





| 
| 





| 





| ae 

| . Prums. They may pay all if they demand the road, but if 
ey should not pay all they must submit their needs to the board 
/’ appraisement to apportion the public and private benefits and 
| they then accept the apportionment so made thev can compel the 
overnment to build the road on paying the apportionment allotted 
) them, but the Government can not compel them to pay the whole 
‘any part of such extension. 

| Mr. Denison. What right have we to compel the Government to 
|) that for local purposes by taxation ? 

| Mr, Prums. If they pay it and the Government bears no part of the 
jirden there is no reason why there should not be in a locality —— 
Mr. Denison (interposing). That is not what I am getting at. 
‘appose the Government does pay a portion of it? 

| Mr. Piums. Yes, sir. 

| - Ba BON. How can the local people compel the Government 
) do that? 

| Mr. Prums. We provide here that if a locality accepts the allot- 
jent assigned to it by the governmental agent, the appraisement 
ard, then it shall be imperative on the Government to build that 
) nstruction. | 

| Mr. Denison. That is just what I want to get at. Where is the 
| ustitutional authority for that? 

‘Mr. Puums. The Government needs no constitutional authority 
build tines wherever it chooses. It merely makes an agreement 
| this act with the locality that it will build if they pay their pro- 
tion. We can not assume that the Government is going to break 


| 










Sl 


622 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


its promise and that localities will have to compel the Government 
to keep its agreement. 
Mr. Denison. I only intended to interrupt you temporarily. |] 
will observe the rule and come back to that matter. 
Mr. Prums. The first paragraph at the top of page 17 provides: 


That in acquiring the railway properties of the United States and its possession; 
the Federal Government shall acquire complete ownership in these properties ant 
shall finance their acquisition, as herein provided, by capital expenditures covering 
all construction and equipment, and including in such financing the requisite amoun 
of capital required as working capital as the same may from time to time be deter 
mined by the appraisement board. 


I think that there should be an interlineation as I read it now 
something that escaped me in the drawing of the bill. | 
The Federal Government shall acquire complete ownership ir 
these properties and shall finance their acquisition, except as sucl 
financing is provided for by local assessment in the preceding paragraph 

That is the idea, it may not be the proper words. 

Section 13 provides for reports annually to the President or eithe 
House of Congress of all the doings of the appraisement board, am 
that the reports to the President shall be transmitted to Congress. 

Now comes a provision which will answer in a way the questiot 
asked this morning from my left here as to what would occur if th 
members of the appraisement board by collusion or fraud or for any 
consideration gave too great an award. The next paragraph pro 
vides: 

That any Government employee or official, any member of the appraisement boar 
or employees of such board, any director, official, employee, or classified employe 
of the corporation who shall receive any consideration or benefit, either directly ¢ 
indirectly, in excess of his wages or remuneration authorized by this act out of th 
operation of said railways or for any railway undertaking or by any form of inducemen 
that could influence official action, shall upon conviction thereof be subject to 
penalty of ten times the value of the consideration so received and to imprisonmen 
to a term of 1 to 20 years, the extent of the latter penalty to be imposed by the jury 


This concludes article 1, which provides for the acquisition of th 
property, the issuance of bonds in payment therefor, for the extension 
and their payment, and the provision for working capital. 

Article 2 provides for the creation of this corporation, defines it 
powers and the limitations of its powers and prescribes the orgam 
zation. Section 1 is as follows: 


"That the National Railways Operating Corporation (referred to herein as the co 
poration) is hereby created and constituted as a body corporate and politic in dee 
action, and name. The board of directors, official employees, and classified on 
ployees, hereinafter described, shall be and constitute said corporation. The purpos 
of said corporation shall be for public service and not for private profit, and for leasiny 
maintaining, and operating for public use as a single system all of the railway lin 
and transportation property of the United States and its possessions. : 

That the corporation shall be created for the term of 100 years. 

That said corporation may exercise all of the powers hereinafter conferred, ma 
own and hold all properties, rights, and privileges permitted by this charter, anc 
its name may sue and be sued. 

That the affairs of said corporation shall be administered by a board of directors: 
15 members, which shall be selected in the following manner: Five of the directo 
shall be elected by the classified employees of the railway lines and properties of t 
United States and its possessions below the grade of appointed officials; five 
directors shall be elected by the official employees of said lines and properties; 2 
five, of whom one shall be designated as chairman, shall be appointed by the Pre 
dent of the United States, by and with the advice and consent of the Senate; 0 
more than three of said appointees shall belong to one political party. 









oe 


WH 2. 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 623 


. That the members of each group of five directors shall be elected and appointed , 
spectively, for terms of 2, 4, 6, 8, and 10 years each, their terms thereafter overlapping 
fiior 10 yearseach. The elected directors shall be subject to recall by their electors 
ad the appointed directors to removal by the President for inability or misconduct. 


‘I think that, perhaps, the words “inability or misconduct’”’ should 
changed to the words ‘‘for cause,” as provided in the case of the 
revious board. BI 
_ Section 2 provides: 


That the board of directors shall have power to create all of the offices in said cor- 
ation by name or classification and to appoint all officials from chief Moai 
wn to the point where employment begins by classification or to authorize heads 
_ departments created by said board of directors to appoint their subordinates down 
the point where employment begins by classification-and to prescribe the condi- 
ms of employment and classification of all other employees. 
‘That notwithstanding anything in this act, any society of workers, all or som 
whose members are wholly or partly employees on the railway lines or properties | 
the Federal Government, or in any other manner employed by the corporation, | 
otherwise under this act, may be registered or constitute themselves or be a trade | 
ion and may do anything individually or in combination which the members of a 
ade union may lawfully do: Provided further, That notwithstanding any act, order, 
regulation to the contrary, it shall be lawful for any person employed under this 
to participate in any civil or political action in like manner as if said person were 
it employed by said corporation: Provided further, That no person shall suffer dis- 
(ssal or any deprivation of any kind as a consequence of any political or industrial 
tion not directly forbidden by the terms of his employment. 


Section 3 provides for conferring power upon the board of directors 

divide into operating districts the territory of the United States 
id its possessions and to constitute in each district a district railway 
‘uncil of members to be elected in the following manner, as 
‘ovided in the bill: 


One-third of the members of the council shall be elected by the classified employees 
thin their district below the grade of official employee, one-third of the council shall 
elected by the official employees within said district, and one-third, of whom one 
ull be designated as chairman, shall be appointed by the board of directors. 

That the members of each group of members of district railway councils shall be 
ected or appointed, respectively, for terms of one, two, three, four, and five years 
| *h, and thereafter for five years each, their terms overlapping. The elected mem-/ 
|S shall be subject to recall by their electors and the appointed members to removal/ 

the board of directors for inability or misconduct. 









Again, I would suggest the words “for cause” in lieu of the words 
|nability or misconduct.” 
The section further provides: 
| (hat the board of directors may delegate to any district railway council such of 
‘ir powers under this act as may conveniently be exercised locally, and the district 
way council shall, upon such delegation, have and exercise within its district al 
ihe powers and duties of the board of directors as may be delegated to it. 
| Then, for compensation there is a blank provision. 
|L want to say that we have inserted this provision in this manner 
cause we feel that there should be great flexibility in the organiza- 
‘nm. It would be infinitely harder to break up 2,000 privately 
ned corporations into a very few operating districts than it would 
| to break up 20 such corporations; and in the development of this 
uation it might be very convenient to have more operating dis- 
*ts or district councils at the beginning until the coordination had 
*m completed than would be needed in the subsequent develop- 
‘nt; so it seemed wiser to us not to provide in the act itself for any 
‘nite number of districts or any permanent district organization, 
t to leave that to the discretion of this board of directors which 


152894—19—yor 1——40 


. 


(24 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


represents all three interests, so that their system might be flexible 
and accommodate itself to the development of the times. | 
Section 4 of Article II provides: 


That the corporation is hereby empowered, authorized, and directed, for the period 
of its existence as herein set forth, to lease, operate, and maintain as a single system 
all of the railway lines and transportation properties of the United States and it 
possessions, and to do and perform every act, thing, or function which the Govern 
ment of the United States could do or perform were it exercising the function 0 
operating said railways, subject, however, to the limitations imposed by this act. 

That the directors, officers, and employees of the corporation, concerning any under. 
taking of which or of the plant whereof possession is retained or taken by the appraise 
ment board, shall administer such undertaking— 

(1) As to rates, fares, tolls, dues, and charges to be charged under the direction 0 
the Interstate Commerce Commission; 

(2) As to the salaries, wages, and remuneration and conditions of employment o 
persons employed on or in connection with any undertaking of which possession ha 
been taken; 

(3) As to the working or discontinuance of the working of the undertaking, or an 
part thereof, including directions as to the keeping open of any station; 

(4) For securing that the permanent rolling stock, plant, appliances, or equipment 
whether fixed or moving, are satisfactory in type or design; 

(5) As to the carrying out of alterations, improvements, and additions for whicl 
the Appraisement Board shall provide as necessary for the public safety, or for th 
more efficient and economic working of the undertaking; 

(6) For the securing of cooperation between undertakings, and for securing th 
common use of all facilities, terminals, rolling stock, and equipment, whether fixe 
or movable; 

(7) For securing that manufacturing and repairing facilities and auxiliary service 
shall be used, and the purpose and distribution of stores shall be conducted in suc 
manner as may be most conducive to economy and efficiency; 

(8) For working the whole or any part of any railway, light railway, or less tha 
standard gauge railway, canal, waterway, or inland navigation, harbor or dock unde 
taking, the acquisition of which is, by the board of directors, deemed expedier 
for improving facilities for locomotion and transport, and approved and provided { 
by the appraisement board. 

(9) For establishment, maintenance, and working of transport service by land an 
water. 

(10) For constructing and erecting buildings, plant, machinery, railways, ligl 
railways or less than standard gauge railways, hulks, ships, and other fixed or movab. 
appliances or works of any description, deemed necessary by the board of director 
and approved or provided for by the appraisement board. : 

(11) For employing agents, including local authorities, for any purpose it mé 
think necessary to carry out its duties under this act, on such terms as may be mutual 
agreed, and with authority to cooperate with and to coordinate the services betwer 
popes operated by said corporation and similar properties owned or operated } 

tates or subdivision thereof, on such terms as may be mutually agreed. 


You will find in many States that cities own the terminal facilitie 
docks, etc., and we want authority to cooperate with those loe 
authorities in coordinating their services with ours. 

This section further provides: 


That when the board of directors delegates to any local authority or State or su 
division thereof, and within the jurisdiction’ thereof, any of its powers under t] 
section, it shall be lawful for such local authority or State or subdivision thereof 
exercise any or all of the powers of the board of directors so delegated to it. 












Section 5 provides: 


That the corporation is hereby empowered and authorized to collect from ¢ 
signors and deliver to consignees at their business or other addresses within the Unr 
States and its possessions all goods carried on the transportation lines of the Fed 
Government, and for this purpose it shall be lawful for the board of directors, or 
State or subdivision thereof, or local authority acting on its behalf, to establish st¢ 
and depots and to vameeh vehicles, and to use all other necessary Means for the 
lection and delivery of such goods, and for this purpose it shall be the duty of the ¢ 


RETURN OF THE RAILROADS ‘10 PRIVATE OWNERSHIP. 625 







_pration to provide such facilities for the conveyance of goods as the board of directors: 
ay determine to be necessary to enable the corporation to execute the authority 
| ae on it by this section. 

| That the board of directors may, from time to time, make such regulations as it deems: 
\2cessary for any of the following purposes: 

te the management of railways and railway undertakings under this act; 

| (b) The functions, duties, and power of the district railway councils, and other 
dies of persons acting in the management and working of railways and undertakings 
'ader this act; 

| (¢)_The form of accounts to be kept and the balance sheets to be prepared in respect 
' railways and undertakings under this act, subject to the regulations of the Inter- 
/ ate Commerce Commission, as provided in the act to regulate interstate commerce . 
(d) Generally any other purpose for which, in the opinion of the board of directors, 
gulations are contemplated or required. 


_ Section 6 provides that the corporation shall be subject to the full 
gulatory powers of the Federal Government as expressed through 

ie Interstate Commerce Act. 

| I think, perhaps, that we might also add there, “and future amend- 

ents thereof,” to show that we do not intend to limit it to the 

/Ywers expressed in the act as it is now written. We want to leave 

| @ Government as free in its regulatory powers as it ever has been or 

| er can be. 

| Section 6 further provides: 


| Phat the corporation shall make to the President of the United States annually, 
| d at such other periods as may be required by the President or by either House 
‘Congress, full and complete reports of all its acts and doings, and of all moneys 
|elved and expended in the operation of the railway lines and properties of the 
) ated States, and its possessions, including costs upon operation and fixed charges 
|on the capital employed, which shall be guaranteed by the Federal Government. 


‘it 

Article III of the act provides for the execution of a lease between 
| e@ United States and the corporation created in Article II. Sec- 
)m 1 authorizes the Secretary of the Treasury to execute a lease 
| conformity with the terms of this act, and section 2 provides: 


| Chat the corporation shall obligate itself in said lease to operate as a single system 
|} railway lines and transportation properties of the United States and its posses- 
as and to build and operate any extension of such lines or properties as shall be 
| vided for by the appraisement board. 

| That the corporation shall be required to utilize said railway lines and properties 
|1 their equipment and the working capital which shall be put at its command 
| such manner as to produce the highest possible efficiency and economy consistent 


] 














h good service; and that with the working capital and revenues placed in its 
} ids the corporation shall be obliged— 

a) To pay all expenses for labor and materials incidental to the proper operation 
he railway lines and properties of the United States and its possessions, and the 
| Iding and operation of extensions thereof into new territory. 

>) To provide such funds for maintenance and renewals of said railway lines 
\| properties as shall from time to time be directed by the Interstate Commerce 

amission. 

|2) To pay out of the operating income semiannually to the Treasurer of the United 
es the amount found to be due under the provision for sinking fund and the pro- 
} Henate amount due on fixed charges upon the capital employed. The fund thus 
lin shall be held by the Treasurer of the United States for disbursement of interest 
| ges out of the fixed fund as those charges mature, and he shall disburse from the 
| dng fund when in his judgment payments for retirement of bonds shall be made. 
operating revenues received by the corporation in any fiscal year in excess of the 
| unt required to meet the expenditures to be made under paragraph (a) above and 
wovide payments with the funds provided in paragraphs (b) and (c) above are 
by declared to be “‘net earnings.’’ The corporation shall retain the amounts 
|sctibed to be expended for maintenance and renewals and shall at the close of 
{1 fiscal year pay into the Treasury of the United States one-half of the net earnings 
j‘ued. ‘The remaining one-half of the net earnings shall be retained by the cor- 







626 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


poration as its corporate funds. The fund from net earnings so paid into the Treasury 
of the United States shall be held by the Treasurer for disbursement only upon orde1 
of the appraisement board (1) to pay for extensions and betterments, for which suck 
fund shall be used before capital funds shall become available therefor, and (2) accu 
mulation thereof in excess of $500,000,000 shall be automatically transferred. to the 
sinking fund. 

That the net earnings retained by the corporation as its corporate funds are hereby 
declared to be a trust fund, to be declared as a dividend upon the amounts paid 
the labor employed by the corporation, every classified employee receiving thi 
proportion of the dividend accruing to the classified employee which his annual com 
pensation bears to the total compensation of all classified employees, and ever} 
official employee receiving that proportion of the dividend accruing to official em 
ployees which his annual compensation bears to the total compensation of all officia 
employees, but every official employee receiving twice the rate of dividend that i 
given to the classified employee. 


Section 3 provides: 


That whenever the total amount of the net earnings paid into the Treasury of th 
United States shall exceed 5 per cent of the gross operating revenue, the Inter 
state Commerce Commission shall thereupon adjust the scale of rates in such manne 
as to absorb the sum_so paid as accruing to the Treasury, thereby producing a reduc 
tion in rates equivalent to said sum, these rates to be the minimum rates to be charge 
by the corporation until the next succeeding revision thereof. 


Section 4 provides: 


That the board of directors shall create, by negotiation with the employees throug! 
their duly elected and authorized representatives, not less than three boards of adjust 
ment, to consist of not less than eight members each, one-half of whom shall be selecte 
by and from the classified employees coming within the jurisdiction of the board 
severally, and the other half of whom shall be selected by and from the official em 
ployees coming within the jurisdiction of such boards severally, that said boards shal 
be classified in their jurisdiction over bodies of employees in such manner as th 
board of directors, by negotiation with the employees as above provided, may dete 
mine; that said boards shall hear and determine all controversies growing out of th 
interpretation of established wage rates and wage awards and working rules, disciphn 
cases, and all other disputes arising between the official employees and the classifie 
employees when properly submitted. The decisions of such board shall be fina! 
except that where no majority decision can be obtained an appeal shall lie to th 
board of directors. 

That the board of directors shall create, by negotiation with the employees throug 
their duly elected and authorized representatives, a central board of wages and wor 
ing conditions, to be composed of one-half as selected by and from the classified em 
ployees and one-half as selected by and from the official employees. It shall be th 
duty of said board to hear, investigate, and determine matters presented by officis 
and classified employees respecting the broad questions of salaries, wages, hours, ap 
other conditions of employment throughout the unified railway system. The decisior 
of said board shall be final, except that where no majority decision can be obtaie 
an appeal shall lie to the board of directors. 

That nothing in this section shall be deemed to interfere with the rght of any perse 
employed by the corporation subject to his contractual obligations to dispose of bh 
eabor as he wills. 


Section 5 provides: | 


That the lease to the corporation shall be terminated by act of Congress whenev' 
it shall appear upon evidence reviewable in the Federal courts that the for it 


provisions to be embodied therein shall not have been well and faithfully carrie 















Section 6 provides: 


That all acts and parts of acts in conflict with the provisions of this act are herel 
repealed. 

Section 7 provides that this act shall become effective on and ait 
a date to be supplied. 

Now, gentlemen, there is the bill embodying our plan. What 
have tried to do was to lay before you machinery for carrying t 
general principles which we advocate into effect. We know thi 


/ 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 627 






10 one could present a bill that would be perfect either in design, 
dhraseology, or plan. If anyone could do that, we could dispense 
with Congress. e would not need its aid. We do not for a moment 
think that any such intelligence resides in the body of laboring men 
jr in their counsel. We have honestly tried to present to you a 
niece of machinery that we believe will be effective in putting into 
oractice the principles that we advocate. We are not bound to the 
‘specific terms of this bill, to its phraseology, or to any of the specific 
rovisions, but we are bound to the principles which we advocate— 
hat there shall be Government ownership of railroads and democracy 
‘n the control of that industry. We will welcome any suggestions 
rom any source that will improve the vehicle for carrying those 
winciples into effect. We confidently expect that this committee 
md Congress are going to study this proposition, not as advocates 
© as opponents, but to get to the reason of the thing. If there is 
rror in it, point it out, and if it can be made more efficacious show 
ishow. {tis in that spirit that this bill is presented. 

Now, that ends our explanation of the bill and the contentions 
\1pon which it is founded, and if there are to be any interrogations at 
/his point on the bill I would welcome them, because the next part 
of my argument relates to an analysis of the other plans, and I 
elieve that we could analyze this plan, perhaps, more definitely if 
rou were to seek such information as you desire at this time—that 
3, if that is agreeable to the committee. 
| Mr. Sus. Mr. Chairman, I rather think that suggestion is a sood 
jme. I think it will be better to propound such interrogatories as 
ve have now while we have this matter in our minds. 
| The Cuarrman. I think that Judge Sims should be extended the 

ourtesy of opening in the interrogatories on the bill that he has 

atroduced. i 

Mr. Sms. Mr. Chairman, I wish to make a little preliminary state- 

dent, as it does not seem that my relation to the bill has been gener- 
jlly understood. It was thought last winter, when I had the honor 
0 be the chairman of this committee, that this committee would 
ake up railroad legislation. The like committee of the Senate did 
|0 so, but there were no bills presented during the entire hearings 
jefore the Senate committee. Nothing in concrete from was sub- 
/aitted, but the discussion was all academic. I stated—not, perhaps, 
0 the committee formally, but frequently to gentlemen who were 
|epresenting different plans—that I thought bills ought to be intro- 
uced so that they could be referred by the Speaker to this com- 
jittee. In that way we would have before us in concrete legislative 
rm just what those who favored the different plans thought was 
‘€cessary in order to carry out their respective plans. I have said 
fat to gentlemen who represented the railroad executives. I said 
: to gentlemen then, or during the winter, and frequently since that 
me, who were representing what is called the Warfield plan. I 
judthatin the committee hearings. I said that to Mr. Harry Wheeler, 
\7ho represented the plan presented by the Chamber of Commerce 
‘f the United States, and also to their attorney, Mr. Smith. I 
uid the same thing last winter to Mr. Plumb about the plan which 
® presented to the Senate. I have said all the time that I would 
‘itroduce at any time, by request, bills that were prepared and 
jtven to me for introduction in order that they might be referred 









: 
| 
: 


628 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


to the committee, so that the committee would have in concret 
form before it the legislative provisions intended to accomplish wha 
each plan proposed to accomplish. Mr. Plumb is the only one o 
those who accepted my offer, and I introduced the bill in good faitl. 

T am not the author of a single line of this bill from beginning t 
end. So far as J am concerned, it is my bill in the sense that I intro 

uced it and it carries my name, but it is the presentation of the pla, 
adopted by what I might call organized labor, and I want to say, can 
didly, that I think every plan that has been presented as a plan iii 
volves new and revolutionary legislation. The plan of the executive 
provides for compulsory Federal incorporation, and nearly all of thex 
have provided for compulsory earnings; that is, they provide tha 
Congress shall provide by law that the rate-making bodies of th 
country shall provide rates that will pay for operating expenses ani 

aintenance and for a specified return upon property investment 0 
not less than 6 per cent, many of them. This plan is not as manda 
tory as to its details of operation, by any means, as some of the othe 
plans, taking all of them as new and revolutionary. Certainly Goy 
ernment ownership would be revolutionary in the sense it is entirel 
different from private ownership, but the arguments pro and con ar 
not new. I felt that it was my duty to give as large a number ¢ 
people in the United States as were embraced in the organized labo 
in the country, and especially the railway brotherhoods, who hay 
the actual operation of the railroads and always have had, an oppot 
tunity to present in legislative form what they thought ought to pb 
made law. Now, I have no apologies to make for that, not th 
slightest. It may injure the bill by having my name connected wit 
it, but so far as I am concerned, as a Member of the House and as 
member of this committee, I am absolutely free to reject this pla 
entirely or to approve it entirely if I am convinced that it is best fe 
the United States, all the people, and not a portion of them, or simpl 
the brotherhoods or organized labor; I am just as ready to lay 
down and pick up any one of the other plans that have been offere 
or any combination of them when it is shown to me that it will b 
better for the public interest and for all the people in the United State 
taken as a whole. 

Now, I wanted to and expected to, as I have in every case, t 
critically examine the several plans of ‘‘railway salvation” as the 
have heretofore been offered, and therefore I want to ask and wi 
ask Mr. Plumb the same questions. I do not mean identical que 
tions, but will try to reach the same purpose I have in asking th 
questions of everyone else. Mr. Esch’s bill is not revolutionary an 
it proceeds along well-known lines, and personally I think it would f 
a great benefit were it enacted into law. Now, Mr. Plumb 

Mr. Monracur. Mr. Chairman, may I interrupt there. duds 
Sims, you made a rather lengthy statement. Are we to understan 
by your preliminary statement that you are for or against this bil 

Mr. Sms. If after the hearings and after the discussion of all th 
bills I think it is better for the public interest, I shall be for it, or 
shall be for it with such amendments as may be adopted; but if sm 
other plan is offered which I think would be better in the publ 
interest, or will serve the public interest better, I would take it up 2 
moment. 





RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 629 


| Mr. Raypurn. You do not know yet whether you are for this plan 
r not. 
' Mr. Simms. There is part of this plan I am absolutely for, because 
‘art of it I think I understand; and that is just what I have said 
‘rivately and publicly, and in public addresses, and that is that I have 
‘eached the conclusion where [ think it is absolutely necessary in the 
iublic interest for the Government 
‘Mr. Monracur. Mr. Chairman 
Mr. Sims (interposing). Mr. Rayburn wanted me to state my 
osition. That the Government should acquire all fixed property 
‘fall the railroads, not movable property or equipment, and pay for 
4, and provide such a return to the Government of the United States 
s would enable it to float the bonds necessary to acquire it, and put 
_ per cent per annum into an amortization sinking fund and con- 
inue it until this entire capital charge is absorbed, from and after 
thich time there would never be another dollar collected in the 
ray of rates to pay returns on the value of the fixed property; but I 
ave never gone so far as to take from the present corporations the 
peration of the roads or to take and pay for their movable property. 
Ve would then have all the benefit of private initiative, competition, 
nd private ownership in operation, and there is where the grea 
enefit of private ownership, if there is such a benefit, comes from 
hat is as far as I have gone, and I am absolutely but not unalterabty 
mvinced that that ought to and willcome. I have heard gentlemen 
vy that they were unalterably opposed to certain things. I never 
iy that, because I want to get all the facts I can before doing so. 
| Now that I have finished my statement, I want to ask Mr. Plumb 
ls question, because it does not appear in your bill except by im- 
lication. Is it the purpose of your plan that when the Government 
| Bie the railroad property, your plan applies to both movable 
ad immovable property, and that the money paid by the United 
tates shall first be applied to discharge all lien incumbrances upon 
me opty! 
. PLums. No, Mr. Sims; it does not. 
| Mr. Sis. Is the Government to take this property over at its value 
ss the lien incumbrances on it? 
Mr. Prums. No; it is to take the property over at its value. It 
ays to the corporation the value so ascertained. Now, the distri- 
ition of the assets of the corporation to its various security holders 
‘id len holders is purely a matter of contract between the cor- 
wration and its creditors, and in the apportionment of the fund 
ie Government has nothing to do. It may agree with the corpora- 
on, through the board of appraisement, as to what the corporation 
tall receive, but it does not participate in the distribution of the 
| ‘sets of that corporation. 
| Mr. Srus. But the lien exists in favor of the bondholders or the 
| borers or whoever else may have a lien, and do you not think your 
| ll ought to require or provide that the Government shall have 
wer to make application of the purchase money to the extent of 
‘moving all liens and incumbrances of every kind, taxes, or other- 
se, that may exist as against any particular piece of property 
| ken over ? 


















630 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


‘Mr. Pirums. Those liens are removed by the acquisition of the 
property, and instead of them attaching to the property attach tc 
the fund which takes the place of the property. 

Mr. Siws. But suppose the corporation should not pay—supposs 
the officers of the corporation should abscond with the money in thei 
pockets and leave these liens outstanding against the property. 

Mr. Piums. If the property is acquired es eminent domain, the 
moment the fund is created, it takes the place of the property anc 
the lien attaches to that fund by action of law. 

Mr. Sms. Your proposal, as [ understand it, does not require that 
the property shall be taken over exclusively by condemnation, an¢ 
it may be taken over by agreement or by contract. 

Mr. Prums. If it is done by agreement, of course, the lienholder; 
then would have to assent to such an agreement because the cor. 
poration could not make an agreement that disposed of the lien: 
which it had created without the assent of the lienholders. 

Mr. Sims. Then in so far as acquiring it by contract or agreement 
is concerned, your plan contemplates that encumbrances of all kind; 
shall be taken care of. 

Mr. PLums. Yes. 

Mr. Sms. And the Government protected against the possibility 
of having to pay for the property twice or for any portion of it twice 

Mr. Piums. Yes. 

Mr. Sims. And, of course, taxes are something in which the State: 
are very much interested and also the communities Now, Mr. 
Plumb, some railroad companies have leased railroads of other con 
panies, some of them for 99 years and some of them for 999 years 
and have contracted to pay a stipulated return in the way of renta 

er annum during the life of this lease Of course, we all know thai 
in effect a 999-year lease is a purchase, but it is not legally a purchase 
and the purchasing corporation would have to pay ae rental during 
that period Now, when the Government acquires the property i 
that way, will it in any way be bound to take care of that renta 
charge or can it acquire the property and vacate, so far as the Govern 
ment is concerned, this contract without incurring hability for com 
pensation to the beneficiary of the contract. 

Mr. Piums. It can acquire the property without incurring aij 
liabilities in excess of those which the owner of the property wa 
authorized to make. Now, I think I can illustrate that by om 
example very clearly. It has got to be somewhat of a hypothetica 
case instead of an actual case, but I will take the Chicago & Alto 
in 1898. It had capital liabilities at that time of approximatel 
$40,000,000 under the Blackstone régime. The stockholders soli 
their stock to a new crowd coming in for a vastly greater sum thal 
$40,000,000. Now, they had as against the State of Illinois—th 
corporation at that time had the right to exact from the State 0 
Illinois in its charges a fair return on $40,000,000, because there wai 
$40,000,000 of actual investment. If they sold that right to othen 
on the basis of $80,000,000 or $120,000,000, they could not increus 
the liability of the State to that corporation. They merely sold thei 
private interest at what the buyer thought it was worth, but tha 
imposes no liability upon the State. Now, had. they leased thei 
corporation to another corporation for a return which would hay 
made, we will say, 6 per cent on $120,000,000, they were dealing wit 
















RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 631 


a private right which the State had granted to the Chicago & Alton, 
‘and by any contracts made between themselves in the transfer of that 
private right, they could not extend the right which the State re- 
tained in the Chicago & Alton when it created it. Otherwise the 
‘purchasing speculator in these privileges could make the public 
‘assume as a loss to the public what the seller had retained as a profit 
from the purchaser. 

Mr. Sims. Let me give you a concrete case now existing. There is 
a railroad running from Nashville, Tenn., to Decatur, Ala., called the 
Nashville & Decatur Railroad Co. It has been leased by the Louis- 
ville & Nashville Railroad Co., as I now recall, for 999 years, or at 
least for a long time, and it agreed to pay 6 or 7 per cent, as I under- 
stand, on the outstanding stock of that road for all that period of 
time. Now, that road may be making more than 7 per cent. Of 
course, the Louisville & Nashville Railroad gets more than 7 per cent; 
the stockholders of the Nashville & Decatur Railroad get just what- 
ever the contract calls for. Now, it may be making less, and if the 
Government takes over the Nashville & Decatur Railroad and the 
Government pdys for the value of the property under the methods 
applied by you to determine that value, the stockholder is getting an 
2arning above what the average earning provided under the bill would 
oe for the unexpired portion of that lease. Would such a thing as 
that lay the Government liable to damages or to pay compensation 
by reason of any violation of the contract ? 
| . PLums. Let me take that example. Here you have two roads, 
/me of which is receiving surplus income at the expense of another 
oad which is paying it. If thatis an element of value in the receiving 
toad, it is a liability in the value of the paying road. The Govern- 
nent takes both roads, because we contemplate taking all of these 
voads, and we fix the value of the paying road and the value of the 
eceiving road. Now, if the receiving road gets an increment of value 
| which it is entitled by reason of its absorption of earnings from the 
| aying road then that value is a liability placed upon the paying road 
'which depreciates its value, and the balance sheet of the United States 
vould be identical. It might shift the amount which the stock- 
iolders of the paying road would receive over to the stockholders of 
ihe receiving road, because that is a matter of contract between 
jmen, but it would in nowise affect the liabilities of the United 
States. 
_ Mr. Sms. Both of these corporations are solvent, but suppose in the 
vinding up of this thing the Louisville & Nashville should prove to 
96 insolvent, in whole or in part, then the Nashville & Decatur stook- 
jlolders could not recover by reason of their inability to pay, and the 
|4ouisville & Nashville has been acquired by the Government, but if 
he lease had been allowed to run on they would have received their 
/eturns for this period of time? 
| Mr. Prump. If the Louisville & Nashville is insolvent, it is unable 
| 0 pay, whether the Government takes it or not, and the Government 
| aking injects no value into it that the other road could benefit by. 
| Mr. Sms. I knew you had studied such things and had worked 
‘hem out and I had not, and I wanted to know about that because 
lL sorts of questions are involved. 
Now, Mr. Plumb, I want to ask you if you know whether or not 
tis a fact that as a general rule the capital that has been put into. 











632 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


railroads by way of construction or otherwise has, as a rule, never 
been amortized in the sense of paying off and relieving the property? 

Mr. Piums. I am very glad you ask that question. I know of no 
case in history, there may be some, but they have not come to my 
attention, where a railroad company has paid off and discharged its 
liabilities without the creation of new liabilities as the means of 
retiring the old. If I may expand on that just a moment. The only 
assets a railroad company has got is its liabilities, because its right 
to charge the public is based upon the power to get a fair return on 
that which it has put into its property and that is its liabilities to 
its stockholders and its bondholders and liabilities for materials pur- 
chased. .Now, since its right to charge depends upon its habilities, 
then its liabilities equal its assets and are its assets. Consequently, 
under the old system there was no inducement for retiring liabilities 
but every inducement for preserving liabilities as the basis of making 
charges, and with that perpetual inducement, how could you expect 
railroads to extinguish liabilities ? 

Mr. Srus. In other words, no amortization in fact has ever taken 
place. ; ; 

Mr. Ptums. No. 

Mr. Sims. Is it not also the policy of rate making, you can explain 
it, I know, to allow a rate that will not permit of amortization of 
capital charges. It will admit, as I understand, of the payment of 
accrued interest and accruing interest, but are rates now made upon 
the basis of permitting a return from the operation of the railroads 
that will enable the railroads to pay off their capital habilities ? 

Mr. PLtums. Rates have never been based on that theory. Here- 
tofore rates have been based solely on the theory of creating the 
ereatest flow of traffic that would pay the highest rate of profit, and 
if a rate did produce a profit that would have permitted the amorti- 
zation of the indebtedness, that profit went mto the surplus after 
paying reasonable returns, if it was not absorbed in returns, which 
then was expended on the property and capitalized as the basis for 
making more rates. 7 

Mr. Sms. Capitalization of the earnings in excess of the require- 
ments for returns. 

Mr. Piums. Yes. 

Mr. Sims. Now, I want to ask you this question: Does your plan 
contemplate and provide for the amortization of the bonds for the 
cost of the railroads to the Government? 

Mr. Pump. Yes; it does. It provides for that amortization by 
a sinking fund equaling 1 per cent of the maximum amount of bonds 
outstanding. Suppose in the first year we have issued on the 1st of 
July five billions of bonds. Then for that year-we must pay in 1| per 
cent of five billions in the sinking fund. Suppose the next year we 
have issued five billions more, and then we have ten billions of bonds 
outstanding, and for that year we must pay 1 per cent of ten billions 
dollars in the sinking fund. Then as we begin to retire bonds and 
the capital account begins to decrease, we do not decrease the amounts 
going into the sinking fund. It remains fixed at 1 per cent of the 
maximum amount outstanding, which, of course, hastens the final 
retirement. 

Mr. Sims. Which means complete amortization of the property 
purchased to the extent of the outstanding bonds in favor of the 
Government. : 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 633 


' Mr. Prums. It means the complete amortization of the capital 
and the freeing of transportation from all interest charges. 

_ Mr. Sims. That is, all compensation based upon the amortized 
property. 

Mr. Prums. Yes. 

_ Mr. Sims. Then the reasonable rates to be charged thereafter will 
only have to provide for the maintenance and upkeep of the road, 
‘operating expenses, and this additional fund. 

' Mr. Ptums. This additional fund for extensions to be used in 
place of capital expenditures made from the sale of securities, if it 
were deemed wise to do so. 

Mr. Sims. Now, Mr. Plumb, this 1 per cent is in effect an amor- 
tization fund. 

__ Mr. Piums. Yes, sir. 

Mr. Sims. Discharging the Government’s liability or the liability 
‘to the Government, and after it is discharged, there will then be no 
further payment to the Government on account of that liability. 
Mr. Pius. No. 

Mr. Sims. And, consequently, unless onerating expenses should 

dnerease, we will reach a time, supposedly, when at least all the 
fixed prorerty would be comrletely amortized. Now, what about the 
capital charge incurred for the continuance and necessary purchases 
of repletion of equipment, or movable property? 
_ Mr. Prums. The renewal of existing property must be provided 
for out of the maintenance and renewal fund which is charged to 
operation. For additions to existing property, that necessarily 
must be a capital fund which is produced from the sale of securities 
‘or provided out of surplus earnings. Now we provide that the 
‘surplus earnings accruing to the Government shall be held for that 
purpose and used for that rurpose, before capital expenditures may be 
made. Now, in connection with the special assessment feature, 
which I believe would produce a very marked extension of earning 
power with no increase in fixed charges, there would be a constantly 
increasing fund available for suc extensions and improvements 
‘to take the place of further capital expenditures. 

Mr. Sms. !f a railroad was buying, say, a $1,000,000 worth of 
engines this year, that would be a capital charge to that extent, 
would it not? 

Mr. Prums. It would be to the extent that it exceeded the engines 
Which it replaced. 

Mr. Stus. Yes; what I meant was a net outlay. 

Mr. Prums. Yes. 

Mr. Sims. Then that is a cavital charge that is to be retired, as I 
understand you, through surplus earninmgs—and what was the other 
method of discharging that ? 

Mr. Prums. It would be retired either through surplus earnings 
or the sinking fund. 
_ Mr. Sims. Now, what would be the policy, or what do you think 
ought to be the policy, when the capital charge is increased for mov- 
able equinment or for movable property that necessarily wears out 
‘more rapidly in its use than the fixed property—what length of time 
would you consider would be the average of the capital charge; 
that is, how long a time should be given the operating company to 
pay that? 











634 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Prums. That is very definitely ascertained by engineering | 
practice. For instance, they have it figured out very accurately 


what the average life of a locomotive should be, and they require to 
be paid into the depreciation fund an annual sum equivalent to that 
rate of depreciation. Now, with rails they can tell just how long 
a rail of a given weight will last with a given amount of traffic over it. 
The same way with ties. About the only thing you can not tell to a 
onat’s heel, according to the engineer, is the life of ballast and em- 
bankment, and that varies quite widely in the nature of the ballast, 
and the embankment, and the conditions. | 

Mr. Sms. Then, Mr. Plumb, would it not be a wise policy to require 
rates that would take care of capital charges incurred for this movable 
equipment, and which would relieve the fund within the expiration. 
or the life of the movable equipment? 

Mr. Piums. That is already done, Congressman. 

Mr. Sims. In other portions of the bill? 

Mr. PLums. In the maintenance and depreciation accounts it pro- 
vides for the renewals of all existing property, but does not provide 
for expansions of existing movable eyjuipment. Expansions are 
taken care of by expansions of the capital fund. Now, practically, 
under our plan, | believe that those expansions for a great many years, 
would be more than taken care of out of the surplus earnings receiver 
by the Government, for this reason, the unification of the systems 
would obviate the necessity for many capital expenditures for im- 
ereased equipment which each individual road now feels it to be 
necessary it should undertake; and if we pooled equipment and 
terminals and switching facilities, the utility of those facilities would 
be so vastly increased over their ability under private. and separate 
ownership, that ordinary maintenance and renewals for many years 
would be all that would be reyuired before the expansion of business 
could overtake the actual body of equipment now in existence, and 
by that time the surplus fund would have accumulated to such an 
extent that I believe we would not have to capitalize or to burdeu 
the capital account with expenditures for expansion of existing plant. 

Mr. Sims. Then that fund to which you have just referred and which 
is used for the purpose of purchasing equipment is not any portion of 
the amounts paid in for the discharge of the bonds and the accumu 
lating interests ? 

Mr. Prums. No; the Interstate Commerce Commission is author- 
ized from year to year to determine how much shall be paid into the 
maintenance fund, and that is put in as a part of expenses, and they 
have power to vary that as the occasion requires. i 

Mr. Sims. Now, Mr. Plumb, i would like to ask you this question: 
Would it or not be an economy which could be effected by the Gov- 
ernment, if it owned the roads, to manufacture its own supplies or the 
supplies it now has to purchase from other sources? 

Mr. Prums. The war has left the Government in possession of 
wonderfully efficient plants, the arsenals and other plants, which 
could meet the requirement of supplies, certainly at less cost than they 
are met by private enterprise, and at the same time make the Gov- 
ernment’s investment in those facilities a productive investment. 

Mr. Sims. Does your bill provide for aie a planasthat? I mead, 
can that be done under your plan? 

Mr. Prumps. It can be done under our plan. 







RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 635 
_ Mr. Sms. There is another question I want to ask you along that 
same line. The employees, the operating officials, and the employees 
of the railroads, of course, one element of their expenses is the pur- 
chase of the necessities of life, especially food products, could or 
could not the Government of the United States, .if it owned the 
tailroads, with great economy, purchase by wholesale in vast quan- 
tities, say, food products, and distribute them to its employees at 
the cost of the products plus interest and cost of distribution ? 
__ Mr. Prums. I see no reason why it might not. It has been doing 
that for two years for 4,000,000 Government employees through its 
military stores department. 
| Mr. Sims. Would or could not that enable the employees to receive . 
ailess wage without the Government losing anything in order for 
jhem to receive it, by getting their supplies at considerably reduced 
‘orices from what they have to pay for them now? 
_ Mr. Proms. If the Quartermaster Department service were extended 
© the employees of the railways, undoubtedly a large saving in the 
Jost of living would be afforded to the Government employees on 
che railways. 

Mr. Srus. Is the authority or power provided in your bill such as 
10 enable the Government, if Congress authorizes it, to do such a 
hing as that? 

Mr. Prums. The Government could authorize this corporation to 
lo anything in connection with the enterprise which the Government 
tself might do, unless forbidden by the charter. There is nothing 
n the charter forbidding it, and if the Government authorized it to 
ye done, it could be done. 
| Mr. Sts. Mr. Plumb, it is stated and contended that the railroads 
‘ould be operated at cost of service and without profit. Now, in 
yaying the operating officials and the employees fair and reasonable 
vages for what they do, then they are not receiving any profit, but | 
he bill does provide that if the earnings of the road reach a certain 
mount they are to be divided with the Government and the officials 
nd employees, and the employees receive their salaries and the oper- 
ting officials twice as much. To that extent they are working for 
|} profit, are they not, whatever it is, more than their wages would be 2 
. Piums. They are working to get a benefit in excess of their 
yvage, but since the rate is not intended to produce a profit, but is 
ixed at such a level as to cover operating expenses, provide the 
naintenance, a sinking fund, the fixed charges, and no more, then 
ll that is made in excess of those charges under that rate must be 
roduced by greater efficiency, and one-half of that saving by effi- 
iency we accord to the men who create it and the other half we 
\eserve for the benefit of the public. You can not create that effi- 
: lency without that reward, because that is the entire motive of the 
}Ompetitive system. 

Mr. Sims. Mr. Plumb, it is in effect, as I understand, operating all 
| long the line of a sliding scale; that is, the owners of the property 
aay Eee a larger dividend provided they reduce the rate to a certain 
xtent ? 

_ Mr. Proms. It is the application of that identical principle to labor 
,eturn instead of to capital return. 

_Mr. Sims. Capital is permitted to have a return of 6 per cent, but 
/hey will be permitted to pay 7 or 8 per cent provided they reduce 



















636 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


the charge on goods per thousand as stated in the law; that is, they 

allow a sliding scale which is intended to operate along the same line, 

except that the Government may get in the operation of this sliding 
scale what the corporate owner of the utility would get under the 
other plan ? 

Mr. Prump. Except that under this plan the Government gets 
one-half of whatever efficiency is produced. 

Mr. Sims. It does not get all? | 

Mr. Piums. No, sir. 

Mr. Sims. That one-half is not to be withdrawn from the industry 
or the undeitaking, but is to be used in further taking care of what- 
ox might be needed like extensions or the retirement of notes, 1s not 

that so? 

- Mr. Prums. That half is to be used in the extension of earning 
power, without an increase in charge, provided that one-half in any 
year does not exceed 5 per cent of the gross operating revenue, then 
if it does exceed 5 per cent there shall be a reduction in rates to absorb 
that year’s share for the next year. | 

Mr. Sims. Then, a reduction in rates may be had without an in- 
crease in dividends or income ? 

Mr. Prue. Yes, sir. 

Mr. Smus. What I want to call your attention to is section 4 of 
Article I: 

That the corporation is hereby empowered, authorized, and directed, for the period 
of its existence as herein set forth, to lease, operate, and maintain asa single system 
a!l of the railway lines and transportation properties of the United States and its pos- 
gsesslons. 

The Government owns the property and the Government, as I 
understand, is leasing to this corporation its property for operation. 
Is that correct? 

Mr. Pius. Yes, sir. 

Mr, Sms. Why is it necessary for the Government to lease its 
property to its own creation for operation? 1 know you have a 
reason for it. 

Mr, Prums. Frankly, Congressman, if it can be accomplished 
without a lease, good and well, we would be glad to see it done, but in 
my mind it can best be accomplished by a lease as the easiest way of 
terminating the privilege if it were abused. 

Mr. Sms. I supposed, perhaps, that there was another reason. 
The reason I asked the question was that it has been claimed, and 
with some show of force, that if the Government took over the rail- 
roads and operated them that politics would play a destructive part. 

Mr. Prums. I see your point. 

Mr, Sms. I supposed you were injecting the corporation lease so 
that the corporation would be a private corporation and could operate 
without any political restraint or constraint; is that it? 4 

Mr. Prums. Yes, sir. Your former question as to the lease, I did 
not catch. The corporation is devised as the means for procuring 
democracy in operation, as the vehicle for perenne the public, the 
wage earners and the management to have an equal and equivalent 
voice of authority in the control of management. I do not know how 
else that could be accomplished. That takes the operation out Ol 
the political control of the Government. 


RETURN OF THE RAILROADS 0 PRIVATE OWNERSHIP. 637 


Mr. Sms. Your plan contemplates Government ownership, but 
orivate operation ? 

_Mr. Prums. Government ownership, but operation—if we say 
yrivate operation, we are not accurate. 

Mr. Sms. I mean operation by a private corporation ? 

_ Mr. Piums. Operation by a corporation which represents equally 
ihe consuming public, the producing public, and the authority of 
nanagement. 

Mr. Sims. In the operation ? 

Mr. Prums. In the operation. 

Mr. Sims. Is it your view that this corporation would not be 
nfluenced by political pressure ? 

Mr. PLums. Yes, it is; because one-third of the directorate ap- 

yointed by the President, five members at most, would permit but 
iwo members to be appointed during one term. That means that 
shree of them could belong to one political party, and with those 
estrictions the political effect on the directorate would be quite 
imited. Politics could play no part; I mean governmental politics 
ould play no part in the selection of representatives elected by the 
ilassified employees or in the selection of representatives elected by 
he official employees. Their selection would be entirely removed 
rom governmental politics. That would mean that two-thirds of 
he directorate would be nonpolitical and the other third would not be 
nfluenced to any extent by politics. 
Mr. Sims. Do you know of any plan which has been proposed, do 
‘fou remember any—lI do not regard the Esch bill as a plan—that 
jontemplates directly or indirectly the amortization of any of the 
roperties ? 

Mr. Piums. No other plan that I have studied. 

Mr. Sims. I mean on the capital invested ? 

Mr. Piums. No; I have not found any. 

Mr. Sims. If capital investment is not amortized through the 
arnings of the road and capital investment must continue to be met, 
vill not the tendency be and will not the almost inevitable result be 
0 merease the outstanding capital liabilities indefinitely ? 

Mr. PLums. Why, if you adopt a law which requires rates to be 
xed at a fair return on the liabilities of the company, you are imme- 
lately inviting an increase of those liabilities at every turn of the 
‘oad and there can be no elimination of liabilities, for that would be a 
‘Istribution of assets. 

- Mr. Srus. I am not qualified to form any judgment on the operating 
‘art of your plan, and so I have no further questions to ask. 

| Mr. Barxiey. Your bill provides, Mr. Plumb, that this appraise- 
nent board shall ascertain the value of the thing to be purchased by 
he United States Government? 

Mr. Pius. Yes, sir. 
Mr. Barktey. If I understood you in your statement in chief, you 
‘tated that they would not be permitted to take into consideration 
ny increase in the intrinsic value of any physical property that had 
een placed upon the road but that that would be fixed according to 
4e cost of the article when bought, subject to any depreciation in 
alue that may have occurred since ? 
| Mr, Prums. The bill does not so provide. That is my interpre- 
tion of the law. 






638 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Barxtey. The bill makes no provision. It leaves it entirely 
to the appraisement board, subject to review in certain cases by the 
court to determine whether anything else shall go into the valuation 
besides the actual cost of the property placed on the railroad ? 

Mr. Prums. Yes, sir. 

Mr. Barxiry. Notwithstanding your views about it, if the ap- 
praisement board should see fit, they might take into consideration 
the present value of steel rails in estimating the value of the property? 

Mr. Piums. Certainly they might. There is nothing in the bill 
that would prevent them from doing that. 

Mr. Barxiey. Nothing to prevent their taking that into considera 
tion, but that would be subject to review in the courts? 

Mr. Piums. That is all we ask for, to have the question passed on 
judicially. 

Mr. Barxiey. Have you any opinion or any statistics upon which 
you would be able to state what, in your opinion, would be the lump 
sum required to purchase all the railroads in the United States at 
their actual value ? 

Mr. Ptums. Using actual value in the way of actual investment? 

Mr. Barxiey. Well, you may use it that way for the present. 

Mr. Piums. I will have some very definite figures to present on 
that in the material that is now being prepared. I can give you a 
‘“jump”’ at it now if you desire. 

Mr. Barxktiey. If you will. 

Mr. Prums. In my estimation of $19,000,000,000 of property 
investment account there is not to exceed $12,000,000,000, more 
likely not to exceed $10,000,000,000 of actual money contributed by 
the corporations to this public service. : 

Mr. Barxiey. I believe it has been estimated that there was 
somewhere between ten and eleven billion dollars of bonded indebted- 
ness outstanding on the railroads of the United States and that in 
addition to that there is something like seven or eight billion dollars 
of bonds and stocks, making in the neighborhood of $18,000,000,000? 

Mr. Piums. Yes, sir. 

Mr. Barxiry. Your contention, then, is that practically one- 
third of that does not represent value, does not represent money 
invested, but represents fictitious value which has been placed upon 
it by financial manipulation ? 

Mr. PLums. Yes, sir. , 

aa Barktey. Which has been in vogue in the financing of the 
roads. ; 

Mr. Piums. I want to say this: That practice has been a common 
practice outside of the State represented by Mr. Winslow and one 0 
two other States for some generations. 

Mr. Barxitey. Do you mean that the men who now hold the ten 
or eleven billion dollars of bonds did not pay actual cash or the 
actual amount of ‘the face value for those bonds? 

Mr. Piums. Not at all; I do not mean that. 

Mr. Barxiey. Do you mean that they did pay actual value 
the bonds, par value, we will say ? ' 

Mr. Prums. I am not at all interested in what John Smith paic 
Tom Jones for a bond or stock which Tom Jones owned in the Santé 
Fe Railroad. That was a transaction between private individual 
and in which the public were in no wise interested, but I am intensely} 


| 

















b 
a RETURN OF TH# RAILRUADS TO PRIVATE OWNERSHIP. 639 


|mterested in finding out how much Tom Jones paid the Santa Fe 
(oad for a bond which was issued to him or stock which was issued to 
jum. ‘The subsequent transaction was purely a private transaction. 
| Mr. Barxrey. Taking the bonds and stocks separate, in which 
| lass of investment would you say that the greatest amount of 
|ictitious value lies? 

_ Mr. Piums. Oh, in the stocks. 

| Mr. Barxiery. In the stocks? 

' Mr. Ptumps. Yes, sir. 

| Mr, Barxiry. You think that a larger proportion of people who 
;ywn bonds paid actual value for them than among those who own 
| he stocks ? 

Mr. Prums. Yes, sir. In my experience I seldom gave away 
}yonds; I usually sold them. 

) Mr. Barxiny. If the Government should adopt this plan of yours 
md the Board of Assessment should in fixin the actual value that 
‘3 made up on the physical value of the oan which are to be 
jaken over—if they should in their decision arrive at an aggregate of 
\mly about $12,000,000,000 as the value of the railroads to be paid 
or by the Government, what would become of the extra $6,000,- 
‘00,000 which is represented now by stocks or bonds? 

Mr. Piums. Why, that is not in existence now, so nothing would 
/ecome of it. 

| Mr. Barxzey. It is in existence on paper. 

| Mr. Piums. But it is not in existence on the market. 

|. Mr. Barxiey. No; it is not on the market. Your contention is 
/a effect that the owners of the stocks and bonds would only be able 
}0 recover now, if the railroad properties in the United States were 
| eacated, something like 663 per cent of the face value of their 
| oldings ? 

| Mr. Prums. Yes. That is more than they have ever recovered in 
ll the experience of the railroads liquidating them. 

| . Barxiey. To the extent of the value of the property upon 
thich these bonds and stocks appear as a lien—and they would be 
lien on the property—which if bought by the Government, would 
‘dd to the valuation which the Government would pay to the owners 
|f the stocks or bonds ? 

} Mr. Pitums. Yes, sir. 

Mr. BarxiEy. You believe that this proces would result in a 
| Yueezing out of about $6,000,000,000 of value, of fictitious value, 
jased upon the present valuation of something like $18,000,000,000 ? 
| Mr. Proms. I think it would eliminate that which has already 
janished, and that the present security holders would receive just 
) hat they would get if they sold out to-day. 
| Mr. Barxury. In other words, this would be a record of elimination 
‘hich you think has already taken place? 
| Mr. Prums. Yes, sir. ’ 

Mr. Barxuey. Let me ask you about the form of this board of 
irectors. I have failed in the reading of this bill to ascertain where 
|} ou lay out a plan for determining the difference between classified 
/uployees and official employees. 

“Mr. Prums. We do not attempt to lay out that plan, because that 
ge is clearly recognized to-day by all men engaged in the railroad 
4dsiness. The moment a man receives promotion in the service to 


152894—19—-voL 141 


—-——__— 


7 
4 
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| 
640 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. | 
such a point that he is no longer eligible for membership in any organ- 
ization, whether he be a member or not, if he is no longer eligible, he 
is in the official classification. | 

Mr. BARKLEY. I am not sufficiently familiar with the classification 
to know when a man is or is not a member. 

Mr. Pius. I can not tell you that, Congressman, but I am assured) 
that the line is plainly drawn, so that no man employed in the railroad 
- gervice is in doubt as to where he should be placed. 

Mr. BarKiey. I wonder, in the absence of some legislation descrip- 
tive of those classes, whether any man might be in doubt as to where 
his vote might be cast in determining the representatives on this 
board of directors of the classified employees and of the official 
classification ? | 

Mr. Piums. I think there would be no doubt about that for the 
first election and certainly none for subsequent elections. This case 
will come as the hen and the egg. We have the railroads and we have 
the officials. 

Mr. Barkiey. I do not know that I am old enough to determine 
that from recollection. i 

Mr. PLump. We have provided a directorate that I do not think 
should be perpetuated. So we take the official employees as they 
now exist, and we will say that is the egg, and then create the official 
members of this new board of directors, and the classified employees 
as they now exist, and create the classified members of the new 
directorate and the President appoints his representatives and we 
confer full power on the directorate so constituted to create all officers 
and all official classifications and to define all of the classified employ- 
ments. 

Mr. Barxuey. This board of directors could change the present 
status of both the classified and official employees so as to include 
one and then the other, if they should see fit? 

Mr. Puums. If they should see fit; yes, sir. 

Mr. Barxiey. Could they do that to the extent of eliminating one 
class entirely and making only one class or combining between the 
official and classified employees ? 

Mr. Piums. Certainly not. 

Mr. BarKuey. Could they so increase one class by decreasing the 
other, transferring one class of employees over into the other by 
merely calling them one so as to practically eliminate one class by 
the increase of the other? « | 

Mr. PLumsB. We have at the present time 20,000 official employees 
and 2,000,000 classified employees. Naturally, the classified em- 
ployees would not be pleased at having their proportions swollen fo1 
the benefit of the official employees, and the official employees, 
because of their double rate of dividend, are not going to desire 1 
have put into their classification any large number of the classifiec 
employees. They want to keep their line as strictly drawn as possible 
Neither one of them can accomplish that result without the consent 
of the representatives of the public directorate. 

Mr. Barxiry. If the representatives of both the classified anc 
official employees, being in the majority by ten to five, wanted to 
they could do it over the protest of the other? 

Mr. Prums. But at the expense of themselves. 


| RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 641 


‘Mr. Barxuey. One group or the other? 
Mr. Prums. One group or the other. 
Mr. Barxiey. Why give these official employees a double dividend 
‘compared with the classified emplovees ? 
Mr. Prums. Because this plan is so totally unsocialistic, as I under- 
nd the term “socialistic,” that we recognize the right of every man 
‘receive compensation according to his deserts, and we believe that 
‘ere we place upon any body of men authority and responsibility 
‘4y must receive compensation commensurate with that authority 
Tresponsibility and through the exercise of that authority and 
‘ponsibility they produce beneficial results by having their orders 
‘tied out by a vastly larger body of men cooperating with them, 
1 they ought to be entitled not only to much higher pay, but to a 
her rate of return. 
‘Wr. Barxiny. In other words, a train dispatcher who is an official 
iployee, we will assume, would be entitled to double dividend as 
inst an engineer who takes his orders and runs his train in accord- 
‘e with the plan of the train dispatcher ? 
7 Proms. I will assume that the dispatcher is an_ official 
oloyee. 
dr. Barxxey. It is an assumption on my paré—I do not know. 
fr. Prums. I do not know either; but if he is, he is at the lover 
ige of official employees, as compared with the man receiving 
arge a salary as the engineer who is at the upper end of the classi- 
_ employees, but if he is exercising power and authority over a 
ly of men beneath him he is entitled to some extra compensation 
the efficiency which his work produces. This may not give him 
nuch compensation as the engineer receives, because you can not 
that the lowest grade of official employee must receive higher 
pensation than the highest grade of classified employee. I do 
think that is true in fact, but still he should have this same 
ble incentive. 
[r. BARKLEY. You use the words at the end of the first paragraph, 
_also at the end of the second paragraph, that if a certain region 
ocality desires an extension of railway facilities under regional 
9¢al special assessment laws, and, having so organized, will assume 
t part of the cost of the construction and equipment of the new 
znsion which may be apportioned to it by the appraisement 
td, and will provide such part of the whole cost as may be allotted 
t by the appraisement board, then the building of such extension 
he United States at the specified sharing of costs shall be deemed 
the appraisement board to be imperative. You mean by the 
d “imperative” shall be deemed compulsory ? 
‘ir. Plums. Yes; 1 mean the Government must build a line where 
locality pays for it or pays their share of it which the appraise- 
‘it board alos should be allotted to it. I want to give to locali- 
| the power to compel the construction of improvements which 
‘7 need and which they are willing to pay for, which are not built 
|e public expense. 
tT, Barxiny. You provide also that money expended by the 
‘ernment in extending roads in new territory, where the public 
fit is of such a nature as to relieve the local community of 
mditure, in that connection it shall not be capitalized? 









642 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Prums. No; shall be capitalized. That is the kind of extensio; 
which shall be capitalized. : 

Mr. BarxkLey. What is it you provide shall not be capitalized’ 

Mr. Prums. All expenditures for extensions out of surplus fund 
raised by local taxation shall not be capitalized. 

Mr. Barxiey. Of necessity, that provision in either case, in Viel 
of the fact that the Government is to own the roads and there | 
not to be any capitalization as we now understand that term in cor 
nection with the corporations—— | 

Mr. Prums. Perhaps we might use a better term there, but whi 
we mean is the Government shall issue no bonds, because that is 
capitalization of this project; that there shall be no increase of th 
outstanding bonded indebtedness for extensions which are paid f¢ 
out of surplus or out of the proceeds of local taxation, and if ot 
language is not clear it should be made clear. 

Mr. BarKLey. What is the intent of the provision on top of pag 
20, the first paragraph, “That notwithstanding anything in this a¢ 
any society of workers, all or some of whose members are wholly ¢ 
partly employees on the railway lines or properties of the Feder 
Government, or in any other manner employed by the corporatiol 
or otherwise under this act, may be registered or constitute then 
seltes or be a trade-union, and may do anything individually or! 
combination which the members of a trade-union may lawfully do. 
What is the object of that language ? 

Mr. Prums. To preserve the existence of labor organizations no 
in being, and to preclude the prevention of the organization of mutu 
labor organizations where there may be a need or demand for the 
existence. 

Mr. Barxiey. To what extent are there now labor organizatia 
only part of whose members work for the railroads or who work f 
the railroads only in part ? 

Mr. Piums. I’do not know. If you will ask Mr. Garretson th 
question when he is on the stand, he can answer you fully. 

Mr. Barxiey. In section 5 of the last article, page 30, ‘that a 
lease to the corporation shall be terminated by act of Congress whe 
ever it shall appear upon evidence reviewable in the Federal cour 
that the foregoing provisions to be embodied therein shall not ha 
been well and faithfully carried out.” You provide there that ne 
withstanding Congress may terminate this lease upon evidence wit 
it may deem necessary and sufficient to enable the lease to be tert 
nated, yet before Congress can act that evidence must be review! 
by the Federal court in some report made back to Congress of } 
finding in the matter before Congress can act, or that the act tel 
nating the lease can be reviewed by the courts and annulled by] 
dicial action. 

Mr. Prums. That is my idea, that if Congress declares a forfeit 
it shall set out the evidence of that forfeiture as an exercise Of 
action, and that there may be a review of that decision in the cour 
Now, what I wanted to provide, and I may not have done it efler 
ively, I want to provide a perfectly efficient and adequate means 
revoking this privilege unless the obligations to the public are f 
filled, and if this committee can devise a more efficient means, © 
- not care how drastic it is—what we want to dois to save the publ 
pecn ley) remember, we consider ourselves a very large part of t 
public. | 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 643 


‘Mr. Barxury. What I had in mind was this: This is a rather novel 
‘ovision ? 

Mr. Piums. Yes. 

Mr. Barxxey. I do not recall it was ever embodied in any other 
Il, giving the courts—of course the courts have power to review 
‘e acts of Congress on the ground of constitutionality, to declare 
em unconstitutional, but I do not think they have gone to the 
‘tent of annulling an act of Congress because of its inadvisability, 
on any other ground except, broadly speaking, constitutional 
‘ounds. I will leave it at that, because questions of personal 
yerty and those sort of things are constitutional questions. Now 
‘is a little novel to give the court jurisdiction to annul an act of 
megress, not upon constitutional grounds, but if the court should 
cide that the evidence that Congress had before it was not sufficient, 
the court’s opinion, to justify the passage of the act. 

‘Mr. Prums. Well, I have found that forfeiture provisions in fran- 
Ises were usually ineffective, because in order to secure a forfeiture 
‘ere must first be a judicial declaration of a forfeiture. The legis- 
‘ture can not decree a forfeiture; it has got to go through the courts, 
it by contract, which would be this lease, you can confer the right 
the legislative body to decree the forfeiture without first going 
‘rough the courts. That is a contract right which we give. But we 
serve the right to have that declaration reviewed judicially instead 
Making the legislature first go to the courts and procure the for- 
ture. ‘That makes it easier to get a forfeiture and puts the burden 
| the man whose right is forfeited. That is an unusual provision, 
dit is unusual for that very reason. All of the other forfeiture 
Ovisions with which I have been acquainted put the burden on the 
blic, and the man intrenched in privilege always had the benefit. 
»w I am trying to put the benefit on the other foot, and if I have 
t phrased it so as to do it I would be glad to have help to phrase 
so there can not be any doubt in it. | 

Mr. Barxiey. This bill only contemplates the taking over of 
ads that are engaged in interstate commerce, is that true ? 

Mr. Prums. Wait a minute. If you mean by engaged in inter- 
ite commerce 
Mr. Barxxey. Or that are subject to regulation by Congress under 
3 commission clause of the Constitution. 

Mr. Prums. No, I would not say that. It does not contemplate 
cng over roads which are not engaged in transportation for the 
blic—that is, private carriers. 

Mr. Barxiny. Roads that are built wholly within State lines, that 
+) not engaged in interstate commerce, that are limited in their 
eration to intrastate commerce, and therefore are not embraced in 
»act to regulate commerce, is it contemplated 
Mr, Prums (interposing). We contemplate taking them over if they 
common carriers. 

Mr. Barxiey. Under what authority of the Constitution do'you 
‘tude them within the power of Congress to take over ? 

(Mr. Plums. The power of Congress to establish and maintain post 
I military roads. 

Mr. Barxiey. And as practically all railroads are post or military 


———— 




















644 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Prums. They should be so considered. In this country we have 
largely overlooked that until the recent experience. In Europe it 
was the prime object of the construction of all of their lines of rail- 
ways. We have overlooked it, but we realize now that it is an abso- 
lute necessity. 

Mr. Barxwey. If this bill should become a law, is there any fune- 
tion left to the various State railroad commissions and public utility 
bodies in the regulation of practices, charges, and things of that sort 
now exercised by them ? . 

Mr. Piums. Frankly there are none, excepting that we authorize 
this board to appoint and delegate to local authorities, or bodies 
acting under State control, such of their powers as may be exercised 
locally, so that it was in contemplation that we might utilize the 
State utilities for some local administration of the affairs. 

Mr. Barxiey. That local administration might have application 
not only to intrastate findings, but also to commerce that originated 
in one State and ended somewhere else ? 

‘Mr. Prums. Yes. That would be a part, so far as we utilized local 
bodies, it would then be a part of the Federal administration. 

Mr. Barkiey. You provide here that the functions of the Inter- 
state Commerce Commission shall be continued as they are provided 
for in the act to regulate commerce. Now, if the Government 
purchases these roads under your bill and this board of directors is 
to operate as provided herein, briefly indicate the procedure that 
would be possible or necessary to get a rate case or any other practice 
or classification before the Interstate Commerce Commission. 

Mr. Prums. Exactly as is now done. Of course the corporation, 
unlike corporations to-day, could not appear and object to a rate, 
but any shipper might appear, just as he does now, and file objections 
to any rate that was made, and his fight would be not between the 
shipper and the corporation but between the shipper and the Inter 
state Commerce Commission. 

Mr. Barxtey. In drawing this provision for a reduction in the 
rate when the profits have reached more than 5 per cent on the 
amount of the bonded indebtedness, which you call the capitalization 
under this bill, is that reduction to be effected by this board 4 
directors or by the Interstate Commerce Commission ? 

Mr. Prums. The Interstate Commerce Commission declares the 
rate and the board of directors must put it into effect. 

Mr. Barxiey. So that there must be some cooperation between 
the board of directors, if you create it, and the Interstate Commerce 
Commission in the working out of the rate proposition ? 

Mr. Prums. Yes. We would expect that the board of director 
would give the Interstate Commerce Commission much greatel 
facility in the investigation of affairs than it has ever been able t 
get of the corporate affairs of private individuals, and that they 
could work out such a 5 per cent adjustment in a fair way all over 
the country without disturbing the equalization of rates. 

Mr. BarKtey. That is all J care to ask. 

The CuatrMan. Mr. Plumb, judging from statements made by 
Mr. Morrison yesterday, it is desired by the organization you represent 
that we have prompt legislation ot this kind, is that right? 

Mr. Piums. As prompt as is consistent with proper study. Nota 
forced action of this bill; we have not asked for that; but we are 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 645 


asking every influence that we can reach to study the bill, and if it 
approves it to get behind it. Now if enough force and approval 
gets behind it, then prompt action can be had.. If we can not muster 
enough force and approval behind it, why then necessarily the old 
system has got to go on with the old hanaicaps, and the old questions 
of wages and adjustments. | 

The CHarrMan. If a reasonable period of time is necessary in our 
opinion to properly consider this or any other measure relating to 
railroad legislation, but some of the railroad employees show im- 
patience and manifest that impatience by striking, would that be 
such a plan as you would advocate in securing prompt action on 
this kind of legislation ? 

Mr. Piums. Not in securing prompt action on this kind of legis- 
jation. These labor disturbances have been brewing for months, 
without any connection with the introduction of this bill. The fact 
that they broke simultaneously was due entirely to the invitation © 
from yourself, Mr. Chairman, to have this presented this week. If 
that invitation had not been extended, the bill probably would not 
have been introduced until fall, and this hearing would not have been 
held. The two were wholly separate, although in point of time they 
occur together. 

The Coarrman. Are you still of the same view you were I think 
on the 7th of February, when you appeared before the Senate Com- 
mittee on interstate Commerce and declared that you would favor 
a five-year extension provided Order No. 48 were revoked 

Mr. Piume. Prohibiting political activities. 

The CHAIRMAN. On the part of employees. 

_ Mr. Prums. You are asking my personal opinion now, and of course 
that is all I can give you. I do not believe that a five-year extension 
would be necessary. I believe there should be an extension, unless 
there can be very prompt action, but I do not believe it should be 
under the terms of the present control bill. If there is to be an 
extension it seems to me that we ought to follow the English preced- 
ents and require the owners of the railways to absrob a fair share of 
the deficits of operation. 

The CHarrMAN. Let me remind you of what you said in that 
hearing. ‘‘In my own mind, I do not see how a proper solution of 
this question can be reached in one session of Congress. I think it 
can be reached within 2, and I do not mean 5 years. We do not 
mean that 5 years is necessary, but we think that 21 months is 
too short,” referring to a 21-months’ extension beyond the procla- 
mation declaration of peace provided in the control act. Are you of 
that mind now? 

Mr. Puums. Mr. Chairman, the course of events in this country 
within the past 2 years have accelerated the making of history so 
Much that what would have required a decade 5 years ago may now 
be accomplished in months. At that time I did not believe that 
public opinion could be brought to the point where it would decide 
this question in 2 years. I believe it can be now, within 2 years. 
‘It might be done in less. We are bending every effort to acquaint 
‘public opinion with this issue as widely as we can and with many 
‘More means at our control than I ever dreamed we could exercise. 
We may accelerate that day infinitely over what I thought could 
have been done when I testified last before the committee. I would 





e 


646 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


not be surprised at almost any social developments in America at 
this time. We may expect things unforseen within 60 or 90 days, 
if I am correctly informed as to the temper of the working men 
throughout the country. 

The CHarrMan. Have you realized the attempt of the House and 
the Senate, and the inclination of this committee and its purpose in 
starting consideration of legislation to that end ? 

Mr. Prums. I do, and I believe that that purpose and inclina- 
tion has been greatly enlightened by the events of the last two 
weeks. I honestly believe, and I have been conversing with Senators 
and Congressmen for the last three months, and I have been amazed 
at their seeming, not indifference, but lack of information, as to 
what actually is occurring throughout this country. I have been 
going back and forth and I have kept in touch with the men, not 
the organizations, the men, and I have been astounded at what I 
have learned. I felt more as members of Congress felt when I first 
came down here in May. I did not expect that this question could 
reach its present issue within a year or within two years, but I have 
been overwhelmed by the force of events out in the country and 
the sentiment of the men that is just simply engulfing us. 

The CHarrmMaAn. Then in your opinion should that attitude of the 
minds of those that you have come in contact with force Congress 
to a speedy adoption of legislation ? 

Mr. Piums. I think it should force Congress to a speedy, indeed, 
an intense consideration of these questions, perhaps, too, laying aside 
all other questions of less moment. 

The CuarirmMan. This committee is doing that. 

Mr. Prums. This committee is doing that, now. 

The CHarrman. And hasbeen for the past four weeks. 

Mr. Piums. Yes; but I do not believe that this committee has 
been brought in contact with the people before this week. You 
have been conferring with interests. 

The CHarrMan. Just a moment there. We have heard those who 
have filed applications for hearing, irrespective of location or of 
interest. We did believe that in a logical evolution of this plan for 
legislation we could hear the proponents of plans first, and then 
those who desired to give detailed information as to particulars. 
We are doing that now. | 

Mr. Piums. Yes. 

‘ The CHarrmMan., And we are giving you an opportunity to be 
eard. 

Mr. Piums. And we appreciate it. 

The CHarrman. You are entitled to it. Now do you believe, 
from the knowledge you have gathered recently, that you ean affirm 
that the majority of the people of the United States will stand for 
the doctrine of Government ownership of railroads ? 1! 
_ Mr. PLums. At this time I would not say so, but I am assured, I 
feel absolutely assured, that the great majority of the people of the 
United States are so dissatisfied with present conditions and so turned 
away from past conditions that they are rapidly coming to the support 
of this plan, and I do believe that a majority of the people of the 
United States, when given opportunity for education, will demand 
this plan, and I would not ask Congress to pass it ahead of that event. 

The CuarrMANn. Which would imply that it would have to go to a 
national referendum ? 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 647 


Mr. Prums. There are other ways in which the mass of the people 
/ean express their desire. Of course that is the best way and the 
‘most definite way, but there are other ways. 

The CHarrMan. For instance ? 

. Mr. Prums. For instance, if you find through the press—and the 
_press is in a certain sense responsive to public opinion, just as public 
opinion is in a certain sense responsive to the press—if you find from 
the volume of communications, which are honestly sent to you, that 
the great mass of the people demand this legislation, then I think 
ou may accept it as a fact that the majority of the people do require 
it, but you need either that popular demand expressed to you, or an 
election. 
| The CuarrMan. You can not get an expression of support of your 
‘proposition without propaganda ? 
‘ Mr. Ptums. We can not. 
The Cuarrman. Nor can the proponents of any other plan without 
| propaganda ? 

Mr. Pius. No. | 
' The CuarrMan. So that we, as a committee, may anticipate receipt 
of communications or petitions that are the result of propaganda? 

Mr. Piums. Yes. 

The CHarrMan. That propaganda is based on selfish interest, or 
upon self-interest, or it would not have been created ? 

Mr. Prums. No; I do not agree with you there, Mr. Chairman. 
| The CHatrMan. I said “self-interest or selfish interest.” 

Mr. Pius. Well, I will follow you a while and see if I want to 
correct that. You say, on self-interest or selfish interest. Propa- 
ganda in favor of self-interest has to be purchased. Propaganda in 
| favor of the public interest is not purchased, and our propaganda, 

instead of being purchased, is being offered to us. 

The CHAIRMAN. Supposing other propaganda comes to us with a 
like high source of origin ? 
| Mr. Piums. Call for proof. 

The CHarrMAN. Supposing the farmers, for instance, numbering 
hundreds of thousands, through their regularly constituted bodies, 
say to us, ‘We do not want it’’? 

Mr. Piums. Listen to their voice; call them in; measure their 
interest. Let us enter into a debate here; both sides can be heard; 
and then decide in the interest of the public. If the farmers do not 
want it—but I think you will find they do. 

The CHarrMan. I think they are divided, but what information we 
have thus far received would indicate that the majority was not in 
favor of the proposition. Of course that may be developed by later 
| propaganda. 

Mr. Proms. I think it will. , 

| The CHatrrman. And we do not want to foreclose that situation 
‘now. We do not want to consume much time, but in your proposed 
, bill you use the agency of the recall in putting an end to the holding 
‘of office on the part of the elective members of the directorate and 
also the recall in putting an end to the holding of office of the elective 
‘Membership of the various district boards. Has the recall, as prac- 
)tced in America, either in municipalities or States, proven itself to 
'be of such high efficiency and to be productive of such valuable 
‘results to the public as would justify you in using that instrumentality 
im your bill ? 




















648 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Prumes. Mr. Chairman, I can not answer that, because I do not 
know, and if that is not deemed an advisable provision we are willing 
to strike it out. We merely wanted to signify our willingness to the 
* committee to submit that provision if it was thought desirable, but 
we will put that up entirely to the wisdom of the committee. 

The CHarrMAN. The fact that you studied it led us to believe you 
thought it the best method. : 

Mr. Piums. We did, but it is not an essential method. It merely 
occurred to us that if by chance we got a man in those positions that 
was not fitted we wanted to yank him out. 

The CHarrMAn. Suppose the five were so considered, would you 
want to pull the five out? 

Mr. Puiums. All five of them. 

The CuarrMAn. If I remember rightly, in the city of Seattle, Wash., 
they had the recall for municipal officers, and, if I remember correctly, 
in one year they recalled two mayors. That practice would beget 
such uncertainty in tenure of office as practically to destroy efficiency 
or any continuity of policy, would it not? 

Mr. Prums. There is very little efficiency in any municipal political 
organization. It is not created for that purpose. But when we 
create an organization purely for efficiency, removed from politics, 
why, then I think that the recall would be a safe proposition to put 
in, because it would not be used for political purposes, and there 
ought to be ample safeguards against the mistake of the selection of 
an inefficient man. 

The CHatirRMAN. You do realize, of course, that this corporation 
which you create in your bill, should it become a law, would be the 
greatest and most powerful directorate in the world ? 

Mr. Piums. Yes; I do. 

The Cuarrman. And hence, the necessity of wisely selecting the 
directors and wisely controlling their tenure of office. In a state- 
ment you made, I think in answer to Mr. Barkley, you said the State 
commissions would be practically eliminated. I suppose you would 
allow them the exercise of the ordinary police powers ? 

Mr. Prums. Well, frankly, I think that is a detail that ought to 
be worked out. Under existing governmental properties I believe 
the States do not have police power over governmental post offices 
and Federal property. [ think, perhaps, that is a mistake. 

The CuarrMaNn. In the way of sanitation of depots, and things of 
that kind, public grade crossings, and possibly the elevation of tracks, 
we believe those powers within the jurisdiction of the State com- 
mission. | 

Mr. Piums. Personally my opinion is that we ought to leave to the 
local authority the largest possible measure of authority and r¢ 
sponsibility, provided it is also efficient. Now, if we are going int 
this democracy business we want to keep the Government as clo 
at home in details, local affairs, as we possibly can. . 

The CoarrMANn. That is why I am asking you whether you @ 
going to leave anything to the local authorities ? 

Mr. Piums. It seems to me that that ought to be done, but 1 
must be done under arrangements with the Federal authority an 
not separate and distinct from it. ! 

The CHarRMAN. You Mean cooperation ? 







RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 649 


Mr. PLums. I mean cooperation. I think there ought to be a 
pen of the central powers to these local authorities as to local 
affairs. 

The Cuarrman. The tax on railroad properties of the United 
States, in several States, in 1917, totaled $214,000,000. Under 
your plan there shall be no tax on railroad revenues in the States ? 

Mr. Prums. That has been called to my attention and I do not 
believe that it would be right at once to wipe out these revenues 
which the States have been receiving from these agencies, neither 
do I think it right that the State revenue should be continued indefi- 
nitely, and, as a way of solving that problem, I would suggest that 
we permit the States to receive the revenues which they have been 
receiving, but decreasing them each year 10 per cent until in 10 
years the revenues of the States from this property would have been 
eliminated, and by that time they could adjust their revenue system 
to the new scheme of things, and the cost of transportation would be 
relieved of that burden. 

The CuarrmMan. Do you see no legal obstacle to the State en- 
forcing the tax laws upon Federal property ? 

Mr. Prums. Not by consent of the Federal Government. I do 
see a very strong legal obstacle, unless provision be made for it in 
the bill, but if provision be made for it in the bill then there would 
be no legal obstacle. 

The CuarrMan. You realize, do you not, that some States draw 
possibly one-half, and perhaps a larger fraction, of their total State 
taxes from their common carriers ? 

Mr. Prums. I am informed that some of the Western States do 
get that percentage of revenue. 

The CuarrmMan. Now, then, if through the enactment of this 
measure it were suddenly taken away, it would leave some of these 
States in a bad plight from a financial standpoint, would it not? 

Mr. Piums. That is what I suggest, that we permit them to con- 
tinue to tax, but reduce the amount of revenue which they receive 
10 per cent per annum, which gives them 10 years in which to adjust 
their system before they are deprived of the revenue. 

The CuarrmMan. Would that necessitate the consent of the legisla- 
tures of the States ? 

Mr. Prums. It would not. It is a privilege extended them by the 
Federal Government. 

The Cuarrman. If you depended on them acting, you might wait. 

Mr. Prums. We would not be dependent on them acting. The 
Federal Government merely extends them that privilege, and they 
certainly will accept it. 

The Cuarrman. In this amortization plan suggested in your bill 
of 1 per cent per annum, is this amortization fund to be developed 
out of the revenues from operation of the carriers ? 

Mr. Pius. Yes. 

The CHairMAN. The development of amortization funds, or amorti- 
‘zation reserves, always implies a higher earned cost ? 

- Mr, Prums. Yes; certainly. 

The CHaiRMAN. So that you pay for your amortization fund in an 
Increased current cost during this development ? 

| Mr. Pius. Yes. 

The CHarrMan. How do they offset ? 






650 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Prums. Because eventually you eliminate them, that cost 
from transportation, otherwise it is perpetual, and just as I hope to 
leave my son in better conditions than I have lived, this entire 
generation hopes to leave the succeeding generation in better condi- 
tions than it has inherited. 

The CHARMAN. Now with reference to the Government owning the 
railroads and operating them even through a neutral agency such as 
you suggest, in order to avoid, as you state, might there not be a 
temptation at a time when Congress was short of funds, when the 
debt was high and the interest charges great, to seek to use its 
instrumentality, the railroads, in developing a fund to help out the 
Treasury ? 

Mr. PLums. Doubtless there would be that temptation on Con- 
gress, but it would be powerless to do so. 

The CuarrMan. Why would it? 

Mr. Prums. Because the Interstate Commerce Commission fixes 
rates, and it fixes rates on the cost of operation. — 

The CuarrMan. Ah, but the Interstate Commerce Commission is 
a creature of Congress, and it only exercises its rate-making power 
because we, Congress, fixes the standards. 

Mr. Piums. I do not believe that Congress could get the consent of 
the public to the utilization of the railroad systems as a revenue- 
producing agency, because that is a tax on all consumers in propor- 
tion as they consume. ‘You will find the pressure exerted on Con- 
gress by the public to produce revenue from taxes on property. 

The CHAIRMAN. I want to remind you of a historic fact. Germany 
owned her railroads before the war and, because of the strain on the 
treasury and the need of funds, Germany developed a surplus of 
$60,000,000 out of the operation of her roads and took it out of the 
consumer. Now, here is Congress owning the roads, with all the 
possessory rights which belong to ownership, and here is a dead 
Treasury—would there not be a temptation for Congress to utilize | 
its property in developing some revenue ? 

Mr. Puums. I do not believe there would. Germany could do that, 
because Germany had autocratic power over both the lines of trans- 
portation and the lives and property of her subjects. Congress has 
no such power over.our citizenship, and would have no such power 
over these railroads. This is not the property of Congress for any 
purpose other than that of being public highways for the transporta-~ 
tion of people and commodities. | 

The CuarrMAn. You make a distinction that possibly Congress” 
might not indorse. f 

Mr. Piump. Well, if Congress did not and the public consented, why,” 
I could have no objection, but we are speculating on what the public 
would do, and if Congress does that which the public does not ap- 
prove, the next Congress undoes it. % 

The CHarrman. Exactly so. And under your plan Congress can” 
undo what it does this year ? j 

Mr. Prums. Yes, if the public demand it, and we are in no position 
to set up any rule which the people can not override at any time, & d 
we are not seeking to do so. | 

The CuarrmMan. And Congress is responsible to the public will ? 

Mr. Piums. Yes. 

The CuarrMAN. Are there any other questions ? 


q 






. RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 651 


_ Mr. Barxury. Mr. Chairman, may I ask one question I overlooked 
a while ago ? 

-’ The Cuarrman. Yes. 

_ Mr. Barkuey. Mr. Plumb, you made a statement that you did not 
think that Congress had been in touch with the people during the last 
three months and that you had obtained information recently which 
you did not believe existed, or which you did not produce when you 
came down here in May ? 

Mr. Prius. Yes. 

Mr. Barxiey. And that the temper of the people is such that you 
would not be surprised at anything that might happen within 60 or 
90 days. For my information and for the information of the com- 
mittee would you object to revealing what you had in mind in making 
that statement ? 

Mr. Pirums. Not at all. J have been perhaps more isolated in my 
personal experience than Members of Congress. I have been more 
engaged in shutting myself up in my study and working as a lawyer 
on these problems than I have been in mingling with the public. 

I came down here in May expecting to prepare this bill for presenta- 

tion, together with an elaborate brief to be submitted with it. I 
worked along for two or three weeks. I began to receive calls to 
come here and there, Denver, Wisconsin, St. Louis, ‘“‘here is a group 
of people who want to hear you talk on this subject.” I began 
responding to those calls. The audiences grew from a few hundred 
to thousands, and they are promising me an audience at Sedalia, Mo., 
next Tuesday of 100,000 from all over the State, and I doubt if I can 
go there because of this hearing. 
_ The interest which the people have shown. in this problem has 
amazed me. I did not think it would be possible to interest the 
public in the way they have responded. I have now calls that I am 
unable to fill from all over this country to explain this proposition, 
and that is a demand that has come into existence without any 
newspaper publicity whatsoever. 

I had hoped that in a year I might be able to interest the public 
to that extent, and within three months I am overwhelmed with not 
only requests, but demands that I come and explain this new doc- 
trine. It is spreading like wildfire. Places with which we have 
had no correspondence at all are holding mass meetings and sending 
in resolutions. They have sent down and gotten our literature, 
absolute strangers and unknown to us, and in a little while we get 
back word that they have held a mass meeting and adopted these 
resolutions. I am beginning to be flooded with letters from farmers, 
engineers, officials and employees of railroads, and security holders, 
Saying that they believe this plan affords them the only safety that 
has been promised at all. | 

Now when that starts within three months and with almost no 
effort on my part, when any effort that I could make could not keep 
- with the demand, then I would not be surprised to see the people, 
the majority of the people of the United States, arising and expressing 
‘their desire for this plan by any means within their power, mass 
Meetings, letters, communications to Members of Congress, or any- 
thing else. . 

Now you gentlemen can very quickly distinguish between a manu- 
factured propaganda and a spontaneous reply. You have had 


652 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. si 


enough experience to know that if you get 100 letters written in the 
same language that there is something behind that which is not real, 
it is spurious propaganda. If you get 100 letters that you know 
are written by the individuals sending them in, you know that that 
Bessie is not manufactured and is not spurious. Now you will 
ave plenty of opportunity to judge that within the next three . 
weeks, because that has gotten. beyond our control. We are not 
asking for those communications; they are being hurled at us. | 

Mr. Barkiey. Your remark, then, that you would not be surprised 
at anything that might happen within the next 60 or 90 days did not 
imply any revolutionary or destructive action on the part of any 
great body of men which would stop the wheels of industry or trans- 
portation or bring about a cataclysm of any sort? | | 

Mr. Prums. I am going to be absolutely frank with you, just as 
frank as I would be with my own men. I was in St. Louis two weeks 
avo; there was a crowd of three or four thousand there and I spoke. 
After I got through speaking crowds of men came up to me and, to 
speak accurately, one of them, representing one crowd, said: “By 
G——, if we can’t agree on this plan, there is gomg to be a revolution,” 
and his sentiment was echoed by all of those there. Now, that is 
not organized effort, it is the spontaneous revolt against conditions 
that can not be borne. | 
Mr. Barxiry. You do not think, do you, that your most excellent 
oratorical abilities had anything to do with that sentiment? 

Mr. Piums. Not at all) It merely showed them a way out that 
they were eager to tuke advantage of. 

Mr. Barxiey. What did you understand to be the meaning that 
was in his mind when he used the word ‘‘revolution’”’? I am asking 
these questions in order that I may get the information which you 
say you have, and which you have not. 

Mr. Prums. I think that in that man’s mind and in the minds of 
millions of others, they feel that they have reached the point of 
diminishing level of existence where they can not stand any more, 
and rather than continue to serve for a diminishing return nie will 
cease to serve. Mi 

Now, Congressman, I did not know that that existed_out in the 
country until I was called out to meet these people. I felt, as I 
think many of you have felt within the last three months, that we 
were getting along all right; that we would work it out some way; 
that there was certainly some way to work it out. I felt the same 
way. I know at this time that if we do not work it out and work 
it out quickly we will have no opportunity to work it out. 

Mr. Barxiry. Is that feeling brought about by any sudden change 
of views as to the abstract prmciples involved in this plan of yours, 
or is it accentuated by the constantly mounting of what we call 
the cost of living, that every man must confront whether he works 
for wages or works for a salary. 

Mr. Piume. It is accentuated by that constantly mounting cost 
of living and the other necessity of finding some way to meet it. | 

Mr. Barxiey. That leads me to ask this question. Do you believe 
that the passage of this bill will to any appreciable degree, as affecting 
all the people, solve that problem in the immediate future ? eg 

Mr. Prums. I believe it will do more to solve that problem than 
anything else that can be done. You are confronted right now with. 
a request for a further increase of rates to produce an additional 








ee le 
= 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 653 


$700,000,000 of revenue, or in default of that to appropriate 
$700,000,000 for carrying on transportation. If you do either one 
you increase the burden of living and increase the high cost of living, 
eo. if you increase rates, because that increase in rates is 
reflected in every commodity, whether it is shipped or not. Now, 
if this plan is adopted we can assure the public immediately of no 
imcrease in rates, and if we can save the difference between what we 
are paying for the railroads and what we ought to pay for them on a 
fair calculation we have wiped out the deficit and are operating in a 
surplus, right from the start. Then if you will get rid of the unneces- 
sary, useless employees in both classes, managing and official, officials 
and classified, really unify these properties and introduce into the 
body of those who operate these railroads a motive for efficiency, we 
ought to be able to save enough money to give a 5 per cent reduction 
very shortly. We might even have it figured out by experts so that 
we could give a reduction and forego any opportiunity for a dividend, 
be satisfied with a reduction, provided you see that reduction is rep- 
resented in the price of commodities. : : 
Now, the employee of the railroads is just as much affected by 
this high cost of living as all the great public, and if he can get a 
reduction in rates, reflected in a reduction in the cost of living, on 
ul commodities, he gets that benefit, together with all of the public, 
id if he gets any savings from efficiency he gives an equal saving to 
he public. In that way you have touched the key of all the indus- 
ries—transportation. You have removed from the cost of every 
‘ommodity a common element of cost and permitted a reduction in 
ihe cost of living. 
Mr. Barxrry. If the rates now in force should be immediately 
educed to the prewar basis, having been incresdsed first by the 
nterstate Commerce Commission 15 per cent, then by the Railroad 
\dministration 25 per cent, representing a 40 per cent increase, if 
hat rate were reduced back to the normal rate that existed before 
hese increases, do you believe that that decrease in railroad rates 
rould find any appreciable expression in the cost of living now being 
aid by the average man ? 
Mr. Proms. It ought to be immediately reflected in a tremendous 
sduction, but the Government has got to see that the profiteer does 
ot appropriate it to himself, 
Mr. Barxiry. That is the point, but would it? 
Mr. Prump. It can be done. 
Mr. Barkiey. Can it be done without legislation from Congress 
ithorizing the Government to fix the profits to individuals or cor- 
rations upon the necessaries of life ? | 
. Prums. In my belief it is within the power of Government to 
cree by legislation that the cost of transportation shall not be the 
isis of profit on any commodity transported. 
. BarxeEy. In interstate commerce? 
‘Mr. Prums. No; if the Government owns these roads it makes no 
ference whether in interstate commerce or not. 
‘Mr. Barxzey. I am speaking independently of your bill, now? 
; Mr. Piums. I believe you could provide that no articles shipped 
terstate commerce should pay a profit on transportation. 
)Mr. Barxiey. Are ‘you able to say at present what profit is now 
alized by manufacturers, jobbers, retailers, or others who distrib- 
'@ the food products upon the cost of transportation ? 








\ 
654 RETURN OF THE RAILROADS TU PRIVATE OWNERSHIP. 


Mr. Prums. I can give you only a hypothetical case. Now the 
proportion holds true no matter what the rate may be, no matter 
what the rate and profit may be, and if I had the basic rates I could 
give you the exact amounts in dollars and cents, but I shall assume 
that wheat shipped from Nebraska to Chicago is then shipped from 
Chicago to Minneapolis for milling, turned into flour and shipped 
from Minneapolis to St. Louis to a wholesaler, shipped from there 
to Sedalia to a jobber, and shipped from Sedalia to’ the adjoining 
point to a retailer. That makes five shipments. The consumer 
who buys from the retailer pays 15 compounded profits on those 
costs of transportation. Now, whatever the profit may be, it is 
compounded 15 times. 

Mr. Barxiey. So that, if a merchant receives a shipment of $100 
worth of food products, or anything else, wearing apparel, he has 
been accustomed to make a profit of 10 per cent on his outlay, repre- 
senting the $100, if he pays $10 additional freight on that $100 worth 
of goods he charges 10 per cent upon the extra $10 that he pays in 
freight, so that when the consumer buys it he not only pays what 
the merchant paid out for freight, but pays him a profit for payimg 
freight ? 

Mr. Pius. Yes. 

Mr. Barxuey. And that process proceeds in arithmetical progres- 
sion in proportion to the number of transactions involved ? 

Mr. Puums. Yes. Now, if that profit on the shipment of com- 
modities in interstate commerce were eliminated, it would be a 
tremendous element in the reduction of the high cost of living, and 
the whole trouble, Mr. Congressman, is this, our industrial system 
has now gotten on a basis where profits are calculated on cost of 
production and not on investment. 

Mr. Barxuey. Mr. Chairman, I did not intend to take so much 
more time, but it is a fruitful field for inquiry. 

The CuarrMAN. We shall not have time to proceed further this 
evening. 

(Whereupon, at 4.50 p. m., the committee adjourned until Friday, 
August 8, 1919, at 10.30 a. m.) 


CoMMITTEE ON INTERSTATE AND FOREIGN COMMERCE, 
House or REPRESENTATIVES, | 


* 


Friday, August 8, 1919. — 


The committee met at 10 o’clock a. m., Hon. John J. Esch (chair 
man) presiding. 4 
The Cuarrman. Mr. Plumb was on the stand yesterday and mem- 
bers were interrogating him. Judge Sweet wished to interrogate you 
last evening when we adjourned. ~ § 


STATEMENT OF GLENN R. PLUMB, GENERAL COUNSEL FOR 
THE ORGANIZED RAILWAY EMPLOYEES OF AMEETY 
Resumed, 


Mr. Sweer. Mr. Plumb, it is contemplated by your bill that the 
Government will ultimately own the railways of the country and that 
they shall be operated and possessed by the National Railways Oper- 
ating Corporation for the purpose of operating them. | 

Mr. Pius. It is. 


{ 


Tt 


RETURN OF THE RAILROAVS TO PRIVATE OWNERSHIP. 655 


Mr. Sweet. The Government will own all the roads and this great 
corporation will operate them for 100 years under a lease. 

Mr. Piums. Or until such time as the Government might revoke 
the lease, unless operations were successful. 

Mr. Sweet. I wish you would explain fully to the committee why 
you put this provision in the bill. Why not have the Government 
own and operate the railroads ? 

Mr. Piums. Because we do not believe in operation by any Gov- 
ernmental body. We do not believe that this industry can be con- 
ducted by any political autocracy. If we were to leave the operation 
of the railroads in the hands of political appointees, we would place 
this tremendous system utterly in the hands of politicians, and that 
we do not believe can safely be done. | 

Mr. Sweet. In drawing this provision, did you also take into con- 
sideration the personal initiative or assertiveness of those who are 
engaged in the actual operation of the railways ? 

Mr. Pius. I think that was one of the greatest things taken into 
account. The men who operate the railroads make of it a life work 
and a life study. They should be so placed that there would be no 
limits prescribed for their initiative by any outside forces, excepting 
those placed upon that initiative by the great body of men whose 
skill represents the efficiency in the organization. Under this plan, 
we have provided for an incentive to actuate every employee, both 
in the official and in the classified bodies of employees, and we have 
removed from their activities the restrictions under which they now 
operate, placed upon them by capitalistic control, which frequently 
requires them to forego doing things which their judgment tells them 
should be done, because it might absorb moneys required for profits. 
We believe that we, for the first time in this industry, have freed 
human initiative from restrictive bonds placed upon it by those who 
desire only profits, and have made it possible for the development of 
that initiative to its fullest extent, compatible with efficient service. 
At the same time, we have placed restrictions that prevent a wasteful 
or extravagant expenditure caused by such initiative, because it is 
restricted by the judgment, the common judgment, of all of those 
skilled in the industry; but it is not restricted by outside forces desir- 
ing profit. And it is also restricted by the judgment of those who 
represent the public, because they have a voice in saying whether or 
not new activities shall be undertaken, whether new imventions shall 
be applied, and yet we get the common judgment of the public, the 
operating forces, and of the management freed from the restrictions 
OI capitalistic control and the desire for profit. 

. Sweet. You believe then that your plan would give a more 
nearly equal opportunity to those who engage in the railway business? 

Mr. Pius. We believe that it restores to those engaged in this 
industry that equal opportunity which is prescribed in the Constitu- 
tion and of which they have been deprived under the system we are 
seeking to replace. | 

Mr. Sweet. In placing this provision in the bill, did you take into 
consideratior more efficient operation and management than has 
been had in the past in connection with our railroads. 

Mr. Prums. We did; and I will say that that provision was the 
product of not only my own experience of some 30 years in the 
operation of these utilities but the experience of the leaders of these 

152894—19—vo1L 1—_—42 


656 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


organizations for even a longer period, that this would permit the 
consolidation of all of the forces ot the operatives into an effective 
machine, imbued with a morale made possible by the harmonizing of — 
these interests that never have been seen in this service. We believe 
that the sevings of that efficiency would run into high percentages of 
existing costs. 

Mr. Sweer. In other words, your idea was that a great private 
COG tadort like the one provided for in the bill could more effici- 
ently operate the railroads of the country than the Government of the 
United States. | 

Mr. Prums. We believe so. 

Mr. Sweet. And that efficiency can best be obtained through 
the organization of a corporation of this kind that has for its consid- 
eration the operation of the roads. 

Mr. PLums. We believe so. 

Mr. Sweet. In placing this provision in the bill, did you take 
into consideration the experience or experiences that we have had 
during the last year or so in connection with the Federal control of 
the railways. Did that experience assist you in coming to a conclu- 
sion as to what would be proper in placing this provision in the bill? 

Mr. Prums. That experience confirmed our judgment in placing 
this provision in the bill, though this provision was worked out 
before the results of Government operation were available. And I 
want to correct that, not Government operation, but governmental 
control of operation, for I do not consider that we have had actual 
governmental operation. 

Mr. Sweet. In putting my question to you, I guarded the state- 
ment that I made along that line, making a distinction between 
Government control of operation, and Government operation. 

Mr. PLums. Yes. 

Mr. Sweet. Did you also take into consideration in putting this 
provision in the bill that all controversies that would arise between 
the Government and the railway employees, or that might arise be- 
tween the Government and the railway employees, in case we had 
Government control, would be better taken care of in that whatever 
controversies might arise would be between the employees and this 
corporation which will operate the roads. 

Mr. Piums. We believe so, Judge, for this reason: We have re- 
moved from this plan the foundation for most controversies, because 
most controversies between employees and the existing corporations 
arise out of the fact that the existing corporations as employers deny 
the claims of the employees on the ground that the allowance of those 
claims would deprive the employing corporations of some share of 
their profit. That is the basis of most of the disputes. Now that 
basis is removed, and any dispute that arises, in the great majority 
of cases, would be as to questions of discrimination, as to whether the 
employees in this particular craft under the conditions imposed upon 
them were receiving a compensation that compared equitably with 
the employees of another craft who are receiving a different compen- 
sation. Now, those are matters of adjustment to prevent discrimi- 
nations, and those can be best worked out between the managin 
officials and the employees affected, because then it is being solve 
by men who have knowledge of the conditions. That does not 
involve a change in the wage level of the mass; it involves adjust- 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 657 


ments, and that we leave to this board to be selected by the directorate 
through negotiations with theemployees. Such boards under the Rail- 
road Administration, and even before the Railroad Administration, 
were very successfulin thesettlement of suchadjustments. Now, even 
in that settlement the public have a voice through their membership 
on the directorate, and it permits a harmonizing of these interests 
instead of the perpetual conflict that has heretofore existed. Now, 
on the question of wage levels, we create another board for that 
purpose, dealing with advances or decreases in wage levels; and, 
again, we leave that to a board represented equally by employees— 
that is, the classified employees and the managing employees—and, 
contrary to the representations made, the classified employees in 
selecting that method have voluntarily surrendered a very great 
advantage. It may be said that the public ought to have repre- 
sentatives on such a board. I think the employees would welcome 
that, but I believe that as it is drawn the employees have submitted 
to a restriction much more severe than could be imposed by public 
representatives, for this reason: The managing omployees have twice 
the rate of dividend that the classified employees can obtain. Now, 
it is manifest that with 20,000 managing employees, or a smaller 
number under such a consolidation, and more than 2,000,000 classified 
employees, any slight raise in the wage levels of the 2,000,000, or any 
great proportion of the 2,000,000, would immediately reduce the 
extra dividend allowed to the managing employees; and they will be 
very vigilant to protect that advantage. So we provide that in case 
there can not be a decision by the board so equally balanced it shall 
then go to the public representatives. The self-interest of the man- 
aging officials always will impel them to resist an increase in the wage 
evels. 

It will not impel them to resist adjustments made by the other 
boards; but that self-interest will prevent their granting an increase 
in the wage level unless they are convinced that it is deserved; 
and if granted, will be against their self-interest; and in case there is 
no decision it must go to the public representatives to decide that 

uestion, and if the public representatives on the directorate believe 
that the employees, by reason of increase in the cost of living are 
entitled to an adjustment upward, certainly the public are not 
going to object, and the managing officials could not resist it. On the 
other hand, if the question involved is a decrease of the wage levels 
by reason of a greatly lowered cost of living, the employees must 
submit to that decision because no body of employees ever strike 
unless they can impress on the public the justice of their claims, 
and the public will have passed on that question before a revolt 
against that decision could have been formulated. We believe that 
by eliminating the profits motive and substituting the service motive, 
that very service motive allowing to those who operate the trans- 
portation their reward for the efficiency which benefits the public, 
we have pretty nearly removed allof the causes of industrial friction— 
this industrial warfare under which we have been living—and it will 
permit a coordination and cooperation of these three interests that 
ought to proceed with very little friction between them. 

Mr. Sweet. And the controversy, if any, will not be carried on 
directly with the Government but with the corporation. 


658 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Piums. With the interests within the corporation. 
Mr. Sweet. The interests within the corporation ? 
Mr. Piums. Yes. 

Mr. Sweet. And the railway employees then would not be placed 
in-the attitude of feeling disgruntled against their Government. 

Mr. Piums. They could only be disgruntled against themselves 
because they decided with the public. 

Mr. Sweet. In placing this provision in the bill, did you take into 
consideration that the United States Government was not organized 
in any way to directly operate business; and I use the word ‘‘business” 
in the ordinary sense in which we use it to-day ? | 

Mr. Piums. It seems to me, Judge, that our Government is a 
separate department of our social life from the productive enter- 
prises. If we combine the two, we have passed into socialism. If 
we can keep them separate, we can still carry on our democratic 
form of government and at the same time may democratize our 
industry. Now, our Government was not organized for the purpose 
of conducting industry. There was no such purpose in the minds of 
the framers of our Constitution; but it was organized to protect the 
political and civic rights of its citizens. Then the Government 
organized or created corporations for the conduct of our industry, 
and the conduct of that industry has been almost totally absorbed 
by these creatures of government. So that, m fact, to-day, the 
Government is conducting our industries not for the benefit of its 
citizens, but for the profit of those who finance those industries. 
Now, we want to utilize all of the benefits that the corporate organi- 
zations have brought to the social order, but we want to turn the 
purpose of those organizations from the production of profit for 
private individuals to the benefit of the public, because through 
these organizations, these corporations, we have effectually socialized 
our industries to-day, but they have been socialized for the wrong 
purpose. We merely want to divert that purpose and utilize the 
strength of that social organization for the direct benefit of those 
who make up these organizations and who constitute the public. 

Mr. Sweet. Mr. Plumb, your idea, then, is to render unto Govern- 
ment the things that pertain to Government and unto business the 
things that pertain to business ? 

Mr. Pius. Yes, sir; but with this further thought submitted by 
Mr. Stone that business now belongs to the owners of capital, whereas 
it should belong to the public. We exist under Government, but we 
live by industry, and we should have the same freedom in the industry 
by which we live that we enjoy in the Government under which we 
exist. 

Mr. Sweet. Business really stands on three legs, so to speak, 
capital, labor, and management, and the greatest of these is manage- 
ment, and the Government has not been organized to efficiently 
manage business ? 2 

Mr. Piums. It was not within the purview of those who organized 
the Government that it should ever undertake the management 0 
the things by which the citizens live. That was to be left to the 
industry of the individuals, and we now restore it to the individuals 
by this plan. | | 

Mr. Sweet. The directors of this corporation are divided into 
three classes. Five of the directors shall be elected by the classified 


' 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 659 


employees of the railway lines and properties of the United States 
and its possessions below the grade of appointed officials. About 
how many persons would you say are in that class? 

_ Mr. Piums. Approximately 2,200,000. 

Mr. Sweet. Five of the directors shall be elected by the official 
me ployees of said lines and properties. How many are there in that 
class ? 

Mr. Piums. According to the classification as announced by the 
Interstate Commerce Commission there are about 19,730 such em- 
ployees. We call it 20,000 in round numbers. My 

Rar Benen: You would have five directors representing 20,000 

eople ? 
‘ r. Plums. Yes, sir. 

Mr. Sweex. And five directors representing 2,200,000 people? 

Mr. Pius. Yes, sir. 

Mr. Sweet. Five of whom shall be designated or appointed by the 
President of the United States, by and with the advice and consent 
of the Senate. Who would those five represent ? 

_ Mr. Prums. They would represent the 110,000,000 citizens of the 
country, the consuming element in industry. 
_ Mr. Sweet. And in that class would be the shippers of the country ? 

Mr. PLums. Yes, sir. 

Mr. Sweer. The passengers upon the trains ? 

Mr. Piums. The shippers, the passengers, the farmers, the manu- 
facturers, all those who consume transportation. 
| Mr. Sweet. Do you believe that the five directors elected by the 
official employees would remain in number probably the same as they 
are now during the whole life of this corporation ? 

Mr. Prums. The five directors representing management ? 

Mr. Sweet. Representing the officials. 

__ Mr. PLums. It seems to me they should, because that element is 
ihe element which is responsible to the two other elements for the 
jonduct of this enterprise, and therefore it could not have a lesser 
voice of authority. 
Mr. Swerr. Considerable has been stated at the hearings here in 
‘egard to certain proceedings had before the Board of Railway Wages 
md Working Conditions. ‘That board, as I understand it, is operat- 
ng under the United States Railroad Administration. J have before 
‘ne a copy of those hearings and I shall read briefly from the testimony 
riven by Mr. W. G. Lee, the president of the Brotherhood of Railroad 
Trainmen. He said: 
We reiterate our demand for a recognized principle of payment of time and a half 
‘or Sundays and holidays and overtime in road freight, passenger, and yard service, 
| nd assert that the Railroad Administration has discriminated against our members 


a this service in holding this matter in abeyance, for the reason that the principle 
as been recognized in other classes of industry. 


y 
| 


| In view of the foregoing inequalities, both as to rates and conditions set forth in 











upplement No. 16, the convention of our organization that recently closed, after 
) pending several days very seriously discussing Supplement No. 16, provided, through 
|2solution, in substance as follows: 
We recommend that the president of the grand lodge be authorized and instructed 
2 appoint, convene and meet with five general chairman from the Eastern, five from 
Ae Western, and five from the Southern Association, and the chairman of the Chicago 
‘sociation, in conjunction with the vice presidents of the brotherhood, at Washington, 
)). C., just as soon as the convention has adjourned, for the purpose of determining the 
| ates of pay and working conditions to govern employees represented by the brother- 
00d, keeping in mind the fundamental principles herein set forth, and that he further 


; 


' 
{ 


660 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


be instructed to place the matter before the Director General of Railroads by wire 
demanding a hearing and insisting on a prompt readjustment of the wage rates anc 
rules proposed in Supplement No. 16 for the men employed in the classes of servic 
this organization represents. 

That portion of the resolution was particularly under discussion, and, as you know 
all over this world there is an unrest to-day that we must take into consideration, anc 
in order to get away from what appeared to be a bad situation, this resolution wa 
adopted with an amendment that may seem to some to be rather out of line with th: 

-usual procedure of.our organization. Such amendment reads in the following lan 
guage: | 

Moved, to amend that in the event we are not given a prompt rehearing and : 
prompt and satisfctory adjustment of this question the president of the grand lodge 
hereby instructed to use the protective features of the Brotherhood of Railroad Train 
men to procure justice for our members. 


I wish you would just explain to the committee the latter part o: 
this resolution, what it means ? 

Mr. Prums. Judge, I have never heard that resolution before 
My employment does not cover the field of labor adjustment, and | 
am not informed on those matters at all, but I have no doubt thai 
if you will address the same question to Mr. Garretson, who ha: 
much fuller intormation, that if he can not answer it we will have : 
representative of that organization here who can answer it. I cai 
not attempt to answer it because that is not in my field of endeavor 
and I know nothing about it. 

Mr. Sweet. You do know, though, that a demand has been made 
for an increase in wages ? 

Mr. Prumps. Demands were made, as I understand it, in January 
of this year that have been under consideration by these wage board: 
and no action has been taken. There has been no decision on tli 
adjustments requested, so I am informed, but my knowledge is purelj 
by casual information and not from personal knowledge of the matte: 

at all. 
Mr. Swrerr. Do you know what the demand would amount to? 

Mr. Prums. I do not even know what it was. 

Mr. Sweer. Would it amount to $800,000,000 per year ? 

Mr. Puums. I have not any idea. I am not consulted on thos 
matters. I do know this, that the demand made by the trainmel 
could not have been $800,000,000 or anything hke $800,000,000. 

Mr. Swuet. I refer, of course, in that connection to Mr. Hines’ 
statement, and I suppose that applied to all the employees. {i 

Mr. Puums. As to all of the 2,000,000 men engaged on the ruil 
roads, | do not know. I can not give any information on that sub 

ject, because I do not know the basis. 
~~ The CoarrMan. That was based on an increase of 12 cents an how 
-Mr. Piums. Twelve cents an hour. If that is based on 12 cents @ 
hour and amounts to $800,000,000, then the men are receiving lé€ 
than 30 cents an hour to-day. 

The CuarrMan. Mr. Hines’s statement in the letter addressed t 
~ the President is that an increase of 1 cent an hour would involve @ 
additional expenditure of $50,000,000 a year. 

Mr. Prums. If 1 cent an hour involved an expenditure of $50,000 
000 a year, then 124 cents an hour would involve an expenditure ' 
-$625,000,000. | 
~The Cuarrman. I am not responsible for the mathematics. —~ 

Mr. Ptums. I am responsible for the mathematics, but not for M 
~ Hines’s statement. 
The CaarMan. I am not responsible for Mr. Hines’s statement. 












RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 661 


Mr. Sweet. Has what is known as the John D. Rockefeller, jr., 
labor creed ever been brought to your attention ? 

Mr. Prums. I have received a good many copies of it, but I have 
never read it. I think the copies were filed in the waste basket. 
Perhaps I ought not to have done that. 
_ Mr. Sweer. In view of that statement, let me call your attention 
to these paragraphs in that creed: 7 


I believe that the purpose of industry is quite as much to advance social well-being 
as material well-being and that in the pursuit of that purpose the interests of the com- 
munity should be carefully considered, the well-being of the employees as respects 
living and working conditions should be fully guarded, management should be ade- 
quately recognized, and capital should be justly compensated, and that failure in 
any of these particulars means loss to all four. 

1 believe that the most potent measure in bringing about industrial harmony and 
prosperity is adequate representation of the parties in interest; that existing forms of 
representation should be carefully studied and availed of in so far as they may be 


found to have merit and are adaptable to the peculiar conditions in the various indus- 
tries. 


I believe that the most effective structure of representation is that which is built 
from the bottom up, which includes all employees, and starting with the election of 
representatives in each industrial plant, the formation of joint works committees, of 
joint district councils, and annual joint conferences of all the parties in interest in a 
single industrial corporation, can be extended to include all plantsin the same industry 
all industries in a community, in a nation, and in the various nations. 

Do you indorse that ? 

Mr. Pius. That is a very excellent pronouncement which if put 
in practice through our railway experience might have resulted differ- 
ently from the present, situation, but the error in that is this: It 
takes account only of Jabor and capital. It does not seek to safe- 
guard the interest of the consumers and when labor and capital join 
the public is exploited, becausé the public pays whatever labor and 
“capital agree on between themselves, and we have become so large a 
part of the public through our organizations now that we are com- 
pelled to recognize that our interest as consumers js just as important 
as our interest as producers, and the plan we present protects the 
interest of the consumers just as completely as it protects the inter- 
est of the producers, and it does not permit a consolidation of 
Management and capital, if capital is to be joined with management. 
It does not permit a consolidation or a combination between manage- 
ment and producers to exploit the consumers, nor does it permit a 
combination between the consumers and management to exploit the 
producers. That tripartite arrangement of ours does protect these 
three fundamental interests, and it recognizesas a fundamental inter- 
est in industry for the first time, I believe, that industry is based upon 
the demand of society for the products of the industry, and therefore 
that interest which is fundamental and basic must receive the same 
protection and must have the same authority that is accorded to 
Management and the producing element. That clement is entirely 

lacking from the Rockefeller Foundation or Subbasement, or what- 
ever it is called. 

Mr. Wesster. Mr. Plumb, I want to say that I regret very much 
_ that I was not able to be here yesterday. I was confined to my bed 
with a sick headache, and my absence did not imply any discourtesy. 
lam very sorry that I could not be here. 

_ As general counsel for these various organizations, do you have 
anything to do with the preparation or censoring of propaganda 


662 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


letters sent to Members of Congress calling their attention to pending 
legislation before Congress ? 

Mr. Piums. I do not. All letters are sent to Members of Congress 
through the spontaneous combustion of thefeelings of the men outside. 

Mr. Wesster. Day before yesterday when I stated that I did not 
intend to be coerced by threats or intimidations some one in the 
room asked the question if I had been subjected to any such threats, 
I notice in the list of organizations in whose behalf you appear there 
are included the Brotherhood of Railway Carmen and the Brother- 
hood of Railway Clerks. I want to submit to you a letter that I have 
received from many members of both these organizations: 


Faitts Lopes 512—BRoTHERHOOD oF RAILWAY CARMEN OF AMERICA. 


To J. STANLEY WEBSTER. 

GREETING: In council assembled the Brotherhood of Railway Carmen of America, 
Falls Lodge 512, do most emphatically proclaim and assert, that under Government 
control of the railroads that wages have been increased, the work day shortened, and 
our working conditions improved, that labor and the family have had more of the 
necessities of life. ; 

Which condition has made it possible for him to become a better citizen, as from his 
savings he has become the owner of a home, and the children have the advantage of a 
better education. . 

Therefore he who obstructs the Government in this policy of control or owner- 
ship—— . 

Mr. PLums (interposing). Pardon me, but what is that? ‘He 
would instruct ?”’ 

Mr. Wesster. ‘‘Therefore he who obstructs”’ 

Mr. PLums (interposing). Obstructs. 

Mr. WEBSTER (reading): 

Therefore he who obstructs the Government in this policy of control or ownership, 
becomes our direct enemy and shall be so posted, and a record of his action shall be 
kept tor future reference, and it shall be our pledged policy to remove him from what- 
ever political line of trust the public has given into his keeping. 

We believe it to be our duty to our God, our country, and to man that labor should 
have an equality of opportunity. 

And he who denies to labor the right of a living wage is as great an enemy as the 
alien, the pro-German, and the anarchists. 

And we so strongly affirm this position that he who strives to object or demean labor, 
or in any political way detract from the quality of labor shall be posted throughout 
the length and breadth of our fair land as an undesirable. “He has denied the right 
of labor to equality.”’ . 


That is in quotation marks—‘‘He has denied the right of labor to 
equality.” 

Now, from my district, Mr. Plumb, I have gathered up in a short 
time since coming to the office building this morning a lot of letters 
of that sort that I have received. 

Mr. Chairman, I desire to ask leave to make these letters [exhibit- 
ing] a part of the hearing, that one of each of them be printed as # 
port of the hearing as my answer to the question whether there has 

een any effort to coerce Members of Congress by these organizations 
who are appearing before us at this time. 
_ The Cuarrman. You do not mean to insert all of them? 

Mr. Wesster. No; only one and permit the others to be filed, 
one from the railway mail clerks and one from the Brotherhood of 
Railway Carmen. ‘They are in the same form precisely. 





RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 663 


_ Mr. Barxtzy. Not railway mail clerks? 

| Mr. Wesster. The Railway Clerks of America. 

The CuarrMan. Without objection it is so ordered. 

(The letters referred to by Mr. Webster follow:) . 





i 
: Fautits Longe 512, BrorHERHOOD oF RatLwAy CARMEN OF AMERICA. 


“To J. StANLEY WEBSTER. 


- GREETING: In council assembled the Brotherhood of Railway Carmen of America, 
‘Falls Lodge 512, do most emphatically proclaim and assert, that under Government 
control of the railroads that wages have been increased, the work day shortened and 
our working conditions improved, that labor and the family have had more of the 
necessities of life. 

__ Which condition has made it possible for him to become a better citizen, as from 
‘his savings he has become the owner of a home, and the children have the advantage 
of a better education. 

Therefore he who obstructs the Government in this policy of control or ownership, 
‘becomes our direct enemy and shall so be posted, and a record of his action shall be 
kept for future reference, and it shall be our pledged policy to remove him from what 
ever political line of trust the public has given into his keeping. 

We believe it to be our duty to our God, our country, and to man that labor should 
have an equality of opportunity. 

And he who denies to labor the right of a living wage is as great an enemv as the 
alien, the pro-German and the anarchist. 

And we so strongly affirm this position, that he who strives to object or demean 
labor, or in any political way detract from the equality of labor, shall be posted through- 
out the length and breadth of our fair land, as an undesirable. ‘‘He has denied the 
right of labor to equality.”’ 





GEO. C. JENSEN, 
Route No. 11, Hillyard, Wash. 


BROTHERHOOD oF RambwAy CLERKS—SPOKANE LODGE No. 34. 


Congressman J. SrANLEY WEBSTER. 


GREETING: In council assembled the Brotherhood of Railway Clerks, Spokane Lodge 
No. 34, do most emphatically proclaim and assert that under Government control of 
the railroads wages have been increased, the work day shortened, and our working 
condition improved; that labor and the family have had more of the necessities of life. 

| Which condition has made it possible for him to become a better citizen, as from his 
Savings he has become the owner of a home, and the children have the advantage of a 
better education. 

Therefore, he who obstructs the Government in this policy of control or ownership 
_becomes our direct enemy and shall so be posted, and a record of his action shall be 
kept for future reference and it shall be our pledged policy to remove him from what- 
ever political line of trust the public has given into his keeping. 
| We believe it to be our duty to our God, our country, and to man, that labor should 
have an equality of opportunity. 

And he who denies to labor the right of a living wage is as great an enemy as the alien, 
the pro-German, and the anarchist. 

And we so strongly affirm this position, that he who strives to object or demean labor 
or in any political way detract from the quality of labor, shall be posted throughout 
thie length and breadth of our fair land as an undesirable. ‘‘He has denied the right 
ot labor to equality.”’ 

Fay CORBETT, 
Great Northern Railroad, Spokane, Wash. 


Mr. Sweet. Are the letters identical ? 

| Mr. Wesster. Yes, sir; precisely. The two letters are exactly 
alike; they have simply been sent by different organizations. 

_ Mr. Plumb, do you indorse that as a part of your educational cam- 
paign to enlighten Members of Congress with respect to your plan? 





mi 


664 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Piums. I would not say that I indorsed that extreme language 
but the very fact that you have received such letters from so large a 
number, if those are all letters bearing on this subject 

Mr. Wesster (interposing). Very well, I am perfectly willing te 
submit them to you for your examination. 

Mr. Piums. No;I do not care to see them. I merely want to state 
that the fact that you have received such a number of letters gives 
point and illustration to what I said yesterday, that the situation is 
getting beyond the point of control. 

Mr. Winstow. If my memory serves me correctly, you stated 
yesterday that when letters were received by Members of Congress 
written in different language, showing the individual interest, that 
they were letters from the heart, letters of love, and when they came 
set up in one form it was propaganda and should be avoided, | 
should like to inquire if these letters were written from the heart o1 
are propaganda letters ? 

Mr. Wexssrer. They are in precisely the same language, all on 
what appear to be the letterheads of the organizations, and each 
letter of both organizations is in identically the same lanaguage as 
the other. 

Mr. Winstow. How would you class these letters, as propagande 
or letters of love? 

Mr. Piums. I should say they were probably not letters of love 
but if they originated in the same district I should say that the officers 
+ those organizations had united on a single form of letter from that 

istrict. 

Mr. Wrnstow. And brought forth a propaganda thereby ? 

Mr. Prums. Mr. Winslow, there is no such thing as propaganda 
except as meaning propaganda of the truth. : 

Now, unless conditions existed throughout the country where tii 
doctrine is welcomed as a solution of existing evils, no amount 0 
social propaganda can possibly increase or retard the movement. 
is the conditions existing that make the acceptance of this thing 8: 
remarkable, because as soon as it is apprehended by those who ar 
striving with discontent, they say, “Here is a solution and w 
demand it.” 

Mr. Wesster. If you will look over one of the copies which I hay 
laid on the desk before you, you will see that it is printed. 

Mr. PLums. Yes; I see. 

Mr. WessTeR. It is not typewritten. 

Mr. Piums. Yes; I see. | 

Mr. Wesstrer. And to show that it is printed, if you will notic 
right under the words “ Fall Lodge 512, Brotherhood of Railway Cai 
men of America,” there is the union label of the concern that printe 
the letter. 

Mr. PLums. Yes, sir. 

Mr. Wezsster. I want to ask you if you indorse that as a meat 
" ade te the favorable action of Members of Congress on legi 

ation ¢ 

Mr. Piums. The italicized line in the letter is “that labor show 
have an equality of opportunity,’ and “ And he who denies to labor tl 
right of a living wage is as great an enemy as the alien, the pr 
German, and the anarchist.” | 














RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 665 


Mr. WessTER. May I just direct your attention to what precedes 


| that italicized statement: 


Therefore he who obstructs the Government in this policy of control or ownership, 


_ becomes our direct enemy and shall be so posted, and a record of his action shall be 
_ kept for future reference, and it shall be our pledged policy to remove him from what- 
ever political line of trust the public has given into his keeping. 


Mr. Prump. I think that any body of citizens in the United States 


has a right to use their franchise and their political privileges to 


protect through their ballots any rights which they believe they are 


entitled to. Of course, that threat becomes absolutely powerless, if 
you call it a threat, unless the public also supports their belief. They 


would be powerless to remove any Congressman from his seat unless 


the public opinion in his district supported their opinion, and it is 


“merely 





Mr. WEBSTER (interposing). They do not confine themselves here 
to removing a Congressman from his seat; they say that he is to be 


~“nosted throughout the length and breadth of our fair land, as an 


undesirable.” They can not remove me from my seat in Congress by 
posting me outside of my district, because the people outside of my 


district have not any voice in that matter. They propose to hold me 


up to country-wide ridicule and scorn as their direct enemy, 
Mr. Prums. I do not see that. All that I can see is this, ‘‘Itshall 


be our pledged policy to remove him from whatever political line of 
trust the public has given into his keeping.” 


Mr. WesstTer. It says here, ‘And we so strongly affirm this posi- 


| tion, that he who strives to object or demean labor or in any political 





way detract from the quality of labor, shall be posted throughout the 
length and breadth of our fair land as an undesirable.’ Then this 
statement is quoted: ‘‘He has denied the right of labor to equality.”’ 
I have another one here that makes it a little more specific. This 
comes from Spokane, my home city, and I read this extract from it: 
“Tf you are seeking higher aspirations in political life, you hold your 
destiny in your hands. Vote for Government ownership of rail- 
roads.”’ Do you indorse that ? 

Mr. Prump. Such a letter as that? 

Mr. WeEBsTER. Yes. 

Mr. Prump. I think there is nothing improper in that letter. 

Mr. Wessrer. Do you think there is anything improper in the 


letter in your hand to which I have directed your attention ? 


Mr. Pius. I think this letter that I hold in my hand is subjec 


to exactly the same criticism that we have attached to the policies 
of the other side. Colliers sometime ago advocated the public 


posting of men in political life who did not subscribe to the beliefs 
supported by Colliers. 
r. Wessrer. You do not want to subscribe to the idea that it is 
all right to do wrong so long as somebody else does wrong? 
Mr. Piums. I do not; but you must remember that these men are 


, following examples that have been thrust upon them, and there 


must be some charity shown to them, because they have had a bitter 


Toad to travel. In the main, when they say that the man who does 
' Dot accept their demands they will consider as an enemy to labor, 
_ they believe that labor should have equality of opportunity, and 
that the man who denies that opportunity is an enemy of labor. 


- Mr. Wessrer. Then, you indorse the letter ? 


666 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Pius. I indorse that statement in the letter. 

Mr. Wessrer. What part of the letter do you not indorse? 

Mr. Pitums. I do not indorse the posting. I believe that thatTis 
just as much to be criticized as like methods pursued by our adver- 
saries. I would like to keep our campaign free from such objections, 
and would if it were within my power. 

Mr. Wesster. Will you agree with me that the letter, taken by 
and large, in all of its terms, is a plain threat? 

Mr. Prums. I admit that that is a plain threat. 

Mr. Wesster. I want to ask you this question: Do you advocate 
the use of threats being brought to bear upon Members of Congress 
to further the enactment of legislation ? 

Mr. Pius. I believe the public have got the right 

Mr. WEBSTER (interposing). I wish you would answer my ques- 
tion. 

Mr. Prums. I am going to answer it. 

Mr. WesstTeEr. That is a fair and plain question. Do you indorse 
the resort to threats conveyed to Members of Congress for the purpose 
of influencing their action officially with reference to pending 
legislation? 

Mr. PLums. Under certain conditions I do, and now I will say 
what those conditions are: When an issue arises in Congress whic 
is not submitted to the people at the polls and on which the Congress- 
man has not received directions from his constituency, I believe that 
his constituency have the right to inform him what their beliefs 
may be and what action they desire him to take. 

Mr. Wesster. And then to tell him what they will do to him if 
he does not do as they desire? 

Mr. PLtums. They will inevitably do that, because that is human 
nature. 

Mr. Wessrer. But do they have the right to do that? 

Mr. Prums. Anybody has the right to tell any Member of Congress 
whether he will vote for him or not. 

Mr. Wezster. And to tell the Congressman what he will do to him 
if he does not do as desired 2 

Mr. Pius. I believe that he has. 

Mr. WepstErR. Then you, as general counsel of the organization, 
indorse that as the proper thing to do? 

Mr. Piums. No, sir; I do not. Now, I want to say this, that I 
believe that every voter has the right to inform his Representative as. 
to his views. Now, having that right, the form of the expression of 
his views will inevitably be a threat—that is, that he will not vote for 
you again, or that he 1s going to defeat you if you do not follow his 
views. That is inevitable, and you can not get away from it. But 
that threat does not need to worry the Congressman one particle 
unless the public supports it. If the public does support it, or if a 
majority of his constituents want him to take that action, he is 
recreant to his trust if he does not take it. : | 

Mr. Wessrer. Do you not think that he is entitled to give a little 
consideration to other elements of his constituency not comprising the’ 
labor organizations ? 

Mr. Piums. Certainly he must. 

Mr. WesstTerR. And to the Constitution of the United States when 
he takes an oath to uphold and support it? 

Mr. Piums. Certainly. 





RETURN OF THt RAILKOADS TO PRIVATE OWNERSHIP. 667 


Mr. Wessrer. As a lawyer of broad experience, and I am sure you 
are that sort of a lawyer, do you not know that if this letter should 
be written to the judge of a court with reference to a case pending 
before him it would subject the writer to imprisonment for contempt ? 

Mr. Proms. Certainly; but a Representative in Congress or any 
legislative body is there to enact the desires of his constituents, pro- 
vided they are constitutional. | 

Mr. Wezster. Do you not think that the proper course to pursue 
is the one to which you committed yourself yesterday? If I have been 
misinformed regarding it, you can correct me, but it is the one to 
which I know Mr. Morrison and Mr. Stone committed themselves and 
indorsed, because I was here and heard it—that is, that they proposed 
to carry on a campaign of education and enlightenment, and that they 
propose to appeal to the intellect and conscience of Members of Con- 

ress in an effort to win their approval for what they call the Plumb 
lan. Now, isit to be understood by us that that friendly campaign of 
education and enlightenment is to be carried on in the form of threats, 
and by telling individual Members of Congress what punishment will 
be inflicted upon him if he fails to give expression to their opinions? 

Mr. Prums. That is not our plan, and I am sorry that you were 
not here yesterday, because we tried to make an appeal to the intellect 
of Congress yesterday. | 

Mr. Wesster. I am very sorry that I could not be here on account 
of illness. Will you be kind enough, for my benefit, to define your 
attitude in regard to that matter now, because of those conditions 
which prevented me from being present yesterday ? 

Mr. Prump. Certainly. My attitude is this, Mr. Congressman: 
We are here presenting to this committee the very best reasons for 
the adoption of this plan that we can present. We are presenting 
those same reasons throughout the length and breadth of this country 
to the public through every means at our command. That is our 
purpose and that is our campaign. We are using the press, the labor 
es the magazines, our own publications, and the lecture platform 

or that purpose, and you will not find in any single matter that we 
have sent out anything that could be used as the basis for a threat. 
[t is purely an appeal to reason. 

Now, one word more: The reactions of this are inevitable in just 

uch letters as you have received, because the mind of the working- 
nan throughout the country is like a bed-of tinder, and the moment 
‘hat he sees anything that promises a ray of hope or a way of escape, 
‘he reactions are bound to come to you, and they will come in the 
orm of threats, such as this letter that you have received. That we 
‘an not control. There is no way of controlling it. It is not the 
‘nethod which the leaders desire to have followed, but it is the inev- 
table reaction of men who see a ray of hope out of the darkness that 
low surrounds them. If you can not see it in that view and make 
he allowances which this tremendous unrest throughout the country 
pg lead you to make, then you can not judge the temper of the 
-eople. 
) Mr. Wesster. Now, you have just stated that in none of the meth- 
ds to which you have resorted in getting this matter before the 
eople have any threats been resorted to, but you have just stated 
1a qualified way that you thought this was permissible. Now, why 
ave you not done it? 








668 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Prums. Because that is not the right way to do it. This is a 
matter of statesmanship. 

Mr. Wesster. That is what I thought. 

Mr. Prums. It is a matter that ought to be approached purely from 
the statesmanship viewpoint or idea. It is a case where reason ought 
to control, but we are dealing with a situation where men who grasp 
a glimpse of reason get beyond control, because they see a ray of hope 
and they want to realize 1t immediately. 

Mr. Wesster. Had you seen this form of letter before I handed it 
to you this morning ? 

Mr. Prums. I had never seen it before, and I did not know that 
there was such a letter. 

Mr. Wesster. You did not know that they were being sent out by 
this or any other organization ? 

Mr. Piums. No, sir. 

Mr. Wesster. Had you been consulted about it, would you have 
advised sending them out? 

Mr. Pitums. I would have advised sending a letter, but not that 
form of letter. | 

Mr. Wesster. If you had been consulted. about distributing this 
letter to which I have called your attention, would you have advised 
it being sent out ? 

Mr. Puums. Not that letter; no, sir. I can tell you what kind of 
letter I would have advised sending out, but I have not advised as to 
any of them. 

Mr. Wesster. Now, in order to make it specific, will you please 
take the copy handed to you and tell me what portions you would 
leave out if you were censoring it ? 7 

Mr. Ptums. Suppose I dictate such a letter as I would send out. 

Mr. Wesster. No, sir; I want to confine your attention to that 
form of communication that you said you would not approve. Will 
you indicate what part of it you would disapprove and recommend 
being stricken from the letter ? ) 

Mr. Puums. When I disapproved this form, I do not know that I 
would want to then say what parts of it I would strike out. I do 
not approve that form at all. 

Mr. Wesster. If your clients had come to you as counsel and 
said, ‘‘Mr. Plumb, we are contemplating sending to Members of 
Congress a letter in this form, and we want the benefit of your train- 
ing, experience, and mature judgment on the question of whether 
this is the proper letter to send.” You have already told me that 
you would have said to them, ‘‘No, gentlemen, I do not think ths 
letter should be sent.’ Then, they would want to know why. Please 
tell me what reasons you would give them under those conditio 
and what parts of the letter you would advise them should be stricke 
out ? 

Mr. Piums. I would have said, ‘‘Strike out all after 

Mr. WessTER (interposing). ‘After the enacting clause ?”’ 

Mr. Puums. ‘‘After the enacting clause,’ and I would begin with 
“My dear sir.” . T 

Mr. Wesster. To that extent you indorse this letter, though 1 
neither begins with ‘‘Dear sir’ nor closes with anything, and ie 
would eliminate the portion of it between what would appear if it hac 













RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 669 


commenced with ‘My dear sir” and had concluded with something 
ae, Lours, truly’’—— . 

_ Mr. Pius (interposing). I would have eliminated everything 
rom “My dear sir” down to the signature. 

Mr. Wesster. That is what I thought. 

' Mr. Prums. That is what I was trying to convey to you when I 
Jaid, “‘Suppose I dictate a letter.” . 

Mr. Raysurn. Mr. Plumb, I do not intend to question you in 
egard to the bill or as to the phraseology of it, because our minds are 
0 far apart on the fundamentals that it would not be important 
vhat language you expressed your ideas in. It was stated the other 
lay that 2,200,000 employees indorsed this bill. 

Mr. Pumps. Yes, sir, 

_Mr. Raysurn. That, of course, would indicate an indorsement 

{ter an understanding of what was in the bill. 

_ Mr. Prump. Yes, sir. ) 

Mr. Raygurn. Now, can you tell me just how the average railroad 

mployee would understand the provisions of this bill 
PiumB (interposing). He would not understand the pro- 

isions of the bill at all. 

Mr. Rayspurn (continuing). Well enough to indorse them ? 

Mr. Ptums. He would not. 

Mr. Raysurn. When Mr. Morrison, who is the second man in 
our organization, and Mr. Stone, who is the head of one of these 
Bee atone, admitted that they did not understand the provisions 
“the bi 
| Mr. PLums (interposing). They would not attempt to. They do 
aderstand thoroughly the principles involved, and they trust us to 
nbody those principles in proper phraseology and in proper 
‘ovisions. | 
Mr. Raysurn. Now, you say that you, and speaking for the 
ganization that you represent, are against the Government owner- 
Ip and operation of railroads. 

Piums. Against the Government operation of railroads. 

. Raysurn. Are you against Government ownership and opera- 
m of railroads, or the two together ? 

. Prums. I am against the two together; yes, sir. 

. RayBurn. You say that the employees indorse this bill 2 

. PLums. Yes, sir. 

“Mr. Raysurn. There is a town in my district that is quite a railroad 
vn, and not earlier than April I made some remarks here on the 
lroad situation. They were made in February, I think, and they 
te mailed out to them. I got about 200 letters from this town, 
In the same language, starting out with “Sam Rayburn, Esq.,” 
(1 winding up with nothing in the way of respect, saying that they 
re in favor of the Government ownership and operation of railroads 
1 that their organizations stood for that. N ow, if they are against 
eanent ownership and operation of railroads, they have changed 
pir ideas. 

|, Proms. There was one of the major organizations that in- 
;Sed Government Ownership and operation before this plan was 
ounced. This plan was presented on the 7th of February. 
PSequently, the plans were distributed, or the letter was dis- 
uted to all of the officials of those organizations. They studied 








————— 











670 RETURN OF THE RAILRUADS TO PRIVATE OWNERSHIP. 


the statement made before the Senate Committee, and conventions 
began to be held in May. They were held on through June and some 
of them into July. At those conventions this plan was discussed 
by the officials and their representatives in the conventions, and 
appropriate action was taken by all of those conventions, and, I 
believe, unanimously in every case, indorsing this plan for Govern- 
ment ownership of railroads and their operation by this organization 
that we propose. I want tosay this: The average, ordinary working- 
man may have a clear idea in his own mind of what he wants to 
express, but the words in which he expresses it may not clearly 
indicate what it is that he wants to say, and, in many instances, the 
workingman will speak of this plan as Government ownership and 
operation, but he does not mean operation by the Government. 
When they say that, they mean operation under this plan as proposed. 

Mr. Raypurn. I think this letter I got was drawn by an expert 

Mr. Piums. That was in 

Mr. Rayspurn (interposing). That was in March. 

Mr. Piums. That was before this plan had reached all of the 
organizations. 

Mr. Rayvsurn. So that, if they were for Government ownership 
and operation then, they have indorsed this plan since. There is 
one provision of your bill to which I would like to call your attention, 
and that is where you form the directors. You stated a moment 
ago that five were to be appointed by the President to represent the 
110,000,000 people in the United States—including the farmers, 
shippers, consumers, and everybody else. 

Mr. Pius. Yes, sir. 

Mr. Rayspurn. There are something like 2,000,000 railroad em- 
ployees. 

Mr. Pius. Yes, sir. 

Mr. Rayspurn. Don’t you think that is a rather big division to 
make, to give them 10, and the other 110,000,000 Sauk 5 members 
of this board of directors ? 

Mr. Prump. We do not give the employees 10; we give the em- 
ployees 5 and we give the public 5. 

Hi RayBurn. The five appointed by the President belong to the 
public ¢ 

Mr. Prums. They do belong to the public. I want to answer that 
question, and I want to distinguish between the 10 for the employees 
and 5 for the public. We do not consider the management a& 
belonging with the classified employees. We do not consider that the 

ublic and the classified employees—that is, the consuming element 
in society and the producing element—are equally balanced. Now 
the public is going to hold those employees responsible for carrying 











RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 671 


Mr. Raysurn. Do you assume that the President will appoint any 

number of men, even though he had the appointment of all of the 
15 directors, who would not be broad enough to comprehend the 
ees of laboring men as well as those of the other 110,000,000 
eople? 
: Mr. Prums. Yes; that is our experience. The post-office appoint- 
ments seem to justify our belief. We have not found that at the 
head of governmental bureaus they have always succeeded in getting 
men of admitted skill and efficiency in the lines of activity which they 
were conducting. 
Mr. Raysurn. But a man’s fairness must not be measured by 
that, or by his readiness in granting everything that a special organiza- 
tion may ask. 
— Mr. Prums. No; but his skill and efficiency are what we are-holding 
him responsible for, and there is no, way to hold a Government 
appointee responsible for skill and efficiency. He may be an emi- 
nently fair-minded man, but if he is taken from a bank and put in 
charge of stockyards or railroads, you are not liable to get efficiency 
out of the organization under him; and we want men in charge of this 
industry who know it from the ground up. 
Mr. Raysurn. The five who are appointed by the officials of the 
railroads are railroad employees ? 
Mr. Ptums. Yes; they are, but you do not so regard them to-day. 
Mr. Rayspurn. They are so regarded now, are they not? 
Mr. PLums. No; because the men appointed by the railway officials, 
in a great number of cases, are not serving on the railroads to-day. 
Mr. Raysurn. That may be so, there may be some, but the men 
who are in the official positions—I mean below the eos of president 
aod men like that, superintendents and people like that—are the 
employees of the railroad. : 
Mr. PLums. Oh, yes; they are employees, but we have never con- 
sidered managing officials as having the same interests and being 
classed with the wage-earning employees. Technically, they are 
employees, I admit that, but they are a different class of employees 
performing different functions. 
Mr. Raysurn. That is true, of course. Now, you made the state- 
ment yesterday that one relief that would come from this bill was that 
the rates would be immediately reduced. 
| Mr. Piums. I do not believe that I made that statement, but I 
\think it could be done. Now, if you mean by immediately as soon 
/as the organization was formed, I doubt if that could be done, but I 
delieve it could be done within a year. 

Mr. Rayspurn. I mean as soon as it was physically possible. 

Mr. Piums. Oh, yes. 

Mr. Raysurn. Why do you say that ? 
} Mr. Prums. Well, for this reason: We are now paying for the use 
| t these railroads approximately $1,000,000,000 a year to the owners. 
Mr. Raypurn. Yes. 
Mr. PLums. We anticipate that if these properties are taken over 
dy a fair valuation the capital return would not exceed $500,000,000 
\ year, just about the amount they are now paying in fixed charges 
omtheir bonds. That would have given us $500,000,000 a year which 
vould have wiped out our deficits and left us with a surplus, even with 
| he increased cost of wages and materials. Now, we believe that 
152894—19—vor 1 43 








672 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


under this organization we could have effected efficiencies sufficient to 
have made a net earning of $500,000,000. That would permit a 5 
per cent decrease, more than a 5 per cent decrease, about a 7 per cent 
decrease in rates. We also believe, Congressman, that Director 
General McAdoo was absolutely right when he increased passenger 
rates for the purpose of reducing the amount of transportation. He 
did it, and he reduced the income. We believe that if you were to 
reduce passenger rates you would increase income right now, and if 
you were to reduce freight rates, you would get the same results. 

Mr. Rayspurn. But itis entirely a question of opinion as to whether 
or not freight rates would be panied: 

Mr. Prums. No. 

Mr. Rayspurn. You believe that through these efficiencies, if there 
were any, the expenses of the railroad operation would be cut down, 
and others may believe that.through this system that they would 

oO up. | 
: Mr. Piums. My belief is founded on knowledge. 

Mr. Raysurn. What knowledge? | 

Mr. Piums. This, in the 80 years of railroad experience until 
within the past 5 or 6 years, we have had a constant reduction in the 
cost of transportation with no increases, but constantly reduced by 
the railroads themselves, because they knew that such reductions 
would produce increased profits through the increased traffic which it 
would induce. That has been the experience of the railroads from 
the beginning down to five years ago, and they have not been mis- 
taken in their judgment, because traffic and profits have increased 
with every reduction, and they have supported their entire rate 
structure on the theory that they had fixed 1t just low enough to per- 
mit that flow of traffic which would give the greatest profits. That 
is the testimony in all these rate hearings, and the experience of 80 
years has justified it. Now, if that be true—and there is not any 
railroad man who will gainsay me in that—if you raise the level of 
rates you have got them too high to permit that flow of traffic which 
permits the greatest profit, and we have raised our rates 48 per cent. 

Mr. Raysurn. They are now under Government control. Sup- 
pose they are turned back to private control, and you say this has 
been demonstrated by the experience of railroad people 

Mr. Prums. Yes. : 

Mr. Rayspurn. Can they properly reduce the rates ? 

Mr. Piums. Not if they still seek to capitalize the profits they have 
made under the old system and exact a return on those capitalized 
profits. They can not, in any possible way, increase rates so as to 
produce increased revenues. It can not be done. 

Mr. Raysurn. I am not talking about that. You said that they 
had been reducing rates in order to increase revenue. Now, if they 
were turned back would they not do that again ? 4 

Mr. Prums. No. They are here with three plans which do not 
contemplate any such action, and I admit they can not do it and 
carry the burden of their capitalized profits. It can not be done. 

Mr. Raysurn. It is not to be presumed, of course, that this col 
mittee or that Congress has got to take your plan or the railroads’ 
plan for legislation looking to the return of their railroads. 

Mr. Prums. No; but this Congress ought to inform itself of the 
history of railroad construction. | 





RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 673 


Mr. Raypurn. We are trying now, Mr. Plumb, to get all the infor- 
mation we can. 

Mr. PLums (continuing). And the burden of overcapitalization, on 
definite knowledge, before it accepts any program. 

_ Mr. Raysurn. We are trying to do that. 

Mr. Pius. Yes. 

Mr. Raysurn. You talked about unrest last night and about this 
fellow out in St. Louis who came up to you and said there was going 
to be a revolution in this country if your plan was not adopted. 

Mr. Prums. No; what I said was, if something like this was not 
provided. 

Mr. Raysurn. I understood you to say your plan, and I saw that 
in the papers this morning. J will accept that statement. That is 
nothing new, is it, for somebody to say that if something they want 
is not put into effect there will be a revolution ? 

Mr. Piums. No. 

Mr. Raysurn. That has been going on for a long time. 

Mr. Prums. Humanity works along the same lines and according 
to very general laws. 

Mr. kayspurn. And those men—TI do not say that it is true of this 
particular man, but as a general rule, those fellows are men who have 
been standing around on the corners making speeches and stating that 
various things are going to happen and that revolution is coming, and 
the Government is going to be overturned if certain things are not 
done which go to the fundamentals of government. 

Mr. Prums. No one has said, not even this man, or even intimated 
that the Government was going to be overturned. I cid not want to 
give that impression, but that the industrial system must be over- 
turned. There must be some way out by which this Government 
without an overturn can make a revolution in industrial conditions. 

Mr. Rayspurn. But I do not think there is any reason for undue 
ularm just because a few people say that a revolution is going to come 
inless some specific thing is done. Now, let me call your attention 
© this: You say that people are petitioning you and want to hear 
your plan discussed all over the country. ‘That is quite natural. It 
8 a new and novel plan, and i must say for you that | do not think 
shere is a man in the country who could present it better than you do. 

Mr. Prums. Thank ‘you. 

Mr. Raysurn. But, on the other hand, yours is a new order of 
hings. To-day there is a campaign going on in my State led by aman 
vho was once an official in Washington, who is preaching, Get back to 
he old order of things, and to our constituted authorities and act 
tmder the law and the Constitution, return the railroads to private 
wnership, and things like that, and they are flocking to hear him by 
he thousands. What do you think that means ? 7 
Mr. Proms. If the thousands who hear him support his doctrines , 
_ Should say he was proceeding on pretty safe ground. 

_ Mr, Rayzurn. That is just it, and because they want to hear you 
‘n this plan or any other man on another plan does not give an indi- 
ation that the country at this time is for it. 

_ Mr. Piums. I do not believe that I have attempted to intimate 
‘hat a majority of the country at this time was for it. 









6 74 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Raysurn. No; I do not say that you have, but you were 
giving that as an evidence of the interest in this plan, and you were 
making an argument for this bill and its provisions at that time. 

Mr. Piumps. I think the very fact that thousands of men are hear- 
ing this advocate in Texas, that you just spoke of, advocating a 
return of the railroads to private ownership, shows a public interest 
in the question which did not exist a year ago. That man could not 
have gone out a year or two ago and attracted a dozen to such an 
address, and probably I could not either. The fact that both of us 
can call large audiences to hear us talk on the railroad problem shows 
you that the public are awake and they are demanding a solution. 
I do not say they are demanding this solution. They are demanding 
a solution. 

Mr. Rayspurn. They are certainly awake down there since the 
Government has been operating the railroads. Mr. Plumb, do you 
atlvocate the application of the plan in this bill to other industries 
and means of transportation? 

Mr. Piums. I am not so advocating at this time, Congressman, 
but, frankly, the principle of this bill is applicable to every socialized 
industry based on either a grant of privilege from the Government 
or an acquired monopoly. 

Mr. Raypurn. What about the shoe industry ? 

Mr. Prums. If it partakes of the nature of a monopoly, I see no 
reason why it should not be made applicable | 

Mr. RaysBurn. What about the coal mines and the steel mills ? 

Mr. PLumsB (continuing). If the employees of the shoe industry 
want it so made. 

Mr. Raysurn. Do you think it would be hardly fair to the em- 
ployees in other industries to socialize the railroads only and not 
them ? 

Mr. Prums. It is up to them. 

Mr. Raysurn. No; I am not talking about its being up to them. 
I am talking about whether it is fair to them or not. 

Mr. Piums. Certainly; if they desire it done, no one else is going 
to object, and I do not believe it would be wise to take this up and 
apply it to all socialized industries. Now, you and I use ‘‘socialized’’ 
in a different meaning. 

Mr. Raypurn. Yes; I remember your explanation of that term 
yesterday. 

Mr. PLums. Yes. I do not believe it would be well to apply this 
to all socialized industries at once and by one act, but I do believe 
it would be well to apply it to railroads, which are purely govern- 
mental in their functions and which are necessary as a public service, 
not in the production of private industry. 

Mr. Raysurn. How long do you think it would be, if we were to 
socialize all industries, according to what I think about socialization, 
and they were turnéd over to the employees, each group jealous of 
the profits that the other was making, and the wages that the others 
were getting, and the result of that labor that they were having to 
buy—how long do you think it would be before they would be eating 
each other up ? 

Mr. Piums. I think probably they would last a good deal longer 
than such groups of capitalists with like jealousies as to each other's 
profits and a like desire to eat each other up, and a much better 



















RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 675 


training in the eating habit, and much higher skilled in accomplishing 
it. 

Mr. Raysurn. But in order to get away from one, why should we 
embrace the other ? 

Mr. Ptums. We are not trying to get away from one. We are 
trying to get this one which affects all 

Mr. Rayspurn. But I am talking about this eating up which these 
capitalists have been doing, and I say it would be well to abandon 
that, but why embrace the other. 

Mr. Piums. Really, I do not catch the drift of your question. 

Mr. Raysurn. You said this eating process has been going on, 
and I asked you what would happen if you socialized these industries, 
or in other words, espoused the soviet system 

Mr. PLums (interposing). I really do not know what the soviet 
system is. I am not informed on that. But I do know that with 
two thousand and some odd railroad corporations that we started in 
this business, they have eaten each other up now, until two groups 
control all of them, and it is a question now which one of the two 
remaining tigers gets the other. 

Mr. Rayspurn. When one of those tigers eats up the other we would 
then have this centralized control like we would have under some of 
the p.ans that have been indorsed here. 

Mr. Pius. Yes. 

Mr. Rayspurn. Mr. Plumb, what do you think about the recom- 
mendation of Mr. Hines about a board to control wages ? 

Mr. Pitums. My opinion will be merely personal on that because, 
as I informed the Congressmen, I am not versed on the wage question 
and do not represent the unions in any wage controversies. 

Mr. Raypurn. But that represents a policy. 

Mr. Pius. It is a policy which I am informed is contrary to that 
approved by the unions or by the organizations. 

Mr. Rayspurn. This question was submitted to me the other day 
by a Member, and I asked you the question because it was submitted 
tome. You stated that labor in its increases was never able to keep 
up with the increases that the employer made or the profits the 
employer made. I find that 10 years ago—— 

Mr. PLums (interposing). Wait a minute, Congressman, that was 
not what I said. I said that labor in its increases never could ‘over- 
come the increased cost of living by the amount of increased profit 
which went to the employer. Now, there is a big distinction there 

Mr. Raypurn. What did you say ? 

Mr. Piums. That the wages allotted to labor, the increase in the 
pay of labor, never could overtake the increase in the cost of living, 
and its failure to overtake the increase in the cost of living was 
Measured exactly by the increased profit which the employer made 
on the increase which he allowed to labor. 

Mr. Raysurn. I find that the statistics go to show that 10 years 
ago labor received about $1,000,000,000 on the railroads. 

' Mr. Prums. Yes. 

. Mr. Rayspurn. And last year, $2,500,000,000 I believe you stated 
the other day. 

. Mr. Prums. No; I think labor altogether received something over 
‘three billion or very close to three billion last year. I was estimatin 
the amount that went to the members of the organizations that 
represent. 








: { 
676 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Raypurn. And ‘the return on capital 10 years ago was $760, 
000,000 and last year about $900,000,000 ? 

Mr. Piums. Yes. 

Mr. Raypurn. With an estimated value of eighteen billion and 10 
years ago thirteen billion six hundred million. 

Mr. Prums. Now, you have taken into that equation the increase 
in wages allowed by the Government under governmental control and 
not the increase allowed in industries not so controlled. Of course, 
in this instance there has been no increased profit to the employer, 
the railroads, and none to the Government, but the cost of living has 
stretched out in advance of the wage allowed by the amount of profit 
which the manufacturers of commodities have received and the 
profits which intermediate dealers have charged to consumers on the 
increased transportation which they have paid. 

Mr. Raysurn. That is all, Mr. Chairman. 

(The committee thereupon took a recess until 2 o’clock p. m.) 


AFTERNOON SESSION. 
At the expiration of the recess the committee resumed its session. 


STATEMENT OF MR. GLENN E. PLUMB, GENERAL COUNSEL 
FOR THE ORGANIZED RAILWAY EMPLOYEES OF AMERICA, 
WASHINGTON, D. C.—Resumed. 


The CuarrMan. Col. Winslow, of Massachusetts, will interrogate 
the witness. 

Mr. Wrinstow. Mr. Plumb, in addition to your profession as a 
lawyer I understood you to say that you had been somewhat actively 
engaged in railroad management. Can you tell us what that was? 

Mr. Prums. Do you want my entire railroad history ? 

Mr. Wrnstow. No; just a general statement as to how you have 
been connected with railroads. 

Mr. Pirums. When I graduated from law school in 1893 I went 
into the office of Peck, Miller & Starr, in Chicago. George R. Peck 
was then the chief counsel for the Santa Fe and afterwards for the 
Milwaukee & St. Paul, and we had other railroad clients in the office. 
I was with them for five years, during which time I spent a large part 
of my time on railroad matters. In 1900 I was appointed attorney 
for the Chicago General Railways Co., a street railway company ip. 
Chicago, and in the ensuing years I had very interesting legal expe- 
rience with Mr. Charles T. Yerkes, who owned other street nek | 
systems in Chicago, where I nad about three years; the railroad 
was with was in the hands of the receiver, during which time I repre- 
sented the receiver, and then was manager of the road and eventually 
receiver and then in charge of the reorganization of the properties. 
That would be from about 1900 to 1905. In 1905 Edward F. Dunne 
was elected mayor of the city of Chicago and he attempted to 
straighten out the traction tangle. I was about the only street rail 
way lawyer there that had.not been engaged by the big interests 
succeeding Yerkes and the Southside Co., and I was retained by 
Mayor Dunne as special attorney and counsel for the city of Chicago, 
during which time I prepared, together with Clarence Darrow an 
Maj. Tolman, the corporation counsel, and presented to the 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 677 


supreme court what is known as the 99-year case, or Blair et al. v. 
The City of Chicago, in which proceeding most of the principles that 
Lam here contending for were upheld by the supreme court. Then 
I went back to the little road that I had formerly been connected 
with, which was soon absorbed by the big systems and taken over 
‘temporarily by them. I was president of the Calumet & South 
Chicago Railroad, a street. railroad with a line of about 200 miles 
in the southern part of the city, and on the absorption of that system 
by the Chicago City Railroad Co. I was retired to private practice. 

I then represented the State’s attorney of Cook County and the 
corporation counsel of the city of Chicago in various negotiations 
between the elevated railways and the surface lines, during which 
period I also represented with others the street railway employees 
of, Chicago in the settlement of their strike of 1916, and in the Iliti- 
gation involving the elevated railways I established in the supreme 
court of Illinois the interpretation of that provision of the Illinois 
constitution forbidding the issuance of stocks or bonds by railroad 
companies in excess of the amount paid for them. 

Then in 1916, I believe it was, it might have been 1915, but I 
think it was 1916, I was chosen special counsel for the city of Chicago 
in the gas-litigation proceedings which are still pending. 

In 1917 I was retained by the four big railway brotherhoods; I 
mean the four not affiliated with the American Federation of La- 
‘bor—I use the word ‘‘big”’ because that has been used—they are 
‘not really bigger than some of the other organizations—to represent 
‘them in the valuation proceedings before the Interstate Commerce 
‘Commission under the railroad-valuation act. 

In my experience with the street railways in Chicago I have 
represented every interest that exists in such corporation from being 
president of the corporation to being counsel for a committee of 
the bondholders and security holders, managing the property, acting 
as receiver for the property, for reorganization committees, and then 
in subsequent years representing the corporation as well as repre- 
senting the public interests when I was retained by the city of 
Chicago. So, as the mariner would say, I have boxed the compass 
of corporation interests in my experience. It is out of that expe- 
rience that many of the provisions of this plan have been drawn. 

_ Mr. Wrystow. Kindly state the scope of the Plumb Plan League 
in much the same way. 

Mr. Prums. The Plumb Plan League was a very sudden out- 
‘growth of the plans back of this presentation. I came here t 
Washington about the Ist of May—I think I arrived on the 2d of 
May—of this year to represent the brotherhoods. I found that in 
order to get this question before the public outside of organized 
labor that there must be means of publicity, and for that purpose 
the Plumb Plan League was organized about July 1 by the 14 rail- 
‘Way organizations. It was launched at that time and is now 
spreading so rapidly that really I do not know where it is, because 
I have not paid any attention to it in the last week. 

_ Mr. Wrystow. Well, suppose you go back a week and tell us 
where it was then ? 

_ Mr. Prums. Well, we will go back to a week before that. We had 
‘received telegraphic requests of upwards a million and a half copies 
of our announcement and the application blanks, which announce- 
ment and application blanks are even now being delivered. 










678 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Winstow. Will you kindly tell us of the financial structure 
of that league, as to its initiation fees, dues, and arrangements for 
other funds as needed, and so on? 

Mr. Ptums. The league provides for two classes of membership. 
One class consisting of local lodges and organizations who pay $10 
a year for their membership and who in return receive 10 complete 
sets of all of the literature which we put out. The individual mem- 
berships are for individuals. That is open to any citizen who be- 
lieves in democracy in industry. Each citizen pays $1 for his annual 
- dues and receives one set of all documents published, including sta- 
tistics and ‘‘ Railroad Democracy,’ a little magazine published by 
the league. 

Mr. Winstow. What do you estimate the income to be about this 
time or a week ago, at the rate per annum ? 

Mr. Prums. I could tell you approximately what it was a week 
ago, but that would be no estimate of what it would be, because a 
week ago was the first week that returns had begun to come in. 

Mr. Winstow. If at that rate, what would it amount to per annum ? 
Mr. Piumps. If at that rate? 

Mr. Winstow. Yes, sir. 

Mr. PLums. It would be an income of between $125,000 and 

$150,000 per annum. 

Mr. Winstow. Merely a fly speck on what you expect to have 

ultimately ? 

Mr. PLums. That was the first week that the returns began to come 
in. There is no reason why this league should not embrace at a 
minimum 500,000 men, and at a maximum three or four or five or six 
million men. 

Mr. WinsLow. You are pretty good at estimating things that are 
going to happen, we have discovered. What do you think will be 
the annual income 12 months from now ? 

Mr. Piumps. I really could not say, Mr. Winslow. We ought to 
have at least $500,000 a year. — 

Mr. Winstow. At least ? 

Mr. Ptums. Yes, sir; at least. I think that is a conservative 
estimate. 

Mr. Winstow. What use will that be put to? 

Mr. Piums. It will be put to the purposes of paying for our publi- 
cations, for the printing of literature for distribution, of which we 
have a very considerable amount now prepared, for providing in part 
for lectures, and the expenses of traveling lecturers. 

Mr. Winstow. Publicity, in other words. ? 

Mr. Piums. Publicity, pure and simple. 

Mr. Winstow. Pitiless publicity ? 

Mr. Ptums. No more pitiless than my examination before this 
committee. 

Mr. Winstow. In the same line ? 

Mr. Piums. In the same line. 

Mr. Winstow. In good nature, I hope. 

Mr. Pius. I hope so. 

Mr. Winstow. Will you kindly define the term “labor” as you 

use it in connection with the description of this bill? 

Mr. Ptums. The term “labor.”’ I doubt if the term ‘labor” 
occurs in the bill. ) 

Mr. Winstow. No; -in your description of the bill. 





RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 679 


Mr, Pirums. [ include—I want to be sure that I get what you mean. 

Mr. Winstow. I may be wrong about it, but you referred to the 
interest of labor in an abstract way. 

Mr. Priums. In an abstract way, the interest of labor is the interest 
of those who produce by the application of human effort to the 
problems of production as distinguished from mere investment of . 
money. Now, under that I would include the president of a railroad 
company who serves. If he were the holder of securities, his return 
on the securities should not be a part of his return for his labor, so 
he might be in both classes. A boy who carries water on the dump 
also serves and would be included in my definition of “labor.” It 
means human effort. 

Mr. Winstow. In the consideration of this bill, as you are arguing 
it, you work to the interest of all of those people ? 

Mr. Piump. I believe I have; we believe so. 

Mr, Winstow. That is the hope ? 

Mr. Prums. That is our hope; yes, sir. 

Mr. Winstow. With whom or with what organizations—I do not 
care particularly as to individuals; it may not be a fair question— 
what organizations directly or through representatives have you 
been in consultation with in consideration of this bill? 

-Mr, Piums. The 14 organizations named by Mr. Stone. I have 
received advice and help from other organizations outside which are 
not members of this organization—I mean the Plumb Plan League. 

Mr. Winstow. Such as which ? 

_ Mr. Ptums. The National Public Ownership League of pation) 
ot to give them due recognition for the assistance they have 
offered. 

Mr. Winstow. Do you agree with Mr. Morrison in his statement, 

f I quote him correctly—I mean to—that he thinks democracy is 
what you might call a government in which equal opportunity is 
forded to every man or every citizen ? 

Mr. Prums. I agree with Mr. Morrison’s understanding of the term. 

Mr. Winstow. Perhaps I am incorrect—I want to be correct. 

Mr. Morrison. I agree with him, but equal opportunity nee s 
‘ome definition, just as the word ‘‘value”’ requires different definitio ¢s 
or the uses to which it is put. ‘ 

_ If I am born into life with but one talent and the next child to me 

‘8 born with five natural talents, his opportunities are greater than 
ine because he has been more richly endowed by nature, but I 
iught to have the same opportunity for the development of my one 
alent that he has for the development of his five. : That I believe 
0 be democracy, but to say that the man with the endowment of 
ve talents by nature can do no more under the social structure than 
‘he man endowed with one talent is not democracy. That.is equal 
‘portunity in which I do not believe and in which Mr. Morrison 
oes not believe. 

Mr. Winstow. Assuming that to be quite correct, would you say 

equal opportunity were given to every man of equal capacity, 
aly and otherwise, that that would represent democracy ? 


- PLums. Yes; equal opportunity according to their capacity. 

_ Mr. Winstow. What would be the attitude of yourself and your 
/sociates toward following the principle of employment on the 
pen-shop plan if the Government aheld take this step ? 


| 





680 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Piums. If there was an open shop from above, I see no reason 
why there should not be from below, and I think that if this lan 
were organized and put into effect, labor oe would have 
their entire functions changed. A man would join a labor organi- 
zation, not to get more nront from his employer, but as a part of the 
machinery for conducting the industrial democracy. \ 

Mr. Winstow. Just for elaboration and information, what would 
be the need for unions under the conditions you have described? 

Mr. Prums. The same need that now exists for parties in Govern- 
mental politics, or in the political democracy. If you are going to 
have an industrial democracy, there must be machinery for the 
conduct of that democracy. 

Mr. Winstow. You mean a clearing house for the expression of 
their views and to see. that they are fairly presented wherever they 
may need to present them? 

Mr. Piums. Yes, sir. 

Mr. Winstow. Would you say that if this bill were to become a 
law, the railroads would be virtually a department of the Government? 

Mr. Prums. No more so than they were before the Government 
assumed control of them. 

Mr. Winstow. Do you feel that the Government would have no 
right to claim them as adopted children even if it furnished the money 
to operate them? 

Mr. Piums. Yes, sir; they would still be public highways, and them 
pperaton would still be a function of the Government. The carrying 
of that function into execution would then be effected by an agency 
created by the Government, just as at present, but the purpose of 
that agency would be service and not profit. 

Mr. Wrnstow. In what respect would it differ from the service 
rendered by the Post Office Department, which is rendered through 
a Government agency, namely, a Cabinet Member? 

Mr. Ptums. That is not an agency, but it is a department of the 
Government. 

Mr. Wrnstow. In what respect do you say it would differ, so far 
as the people and the country are concerned ? 

Mr. Pump. It would differ so widely that there is no comparison 
between the two. The Post Office employees have absolutely no 
voice in determining the policies of the department, and they aré 
not even permitted to voice their own desires as to their own working 
conditions and conditions of employment. 

Mr. Winstow. Do you favor putting them under this same plan! 

Mr. Prums. It would be a wonderful improvement. 

Mr. Winstow: What would be your attitude toward having 
railroad employees under the Government subjected to civil-service 
regulations ? 

Mr. Puums. There would be no necessity for that when the ent 
ployment was removed from politics. Civil service enters int¢ 
employment only when the employment agency is a political agency 

Mr. Winstow. Have railroad employees been in politics? 

Mr. Prums. But not employed politically, and such politica 
employees as have been placed in the service have been to the det 
ment of the service. 

Mr. Wrnstow. I do not understand you. Do you mean to sa 
that railroad employees have been driven into political activities ? 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 681 


Mr. Proms. The only way that railroad employees can procure 

Tegislation is through political activity; but I want to answer the 

‘previous question, if I may, showing how political employees are a 

Witiment to service, and I assume that the same conditions are found 

im the railroad service. I know that they are found in the street 

aulroad service. When I was managing a street railway, I was fre- 

‘quently importuned by aldermen in the city of Chicago to give 

certain men jobs, and it was frequently desirable that I find employ- 

ment for those men, but I never got value received in service for 
what I paid such men. I think that you will probably find the 

same kind of political employment in the railroads. 7 
a Winstow. How would you employ men under this scheme 

or plan ? 

| ae. Proms. Under my plan ? 

Mr. Winstow. Yes. 

Mr. Prums. We leave it entirely to the judgment of the board of 
directors to decide how they shall be employed, but, from my experl- 
ence in employing men in the railroad service, the men at the head of 
departments would undoubtedly be authorized to employ men under 
them in their departments. The men when so employed could not 
be discharged without cause, because of this wage adjustment and 
grievance board which we provide. 

Mr. Winstow. Do you not think that there would be some chance 
for favoritism being shown on the part of the board of directors, 
however it might be made up? 
| Mr. Prums. Not where that favoritism operated against the inter- 
st of the employees below, because they would have the right and 
withority to question such conduct. 

Mr. Winstow. In the preparation of this bill, have you been sought 
oy ee tens of shippers or business organizations to push it for- 
vard ? ; 

Mr. Piums. On, no, sir; no shippers organizations have joined 
with us. 
| Mr. Winstow. Are you interested in the welfare of shippers and 
usiness men ? 

Mr. Prue. Decidedly, to the extent that they serve the public. 
Mr. Winstow. What’is the limit of their service to the public? 
Mr. Prums. I do not know what the limit is. It seems to be the 

mit to get all that can be gotten out of the public. The inter- 

\aediate shipper is not affected and is not interested in the costs of 

Tansportation so long as they are not discriminatory and so long as 

hey are not so high as to preclude the transaction of business, because 

‘e does not pay that cost. 

| Mr. Winstow. Does not your last proviso automatically create an 

| terest in the intermediate shipper ? | 

) Mr. Prums. He has the same interest in my plan, or the same legiti- 

/iate interest, that he has under the existing situation. I do not 

jisturb that at all. . 

| Mr. Winstow. Quite so; but the point is that he does not appear 

) have become sufficiently interested in your plan to come forward 

‘nd urge it as an improvement on the old plan? 

| Piums. No, sir; he has not, because under the old plan he 

/9ts certain advantages which he might not have under this plan. 














682 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. WIinstow. Such as 

Mr. Piums. Such as this, for instance: There is a large organiza- 
tion of fruit shippers in southern California, who, by an arrangment 
with the owners of the refrigerator cars, were supplied with refrigerator 
cars to bring their fruit to the eastern markets. An individual own- 
ing a ranch 20 miles from Salt Lake City, Utah, on which was a fine 
plantation of fruit trees, and through whose plantation ran those cars 
every day in several trains, was compelled to see the cars pass through 
his farm year after year, and he could not get a car out of those trains 
put on his sidetrack so that he could’ship his fruit to market 20 miles 
away. Under Government control that thing ceased, and last year, 
for the first time in his experience, he marketed his crop of fruit. 
Now, there was an advantage which the shippers’ association pos- 
sessed that the individual could not enjoy. 

Mr. Wrinstow. Is there not any remedy for that condition under 
any system of ownership ? 

Mr. Piums. There may be remedies, but so far they have proven 
to be totally ineffectual. 

Mr. Winstow. I think we all agree on that. 

Mr. Prums. But there was an instant remedy when the Govern- 
ment took control. 

Mr. Wrnstow. That might be remedied through legislation. 

Mr. Piums. But the railroads, you will remember, have told you 
on this committee and on other committees that the reason they 
failed was because there was too much regulation, and that the Goy- 
ernment regulation of their privileges was what destroyed their credit. 
Now, if we can only build up their credit by granting them more 
privileges and piling on more regulations, it seems to me that that is 
an illogical conclusion. 

Mr. Winstow. It would not be an any more radical departure 
from the past than your plan would involve. 

Mr. Pius. It is not radical at all to add more regulations, but it 
would be doing the whole thing over again. Now, if we know from 
experience that that inevitably brings disaster, it is not radical to 
Hy on repeating. It may be radical to change the system. 

r. Wrnstow. Under any plan proposed to Congress, 1s it not quite 
as easy to handle the matter with respect to the change of the regula- 
tion of railroads.under one form of ownership as it would be under 
another ? : 

Mr. Prums. The experience of the past 20 years when Congress 
has been regulating has shown that no regulation that Congress has 
been able to devise had resulted in solving this problem. In faét, 
the railroads say that that has been the cause of their disaster. 

Mr. Winstow. Well, we do not need to worry about that; but is 
there not as much hope that Congress may see the right remedy and 
apply it under one form of ownership, as there is that Congress may 
see the right remedy after changing the form of ownership ? 

Mr. Prums. Not under the old ownership, because the old owner- 
ship, seeking profit for its motive, constantly requires more regula- 
tion. You have not been moving in harmony, and you would still 
continue the old industrial conflict. In my opinion, there is not 
enough wisdom in Congress or in the world to patch up that old 
broken-down system. 





RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 683 


_ Mr. Wrnstow. Do you think that if wages had been in the recent 
‘past and were now satisfactory to the employees, if such a thing were 
possible, you would be here with this bill ? 

__ Mr. Prums. Probably not, because it needed the awakening of 
the wage earner to this situation and of the public to bring in this 
plan. But this plan is not new to me. I have been working on it 
15 years, and awaiting the day when it was appropriate to present it, 
and that day seems to have arrived. 

Mr. Winstow. You feel that the indorsement of it by the em- 
ployees is the reason , | 

Mr. Pius (interposing). The plan was not designed to protect 
wage earners alone, but to protect the wage earner according to his 
deserts, to protect the public according to their needs, and the owner 
-of capital according to his just reward. 

_Mr. Winstow. From the viewpoint of those who are the proponents 
of the bill? 

Mr. Pius. Yes, sir; and you will find that the proponents of the 
bill are worried to death at this industrial conflict, and that they are 
‘seeking a way that will end it and bring peace. They have adopted 
it because they believe it will bring peace and not because it will 
bring to them special advantages. 

Mr. Winstow. Do you believe that the proponents of a measure 
like this have the right to arrogate to themselves the control and 
regulation of transportation, without regard to the views and inte- 
rests of the misguided shippers and the public who thus far do not 
agree with them? 

Mr. Prums. I have never heard of a misguided shipper ever 
appearing in any proceeding on behalf of the wage earner. I have 
heard shippers allege that they appeared on behalf of the public, but 
they have never been appointed by the public to do that service. 
Now, it is no more an arrogating of privilege on the part of labor to 
appear on behalf of all interests than it is for the shipper to appear 
on behalf of the public. Now, we are presenting it, as is our privilege, 
to the American people in the hope that they also may see what we 
see in it. 
| Mr. Winstow. You do it in collective form ¢ 
Mr, Pius. In collective form. 
| Mr. Winstow. Then you will have no objection if those who do not 
‘agree with you appear likewise in collective form. 

Mr. Piums. Col. Winslow, if we can induce you and those who 
represent other views to join us on the platform in debate in 100 
cities of the United States we will welcome it and we will afford them 
‘every advantage and pay the expense of such a campaign. 

Mr. Winstow. I will not answer that, because I do not want to 
zet into a debate for one thing. It might be good propaganda. 

Mr. Stone said that he knew—I do not mean to exaggerate —that 
ae knew if this plan went through rates would be lower and every- 
ody in the country would benefit. I understood Mr. Morrison to 
xpress himself likewise. Are you in accord with that opinion ? 

. Prums. I am so far in accord with it that I could give you 
ersonal experiences in reducing rates. 

om Winsrow. It follows, you too indorse what these gentlemen 
sald ¢ 

Mr. Prums. I do. 








684 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Winstow. Now, Mr. Plumb, let us assume for the purpose of 
illustration that a dollar represents the receipts of the railroads, 
Will you kindly distribute the integral parts of that dollar and assign 
them where you think they would go under such a management as 
you propose ? 

Mr. Pius. I would assign, at the beginning, 70 per cent to opera- 
tion and maintenance and sinking fund, 20 per cent to fixed 
charges—— 

Mr. WINSLOW (interposing). Such as what? 

Mr. Prums. The balance, I should say, should be represented in 
funds to be divided between employees and the Government, and if 
it was that much there would be a d per cent reduction in rates. 

Mr. Winstow. Will you specify what you take in under the fixed 
charges, please? 

Mr. Piums. Interest on outstanding bonds. By the way, I remem- 
ber now—I have not my memorandum before me—the sinking fund 
goes in that also instead of in the operating expenses. 

Mr. Winstow. What is the average operating expense as is shown 
on the records of the Interstate Commerce Commission to roads of any 
period you want to name ? 

Mr. PLums. Why, the average operating expenses for the 10 years 
before the war, I think, ran close to 65 to 67 per cent. 

Mr. Winstow. Just before the war ? 

Mr. Piumps. Yes. 

Mr. Winstow. That was at the period when it was described that 
the upkeep was not very good? . 

Mr. Piums. During the normal. 

Mr. Winstow. You say with the normal upkeep that would run 
about 67 per cent ? 

Mr. Puums.:I think they would show a little better figures than 
that. I think 65 or 67 per cent, for some years they even got down 
as low as 61 or 62 per cent. 

Mr. Winstow. So in the operating you show about 3 per cent more 
than the roads do ? 

Mr. Ptums. I do, because I provide there for the proper mainte- 
nance of the properties so as to preserve the integrity of the property, 
something which has never been done heretofore. 

Mr. Winstow.: What do you allow for depreciation of the property ? 

Mr. Prums. Well, that is an ‘engineering problem. I have ha 
some experience in that. It seems to me there ought to be allowed a 
sum equivalent to nearly 3 per cent, around 3 per cent of the outstand- 
ing capital issues, investment for depreciation. 

Mr. Winstow. If you had 10 per cent after these two items of 70) 
and 20 cent you would suggest that 5 per cent of it should go in the 
way of reduction of charges, freights and passengers ? 

Mr. PLump. Yes. J 

Mr. Winstow. And 5 per cent to the employees. What percent- 
ages do you set aside for sinking fund ? 

Mr. PLums. One per cent of the outstanding capitalization, which 
would be somewhere between $100,000,000 and $125,000,000 a year. 

Mr. Winstow. What percentage would beset aside for contingent 
expenses in the event of lean years and lean periods ? 

Mr. PLtums. I would not set aside any. | 

Mr. Winstow. How would you overcome any deficit that might 
arise ? 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 685 


Mr. Pius. If there were deficits arising they should be provided 
for by increased rates—that is, deficits due, now, to the thing you 

spoke of —lean years. 

Mr. WINsLow. Of course you would not know what they would be 

until you met them, would you? 
_ Mr. Prums. No; but if you have the power to meet them there is 
no trouble in meeting them on the credit of the railroad, because they 
would not have to be carried a year. We would not have the out- 
standing short-term notes that the present companies have got. 

Mr. Winstow. You have in mind the Government would sell the 
necessary number of billions of bonds at 4 per cent ? 

Mr. PLums. Undoubtedly. 

Mr. Winstow. On what do you base that opinion ? 

_ Mr. Prums. On this: The investment fund is practically a fixed 
amount in this country. There is now invested in the outstandin 
securities perhaps an actual fund of, I will say, $12,000,000,000, to be 
generous. If that fund were placed in the hands of the investors it 
would have no place to go, ch it would have to go back into a corre- 
sponding field of investment, which the Government would create 
at the same time that it placed the money in the hands of the in- 
vestors. You could not find a field for the investment of $3,000,000,000 
in this country in new industries, and three-fourths of that money 
would inevitably go back into the securities which the Government 
issued, because there is no other place for it to go, and it is nonpro- 
ductive if it has not gone. Now, the investment of the employees 
themselves in Liberty bonds—that is, the labor movement that I 
speak of, was a billion and a quarter of bonds, and there is a very 
large element of the investment public who desire security for their 
investment who would welcome such an investment. I think there - 
would be no trouble in providing the necessary $12,000,000,000. 

Mr. Winstow. You probably will admit it is more or less specu- 
lative as a banking proposition, will you not? 

Mr. Prums. Oh, no, no; I know something of banks. I have had 
some dealings with them, and they are very anxious not to have 
large accumulations of capital lying idle. They like to have it safely 
placed where it is bringing in a return, and there is no speculation 
about that. . 

Mr. Winstow. Do you think you could get anybody to under- 
write your confidence in the idea that the Government could sell 
those billions ? 

_ Mr. Pius. Oh, it could be underwritten to a very large extent, 
and it would not require underwriting, that is, anything like the 
‘mderwriting of the Liberty loan bonds, because we shal! have got 
a better security than the Liberty loan. The Liberty loan is a lien 
‘m the taxing power of the Government; this is a lien on the same 
taxing power, but secured by a gevenue pyacuoMe industry which 
will obviate the necessity of resorting to the taxing power, and that 
s a better security. . 
| Mr. Winstow. What value has that investment if it does not 
2arn its way ? 
Mr. Piums. It is secured by the taxing power. 
Mr. Winstow. So it gets right back to the same power that is 
dehind these issues of Liberty bonds ? 





686 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Piums. Exactly the same power, but with an added security 
which the Liberty bonds do not possess. 

Mr. Winstow. Will you please state that again? 

Mr. Piums. With an added security which the Liberty bonds do 
not possess. 

Mr. W:nstow. Concretely, what is that? 

Mr. Prums. A first lien on a revenue-producing industry which 
ordinarily should provide the interest without resort to the taxing 

ower. 
‘ Mr. Winstow. That is an elastic proposition. It seems to mgé 
that by the time your bonds would go by default on earnings that the 
earning organization you speak of is not of much value. 

Mr. PLums. Oh, if it went by default entirely. Suppose the 
fixed charges were $500,000,000 a year and the industry did not 
earn any of that, then they would be on a par with the Liberty bonds! 

Mr. Winstow. Yes. 

Mr. Piums. But if it earned a hundred million a year it wouid be 
20 per cent better than a Liberty bond, and I do not believe that 
anybody comtemplates that we would not at least earn a portion ol 
the fixed charges. 

Mr. Winstow. Of course that, too, is a matter of speculation 
People might differ on that proposition ? 

Mr. Prums. Oh, yes. | 

Mr. Winstow. With the number of billions of outstanding bonds 
with the obligation on the Government to redeem, where do you 
think they are going to get these 12, 15, or 18 billion? 

Mr. Piums. From the people who will prefer to pay 4 per cent on 
an equivalent amount of obligations directly to the country than pay 
6 or 8 per cent on corporate obligations charged against them in the 
same service. 

Mr. Winstow. Suppose that your roads did not earn as well as 
you think they will, what then ? 

Mr. Prums. Then the Government would be taxed to preserve low 
rates of transportation instead of being taxed to meet a deficit 
caused by high rates. 

Mr. Wrinstow. Who would pay the low rates ? 

Mr. Piums. The people would pay them in either event. 

Mr. Winstow. Under one system or the other? 

Mr. PLums. Yes. 
Mr. Winstow. There is not much headway made on that so fal 
as the people are concerned ? 

Mr. PLums. Oh my, yes; because if they have to pay a deficit 
created by high rates, they would rather pay that deficit caused by 
low rates and pay it only once. 

Mr. Winstow. There is no limit to their taxation, though, as they 
go along ? 

Mr. Prums. But the limit is always higher if they pay a defiet 
created by high rates. 

Mr. Winstow. Your plan contemplates cutting out the capitali- 
zation on earning power altogether ? | 

Mr. Prums. Absolutely. ~ | 

Mr. Winstow. Do you take into account in railroading what 
taken into account in ordinary commercial enterprises; that 1s, 
good will? 

Mr. Piums. Not at all. 





RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 687 


Mr. Winstow. Why not? 

Mr. Ptums. Because there is no such thing as good will in a 
monopoly. 

Mr. Winstow. Do you say that railroading is a monopoly ? 

Mr. Piums. Absolutely. 

*Mr. Wrnstow. Where is the competition ? 

Mr. Pius. There is not any. 

Mr. Winstow. I wish you would demonstrate that to me? 

Mr. Piums. In the first place, you take a railroad between two 
points, in order to be even nominal competition there must be 
another railroad between the same two points, the one acting inde- 
pendently of the other. If they do not pass jointly between the 
same two points, then there is no competition and there can not be. 
If they do pass jointly between the same two points and have got 
nominal competition, there will not be any competition if there is 
enough business for both lines. If there is only enough business 
for one line, you have got twice the investment with the same amount 
of business to be competed for at figures which produce a loss in both 
of the investments. The result is those two lines combined to get 
rid of that cost forced on them, and competition ceases. We have 
already combined our railroads in this country to the point where 
there is not even that nominal competition, and we have forbidden 
them to compete in rates. They can not compete in rates by law, 
because they have to charge the rates prescribed. 

Mr. Winstow. Do you want to leave that universal statement ? 

Mr. PLums. Well, they can not charge more than the rates pre- | 
scribed, and if they charge less thay have to do it by filing a schedule 
and giving notice, and being controlled by central authority. I have 
in many years failed to find any competition in rates. Practically 
s0mpetition in rates has ceased. 

. WINSLOW. Give two hat stores in a town, one advertises and 
qas accommodating clerks and the other does not advertise and 
loes not have accommodating clerks, each with the same capital, 
xach with the same line of goods, or virtually so, which one is more 
ikely to succeed ? 

Mr. Prums. The one with the accommodating clerks. 
am Winstow. And do you think his good will is not worth any- 
hing 
_ Mr. Pius. It ought to be worth something to the accommodating 
‘lerk, but not particularly to the owner of the store. 

Mr. Winstow. Then why does he try to be accommodating ? 

Mr. Prums. Because if he does not he will lose his job. 

Mr. Wrnstow. I do not mean tho clerk, I mean the one who 
‘wns the store. 

_ Mr. Piums. Oh, the man who owns the store selects the accommo- 
lating clerks, because they are more valuable help. He can reap 
‘nore benefit from their services. 

_ Mr. Wrxstow. But you assume that he did not pay any more than 
0 the other fellow ? 

Mr. Prums. I would assume so. However, in that case I am not 
ompelled to buy my hat at either store; they do not enjoy any 
onopoly; that is an individualistic concern, so the laws of com- 
etition ought to prevail, but that is not true of a public service 
arried on under a grant. 


152894—19—vor 1-44 


688 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Wrnstow. Suppose we take two lines of railways, running fron 
New York to Florida; one advertises its business in good shape, witl 
attractions at the other end of the line, and so on, and sinks a goo 
deal of money there with a view to building up a good will which wi 
yield something; what then would you say on competition and goo 
will ? “a 

Mr. Prums. I would say that any moneys which he expended ou 
of what the people paid him for service and did not take out of hi 
profits, the people were entitled to receive the benefit of, and if tha 
created a value that you could call good will, it was a value they hat 
paid for and belonged to them. 

Mr. Wrnstow. The people have paid for it? 

Mr. Pius. Yes. 

Mr. Winstow. If they have paid for it and the line that gives then 
these services pleases them more, they keep on paying and do not us 
the other line, would you say there was any good will connected wit! 
the more prosperous line? 

Mr. Piums. It was the good will of the public. 

Mr. Wrinstow. Yes; all good will is the good will of the public. 

Mr. Prums. Built up out of the money which they have paid fo 
that service. 

Mr. WINsLOow. Oh, yes. 

Mr. Prums. Then they are entitled to the benefit of it. There 1 
not any law under which that can be capitalized by the railroad com 
pany. You can not do it in Massachusetts, and you can not do it 
any other State. 

Mr. WinsLow. We will grant that, but even so 

Mr. PLums (interposing). If there is not a law authorizing it, the: 
how can it be claimed as a private interest ? 

Mr. Winstow. Do you mean to suggest that there have been issue 
of stock in this country which have been clearly illegal? 

Mr. PLums. A great many. 

Mr. Winstow. Will you cite some? 

Mr. Pius. I will. TheChicago & Alton. The issues of the stoc. 
of the Southern Pacific, of the Kansas City Southern, of every rail 
road company organized under the laws of Illinois, Missouri, Ken 
tucky, Pennsylvania, Louisiana, Mississippi, Alabama, Texa: 
Colorado, North and South Dakota, California, Washington, an 
Oregon, and some other States that I can not mention now, tha 
have issued securities in excess of the value of the consideratio 
actually received for them, have violated the law, and have no basi 
for such securities. . 

Mr. Winstow. Have there been any actions brought against them 

Mr. Piums. No actions have ever been brought against any 0 
ee aan except one I brought against the elevated railways 1 

inois. 

Mr. Winstow. The people have allowed those issues to continu 
without questioning the legality ? 

Mr. Pirums. They have. 

Mr. Winstow. In all these States ? 

Mr. Prums. Yes. It looks as though the men selected who ca 
act only on behalf of the State were not as much interested in th 
State’s welfare as they were in other interests. ‘ 





RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 689 


_ Mr. Winstow. Assuming that is true, that proposition is beyond 

me, but if that is true, what have you to say of the protection of 

an who, in good faith, have bought those securities, not from the 
anker, but in the market. 

Mr. Prums. They were purchasing a private interest between 
private individuals, of which the State had no knowledge, and which 
the State did not sanction, and for which the State assumes no 
resnonsibility. 

Mr. Winstow. You believe that many such cases have arisen ? 

Mr. Piums. Oh, a great many. 

Mr. Winstow. And you would cut them right out and let them 
fall on their backs ? 

Mr. Piums. Yes; the Supreme Court did exactly the same thing 
in the case that came up from the Fox River Railway Co., La Salle 
County, Ill., where an issue of bonds-had been authorized under an 
act of the legislature, or supposed act, voted by the township, issued, 
delivered to the contractor of the railway by his hands, through his 
hands, passed into the hands of bankers, and thence sold to investors. 
It was found afterwards, when the bonds matured and the tax was 
levied to pay them, that the act under which they were supposed to 
have been issued had not been read three times in the Illinois Legis- 
lature, and therefore no such law existed and no authority for their 
issuance, and the holders of the bonds, by the Supreme Court of the 
United States, were denied any relief because those bonds were 
forbidden by law, as not having been authorized by law. Now, in 
the case of these other securities you have got a constitutional pro- 
vision in these words: 

No railroad corporation shall issue its stock or bonds except or money, labor, or 
property actually received and applied to the purposes for which the corporation was 
created; any stock dividend or other fictitious increase of capital stock or indebted- 
ness shall be void. 

Therefore they never existed, being void as an issue ab ini ti 

Mr. Winstow. You probably will agree that there are some roads 
where stock of that kind has been issued which are paying dividends 
mm stock ? 

Mr. Piums. Oh, yes; a great many. 

Mr. Winstow. And people own those stocks ¢ 

Mr. PLums. Yes. ! 
_ Mr. Wrvstow. Now, regardless of the moral consideration, for 
whatever it is worth, would you have me believe, or the committee 
delieve, that the proponents of this bill would have the Govern- 

nent step in and take the roads at their bare physical value and let 
ul these owners of such stock scuffle for themselves ? 

_ Mr. Piums. Those owners have already suffered about all the 
Osses they could suffer under such an arrangement. We are taking 
tothing from them. 

. Winstow. Even if it is so, that would be your attitude toward 
hat property ? 

_ Mr. PLums. My attitude toward that proporty, taking a hypothe- 
ical case now, is this: The owner of those securities was bound to 
‘now the authority under which they had been issued, and if they 
Jere not lawfully issued, 1,000,000 transfers of those securities 
vetween individual owners could give them no validity. There 





690 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


was a moral obligation on the people who issued them, but that 
can not be transferred to the public to the detriment of the public. 

Mr. Winstow. Very good. Under your plan you would take 
those securities away from people with no reimbursement ? 

Mr. Prums. No reimbursement beyond that which a court might 
ascribe to them. I would leave it to the court. 

Mr. Wrinstow. On a physical valuation ? 

Mr. Prums. You use the term “physical valuation.” That is not 
what we propose. In your State alone, almost of all of the States, 
before these constitutional provisions were adopted, there was super- 
vision of the issuance of securities by railroad companies, and your 
State has pretty well protected the interests of investors, and wher- 
ever the State has sanctioned an issue of course it is binding on the 

ublic. Now, in Minnesota, for instance, or Wisconsin, I believe it 
is, there the law permits the issuance of securities for a certain per- 
centage below par, and if that law has not been violated I believe the 
obligation of thoes securities is valid, just as in Illinois prior to the 
adoption of the constitution they authorized some of these railroads 
to issue securities at any figure the directors saw fit to accept, and 
when so issued they should be as valid as those issued at par. Those 
securities have a lawful aspect and would be binding, but wherever 
the laws have foridden the issuance of such securities, no possible 
equity or value or moral obligation can attach to the State or to the 
public because of the wrongdoing of the officials of such an organiza- 
tion. Now, here in New York, in the big gas case, United States ». 
Wilcox, there was $7,000,000 of securities that had been issued on a 
valuation approved by the legislature, although that did not mean an 
investment. There the court recognized the validity of those 
securities because there was legislative sanction, and if you gentlemen 
legislate so as to recognize the validity of the property investment 
account of these railroads, you have sanctioned all of those fictitious 
securities, but it is going to take a legislative sanction to inject life 
into them. 

Mr. Winstow. Suppose the people of my State own a lot of 
securities issued in some of these other States you have mentioned 
illegally, and are receiving dividends on them right along on the 
earning powers of those railroads, would you cut their holdings right 
off because they do not come within the description of your valuation 
in your bill ? 

Mr. Prums. That would be a hardship, but I would do it, because 
the benefit which you are now receiving is exactly counterbalancec 
by the hardship which the public are paying. 

Mr. Wrnstow. I just wanted to get that pomt. How do yor 
describe a public-service corporation ? . 

Mr. Piums. Well, I should say a public-service corporation Wat 
any corporation rendering services to the public which requires & 
ey from the public in order to render that service, a grant of privi 
ege or franchise. 

r. WinsLtow. What is a semi public-service corporation 4 

Mr. Piums. I do not make that distinction. 

Mr. Winstow. You do not make any? 

Mr. Piums. No. 

Mr. Winstow. How far down the line in commercial undertaking 
do you think the participation of employee management should } 













carried out 2 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 691 


_ Mr. Prums. Well, my opinion on that is not of much value, be- 
jause it is purely theoretical and I have not attempted to apply this 
principle to any other industry, but theoretically I should say that 
my industry that was based on a grant made by the people through 
egislative action, or that was based on a monopoly, either granted 
wr acquired, came within the purview of these principles. 

Mr. Winstow. Yesterday you suggested that perhaps to offset the 
oss of tax money received from taxation in various States you might 
lave a sliding scale of reduction of return by allowance through earn- 
ngs of the railroads ? 

. PLumB. Yes. 
_ Mr. Winstow. How would you get at that matter? How would 
7ou get the money to pay those taxes ? 
_ Mr. Proms. Just where we get it now. It is charged in operating 
‘Xpenses now. 

Mr. Be tLow: And you would keep on charging it in operating 

Xpenses ¢ 

. Prums. I would keep on charging it in operating expenses, 10 
er cent less each year, until we had eliminated it from that expense 
iccount. 

Mr. Winstow. In other words, you would have to keep your rates 
ip pretty well for a few years to cover that? 

_Mr. Piums. The rates are up there now; they would begin to come 
lown by that percentage every year as we progressed. 

_ Mr. Wrinstow. However the rates were affected, we would have 
o pay that bonus to those States ? 

Mr. Prums. We have been permitting the corporations to pay it 

or so long that to discontinue the payment might bring about a 
erlous readjustment of the taxing scheme in many sovereignties. 
low, I would give them 10 years to readjust, and readjust slowly, dur- 
ag which time that aid would be withdrawn from these sovereign- 
i and our operating expenses would be decreased by that amount 
ach year. 
Be Wixarow. That would be something in the way of a profit, 
fould it not, for the railroads over the bare cost of transportation ? 
_ Mr. Prums. No, because that is included in the cost of transporta- 
on to-day, that is charged in the cost. 

Mr. Winstow. You include that in your 70 per cent ? 

Mr. Prums. I include that in my 70 per cent; it is included in the 
0 per cent of the railways, as they have previously reported it. 
Mr. Wrinstow. Will you kindly state again on what basis you 
stablish 10 or 12 billions as the valuation of these properties under 
our plan? 

Mr. Prums. Yes; we have some known examples of railway finan- 
ering that have been considered and admitted to be scandalous, and 
will name the Alton as the shining example. The Alton was over- 
‘pitalized, admittedly, 100 per cent or more. The investigation so 
rmade by the Interstate Commerce Commission indicates that that 
not only a shining example, but it is the current example. The 
ve companies on which final reports have been made and approved 
ow an actual cost of reconstruction new of a little less than 50 per 
ont of the total property investment account of those five roads, 
id the actual cost of reconstruction new does nor purport to show the 
tal investment, because they have not found the actual investment 






692 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


in these five roads. Now, these five roads have been considered as 
being honestly conducted and capitalized, and yet the cost of repro- 
duction new includes the increment in lands, in labor, and materials 
over the original cost, and it is less than one-half of the property 
investment account or the capitalization 

Mr. Wrinstow. Is that a matter of record available ? 

Mr. Prums. That is a matter of record available. 

Mr. Brepsor. Will you not ask Mr. Plum} to state what those 
roads are and what the amounts are ? 

The CHatrMAN. The Interstate Commerce Commission has filed 
its investigations on the Pere Marquette, the Wabash Terminal, the 
Frisco Line, the Rock Island, and I think, the M., K. & T., and also 
the Cincinnati, Hamilton & Dayton. They have made special reports 
on all of those five systems, and they are available to the committee 
in reports of the commission, and there is also an investigation made 
with regard to the New Haven. I have no objection to your asking 
the question. 

Mr, Biepsor. The only object was to get the names of record 
so as to know what Mr. Plumb referred to and see if it is in fact 
correct. 

Mr. Piums. I have a tabulation of that which I intend to present 
in my criticism of the chamber of commerce plan, giving the names 
of the roads, the amounts of the property investment account, and 
the cost of reproduction. 

Mr. Wrystow. Do you know of any management under which it 
has been tried out on the lines you have suggested ? 

Mr. Prump. I have tried it out on a way on a little street railroad 
I was running, where I had absolute control myself, and out of that 
experience I largely gained the ideas that have gone into this plan. 

Mr. Wrnstow. Will you give that for the record ? 

Mr. Prums. I think perhaps it might pe—a street railroad. 

Mr. Winstow. That is not exactly parallel. 

Mr. Prums. No; but the labor conditions and the managerial con- 
ditions would be the same. 

Mr. Monracur. May I interrupt to ask in that connection, you 
say you had absolute control of that road yourself? 

Mr. Piums. I did. 

Mr. Monracuer. How could you democratize it then ? 

Mr. Pitums. By taking into my counsel the men employed under 
me and letting them guide me in the operation of the road. 

Mr. Monracus. They would run it then, not you? 

Mr. Prums. I was the management and they were labor. I did 
not have the public in. ) | 

i Winstow. Did they share the responsibility and obligations 
with you? : 

Macon They shared with me, but I did not report it to the 
py was receiver and was left in full charge to handle it as | 

eased. 

Mr. Winstow. Equal authority with you? 

M. Piums. Oh, no; I was the autocrat. 

Mr. Montacur. My questign was based on the fact that you had 
absolute control of that railroad. I want to know how you get 
democracy with any person who has absolute control? 

Mr. Pirums. It can not be done. I said I tried an experiment. 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 693 


Mr. Wixstow. Did you divide up the profits, too ? 

Mr. Prump. I did. 

Mr. Winstow. As receiver ? 

Mr. Piums. By an increase in wages, which was authorized. 

Mr. Winstow. That is hardly the same thing. 

Mr. Prums. But I made them earn their increase in wages by 
showing efficiency first. 

Mr. Wrnstow. That is interesting, but I do not think it is com- 
parable. I might ask you just one more question. I should like to 
ask you if, after all, the claim you make and the claim of your friends, 
of the proponents, is not really more a conjecture than a conclusive 
judgment as to the surety with which this plan will work out finan- 
cially and otherwise? 

Mr. Piums. It is our best judgment, if you can distinguish between 
conjecture and judgment, if there is a distinction. It is not con- 
jecture, it is queginent, and it is judgment based on my experience, 
and my conclusions are approved by the great body of the railway 
employees who have had experience in operation, and they know 
more about the business than any other body of men in Ameriéa. 

Mr. Winstow. Would you have the committee understand that 
that great body of railroad men, 2,000,000 of them, can know any- 
thing about this bill in respect of its details that have been set up ? 

Mr. Prums. No; not as to its details, but as to the principles, and 
I think this committee will confess that the details of the bill fairly 
carry out the principles announced, and the body of our supporters 
do not ask to know about the details, so long as the heads of the 
organization are advised of the details and insist that those details 
do thoroughly carry out the principles, which the great body of the 
organization do comprehend and know about. : 

r. SANDERS of Indiana. When was the Plumb plan first sub- 
mitted to the various organizations ? 

Mr. Puums. In January of this year. 

Mr. Sanpers of Indiana. In how much detail at that time? 

Mr. Piums. In all of the detail in which it was presented to the 
Senate committee on the 8th day of February, and that was all 
the detail that had been evolved until this bill was presented here. 

Mr. Sanpers of Indiana. I have had several communications from 
railroad employees of the fifth district of Indiana, which I represent, 
wsking me to favor Government ownership of railroads. You would 
— that this plan was a plan of Government ownership of rail- 
coads ? 

Mr. PLums. Yes; I should say it was a plan of Government owner- 

ship, and our followers so understand it; but not a plan of Govern- 
nent operation. 
' Mr. Sanpers of Indiana. So far as the employees of the present 
teneration are concerned, the Goverriment will practically have no 
sontrol of these properties, under the proposed plan. Is that not 
rue ? 

Mr. Pirums. Control over the operation of the properties? Not 
iless the operation under this plan proves unsatisfactory and the 
jublic desires to cancel it. 

Mr. Sanpers of Indiana. Do you consider that this Plumb + lan 
3a concrete expression of the thought expressed in the message of the 
resident of the United States, last delivered to Congress ? 





694 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Piums. Well, that message was delivered after this plan had 
been prepared. We were delighted to find what we thought was an 
expression of the same idea in the President’s message. 

Mr. Sanpers of Indiana. Had the bill, in substance, been furnished 
to the President prior to the delivery of his message ? 

Mr. Prums. I do not believe the bill has been furnished to the 
President yet. . 

Mr. Sanpers of Indiana. You do not know whether in that message 
he meant to express approval of the Plumb plan or not? 

Mr. Prums. I do not. 

I wish to say that I have had no conference with the President 
since—oh, I think it must be nearly two years. I have had no 
expression from him in regard to this, and I have received a con- 
veyance of no expressions from him in regard to this. 1 know abso- 
lutely nothing about what his attitude of mind is toward it. 

Mr. Sanpers of Indiana. How do you interpret the part of the 
President’s language dealing with the labor situation in connection 
with this proposed legislation ? 

Mr. Prums. I have not interpreted it in connection with this 
proposed legislation at all. I do not know that the President had 
this legislation in mind. I think that he was announcing a principle, 
as applied to the new era in industry, which was in harmony with the 
principle embodied in our plan. 

Mr. Sanpers of Indiana. You think, then, that the Plumb plan 
expresses the principle announced by the President in his message { 

Mr. Prums. Just turn it the other way. I think the President 
announced the principle that is embraced m the Plumb plan. 

Mr. Sanprers of Indiana. In other words, you had prepared the 
Plumb plan before the President returned to America? 

Mr. Piums. Oh, yes. | 

Mr. Sanpers of Indiana. And, in fact, before he went to France? 

Mr. Prue. I think he left for France in November or December, 
and this was reduced to writing in the fore part of January. 

Mr. Sanpers of Indiana. You think that the Plumb plan is de- 
sirable for the railroad industry, and that the time is now opportune 
for the adoption of that plan with reference to the railroad mdustry ! 

Mr. Piums. I do. It is desirable, and I believe the time has come 
when it should be presented to the public for their consideration, 
because I believe it meets the demands of this occasion. 

Mr. Sanvers of Indiana. And then, in your personal opinion, that 
same plan is desirable for the coal mdustry ? | 

Mr. Piums. There are many difficulties in the coal industry that 
distinguish that industry from this, that would make it much more 
difficult of application. I have not submitted and worked out a 
way in which it can be worked gut and applied. All I can say is that 
I believe the principles of democracy in industry, and perhaps Goy- 
ernment ownership should be applied to the mining industry, if those 
employed in the industry and the public want it so applied; but the 
machinery for working if out I can not possibly suggest how it should 
be done, because the nature of private rights in mimes are so vastly 
different from the rights which have been granted to corporations 
owning the public highways. . 

Mr. Sanprrs of Indiana. Would you subscribe to this doctrine, 
that all forests, mines, and waterways having national importance, 
should be declared national properties? 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 695 


Mr. Pius. I subscribe to that doctrine personally, and I should 
like to see it subscribed to by<all the people of the United States. 

_ Mr. Sanpers of Indiana. Have you ever read the Russian Soviet 
constitution ? 

Mr. Piums. I have not. - 

Mr. Sanvers of Indiana. That quotation that I just gave you is 
an extract from the Russian Soviet constitution, taken from a pho- 
tographic copy, which was procured by the State Department. Do 
you not think that the Plumb plan, rather than being a Government 
ownership plan, is a Soviet plan? 

Mr. Prums. I do not know what a Soviet plan is. I know what 
the popular niisconception, or conception, of it may be, but I do not 
know what it is. 

_ Mr. Sanvers of Indiana. What is the popular misconception of it? 

_ Mr. Prums. Well, as it is hurled about in the newspapers, it seems 
to me the idea is that some workmen get together and go out and 
grab some property and divide it up between themselves. 

~ Mr. Sanpers of Indiana. And you think that is a misconception ? 

Mr. Prums. It must be. 

Mr. Sanpers of Indiana. If that is a misconception, what is your 
standard of a proper conception ? 
so. Piums. I would have to have information on that. I do not 

ow. 

_ Mr. Sanvers of Indiana. It is pretty difficult to tell what is a mis- 
conception unless you know what the proper conception is. 

_ Mr. Piums. Unless you knew human nature. It is inconceivable 
to me that any society could believe in the rights of a group—any 
society that was sane—could believe in the right of a group to go out 
and seize property and divide it up between themselves without 
regard to law. I can not conceive that there are people of any 
civilization that have such a belief. . 

Mr. Sanpers of Indiana. Referring for a moment to your testimony 
of yesterday. In response to interrogatories propounded by Mr. 
Barkley, you explained in your testimony’about a speech you made at 
St. Louis. What was the approximate date of that speech? My 
Tecollection is you said it was about two weeks ago. . 

Mr. Prums. I am trying to get the exact date. I think it was the 
‘18th or 20th of July. 

_ Mr. Sanpers of Indiana. To what class of persons was the address 
delivered 2 

| Mr. Prums. It was a picnic held in some grove outside of St. Louis 
by several of the labor organizations. 

Mr. Sanpers of Indiana. Railroad men? 

Mr. Piums. Yes. 

Mr. Sanpers of Indiana. Any others? 

Mr. Prums. I was introduced to a great many men, and my recol- 
‘ection is that some of them were not railroad men. | 

| Mr. Sanpers of Indiana. You explained to them the Plumb plan 
at that time? 

| Mr. PLums. Yes, sir. ; 

( Mr. Sanpers of Indiana. You explained that you had a plan by 
means of which you would take the railroad properties of the United 
States, amounting in actual value, in accordance with your definition 
of value, to about 10 or 12 billions of dollars; that you would squeeze 


TT 









696 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


out all the holders of paper title to the property which did not rep- 
resent actual value, as you defined it; that then you would make/ 
the Government purchase these properties by issuing bonds; that 
then you would provide under the Plumb plan to turn over for 100 
years, which is a period of years longer than the lifetime of any of 
those employees to whom you were talking, turn this property over 
to a corporation, which would be, by a majority in every tribunal, 
controlled by them, and give them, those railroad employees, the 
right to a majority control, to determine the amount of their wages 
that should be paid, the hours of labor that they should be employed, 
the conditions of the labor, and thai for a period of 100 years, through 
that corporation, they should control by majority representation the 
entire operation of the railroads; and that then, whatever net earn- 
ings should be left should be equally divided between them on the 
one hand and the Government on the other hand. And then, when 
you had concluded your address, had gotten through speaking, 
according to your testimony yesterday, crowds of men came up to 
you, and one of them, representing one Proup, said “By G——, if 
we can not agree on this plan, then there is going to be revolution;” 
and his sentiment was echoed by all the others there. 

Is that practically an accurate statement ? 

Mr. Pump. No; that is quite a long way from an accurate state- 
ment. You have paraphrased a part of the address in words which 
I did not use, with meanings which I did not convey, and you have 
omitted parts which would greatly modify that paraphrase, which t 
did use. As to the expression of the man who came to see me, as | 
remember it, it was ‘‘By G , if we can not get something like this, 
there will be revolution.” 

Mr. Sanpers of Indiana. Of course, | do not personally recollect 
just what was said, but, according to the reporter's notes, the person 
came up to you and said ‘By G——, if we can not agree on this 
plan, there is going to be revolution.” 

Mr. Prums. Well, my impression is that what he said was: “We 
have got to get something like this; this is a way out on which we can 
agree; and if we do not get something like this, then we are going 
to have revolution.” ; 

It was an exclamation, and it was the meaning that impressed me 
rather than the exact words. I tried to convey that meaning to you 
yesterday. 

Mr. SanveERs of Indiana. It was a vigorous exclamation ? 

Mr. Piums. Yes. 

Mr. Sanpers of Indiana. He used the term ‘‘revolution” ? 

Mr. Prums. Yes. 

Mr. Sanpers of Indiana. What did you understand to be the 
meaning of the term ‘‘revolution” as used by the person who was 
speaking to you? 

Mr. Prums. Well, a change in the existing order of things. There 
was a great deal of conversation, with a large group standing around. 
In my speech I told them how this plan merely carried us back to the 
foundations of our Government; how it restored to individuals the 
freedom of opportunity guaranteed by the Constitution; that it made 
a new order of things by evolution under the form of Government 
established; and it drew us away from revolution. And it was in that 
meaning, I think, that he made this exclamation, that “here was & 
way out which prevents revolution.” 





RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 697 


__ Mr. Sanpers of Indiana. What I am anxious to know is how you 

‘interpreted his language when he said, “if we can not agree on this 
‘plan there is going to be revolution.” I want to know how you 
‘interpreted the meaning of his use of the word ‘‘revolution”’ ? 

__ Mr. Piums. An overturning of the existing industrial order, and 
the establishment of a new one. 

Mr. Sanpers of Indiana. In other words, the overthrowing of our 
present form of government? 

Mr. Pump. No. They believe that the present form of Govern- 
‘ment is the means of establishing the new. 

Mr. Sanpers of Indiana. You are trying to do that by appearin 
before this committee and having this plan adopted; but he sal 
the other alternative would be ‘“‘revolution.”” You are using the 
‘peaceable plan by trying to get a plan, that you think is a proper 
‘plan, adopted through the regularly constituted machinery of the 
Government. He suggested rae other plan, which was revolution. 
Now, how do you think he meant to accomplish that? 

Mr. Prums. Well, I presume that these men use language force- 
fully. They believe in direct action and direct expression. I would 
not wonder very much if the revolution that we-think of is the same 
threat that our friend from Washington believes he has received. 

Mr. WessTErR. You agree it was a threat? 

Mr. Piums. Yes, sir. 

Mr. Wresstrer. And I certainly received it. 

__ Mr. Prums. That those who are now administering the law, which 
‘these people believe is not in conformity with the Constitution, shall 
be replaced by men who will act in the way in which they believe 
the Constitution should be enforced. 

~ Mr. Sanpers of Indiana. You believe that is what he meant when 
‘he used the word ‘‘revolution” ? 
Mr, Prvums. Oh, you will have more than that, too. 

Mr. Sanpers of Indiana. Don’t you think he meant by direct 

action ? ; 

Mr. PLump. What do you mean by direct action 2 

/ Mr. Sanpers of Indiana. What do you define as direct action, in 
‘the meaning that you give it? 

Mr. Prums. I think the first direct action would be the use of the 
ballot, and that is as far as I can see it, and I hope I never will have 
to look beyond that. 

: Mr. Sanpers of Indiana. Do you think he meant to convey to you 
by that expression that if we did not adopt this plan by using the 
ballot they would have it adopted ? 

Mr. Piums. They would have what? 

Mr. Sanpzrs of Indiana. They would have it adopted by another 
Jongress. | 

Mr. Piums. I think so. I am going to come a little closer to it, to 
‘what you have been trying to get, than I have given you. 

Mr. Sanpers of Indiana. What I am trying to get is this: You have 
‘Zone out among these people and talked with them? 

_ Mr. Puums. Yes. ; 
' Mr. Sanpers of Indiana. And you said you wanted to bring us a 
‘message from them ? 
| . PLuMB. Yes. 








698 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Sanpers of Indiana. What I am trying to get is what that 
message is. | 

Mr. Pitume. It is this: We have come to a new day; we have spent 
our lives and our money to attain liberty; and we find that without 
liberty in industry we have only the shell of actual liberty to live; 
and they are going to get that liberty to live through the Constitution 
and through the lawful forces, and I hope to God it may come that 
way. But if the powers of reaction prevent the opportunity for that 
expression, then it will come in another way. 

Mr. Sanpers of Indiana. What other way ? 

Mr. Prums. In the way it always comes, through history, when 
reaction prevented progress. 

Mr. Sanpers of Indiana. Well what do you mean by that? 

Mr. Pius. I do not think there is any doubt in your mind as to 
what I mean. 

Mr. Sanvers of Indiana. There is no doubt in my mind as to what 
you meant yesterday. The adoption of the Plumb plan,- through 
Congress, would be one way that you have described; revolution 
would be the other way. 

Mr. Piums. No, Congressmen, not for a moment. The adoption 
of some plan that involves the new order, be it what may. I do not 
care whether it is the Plumb plan or what plan it is, but some means 
must be devised, and we have tendered this as a possible way; and 
if a better way can be devised by law, accomplishing the result, you 
will find the most patriotic support from these same men that you 
could possibly ask for. 

Mr. Sanpers of Indiana. You can see the difficulty of our under- 
standing what you mean when you use such a term as “‘revolution,” 
which should not be lightly used, and I want to call your attention 
to the fact that Mr. Barkley, yesterday afternoon, asked you what 
you understood to be the man’s meaning when he used the word 
“revolution,” and you replied, ‘‘I think that in that man’s mind and 
in the minds of millions of others, they feel they have reached the 
point of diminishing level of existence where they can not stand any 
more, and rather than continue to serve for diminishing returns they 
will cease to serve.” In other words, you interpreted the word 
‘revolution’ yesterday to mean strife, although you give it another 
meaning, a different interpretation, to-day. You said this: ‘That 
sentiment was echoed by all of the others.” What I want to know 
pees the sentiment was of that body at the conclusion of your 
address. 

Mr. Prums. Thesentiment, as I gathered it, was that here was a real 
constructive effort to have established, under our Constitution, the 
things that they hoped for, and that a way must be shown for realiz- 
ing that hope. 

The CuarrmMan. The committee will adjourn at this point until 
10 o’clock to-morrow morning. 

(Whereupon, at 3.30 o’clock p. m., the committee adjourned until 
Saturday, August 9, 1919, at 10 o’clock a. m.) | 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 699 


_ COMMITTEE ON INTERSTATE AND FoREIGN COMMERCE, 
Hovusk oF REPRESENTATIVES, 
Saturday, August 9, 1919. 
The committee met at 10 o’clock a. m., Hon. John J. Esch (chair- 
_man) presiding. 
~The CoarrMAn. The committee will come to order. 
Mr. Sanders of Indiana had not quite concluded his interrogatories. 


STATEMENT OF MR. GLENN E. PLUMB, GENERAL COUNSEL 
FOR THE ORGANIZED RAILWAY EMPLOYEES OF AMERICA, 
WASHINGTON, D. C.—Resumed. 


_ Mr. Sanpers of Indiana. Mr. Plumb, this plan, according to your 
best pe ement, will best solve the railroad problem and the industrial 
problem so far as railroads are concerned ? 

Mr. Piums. Yes, sir. 

Mr. Sanpers of Indiana. While, of course, any untried plan gives 
conjecture in a way, with statistics of the past you can subject any 
‘plan to a test as to what will be the probable result with reference 
to its various features. 

Mr. Prums. That is the value of past experience. 

_ Mr. Sanpers of Indiana. I presume after concluding this plan 
that you subjected it to those tests? 

Mr. Piums. I think we have done so. | 
_ Mr. Sanpers of Indiana. And it is because after submitting the 
plan to those tests and it seemed to meet all the requirements that 
you think it is a good plan? 

Mr. PLump. Yes, sir. 

Mr. Sanpers of Indiana. As a matter of practical working of the 
plan, assuming it to go into effect on January 1, 1920, would the then 
employees of the several railroad companies automatically become 
the employees of the new corporation ? 

Mr. Pirums. They would. 

Mr. SanpeErs of Indiana. Without any new employment ? 

Mr. Prums. Without any new employment. 

Mr. SanpErs of Indiana. The title to the properties would not 
‘pass to the new corporation until the leases were executed by the 
Treasurer of the United States ? 

Mr. Pius. The title would never pass to the new corporation. 

Mr. Sanpers of Indiana. I mean the leasehold interest. 

Mr. Pius. Yes, sir. 

_ Mr. Sanpers of Indiana. When would that be done? 

Mr: Prums. We have left the date blank as to when the act 
should go into effect, and I should suppose if the act were adopted 
‘Such date would be filled in for the taking effect of the act as would 
‘permit, first, the organization of the corporation and the execution 
of the lease. That might be set three or six months ahead of the 
passage of the act so that proper time for the organization of the 
instrument would be allowed. 

Mr. Sanpers of Indiana. As a matter of fact it would be more 
feasible to have the employees remain the employees of the old com- 
‘panies until the transfer of the leasehold interest to the new corpora- 
tion ? 





700 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Piums. Certainly. I should suppose that the Government 
would still continue control of the operation of the properties as it is 
now doing until the organization could be perfected and the actual 
transfer takes place, leaving it to Congress to say how much time 
should be necessary to fix the date for the transfer. ) 

Mr. Sanpers of Indiana. The act provides that at some future 
day the title shall be vested ? | 

Mr. PLtums. Yes, sir. | | 

Mr. Sanpers of Indiana. Then the employees would automatically 
become employees of the new corporation and elect 10 members of 
the board, that is, the two classes of employees ? 

Mr. Piums, Yes. 

Mr. Sanpers of Indiana. And their members are subject to recall 
by those who have the power to elect? 

Mr. Prums. We have suggested that, subject, of course, to the 
judgment of Congress. 

Mr. Sanvers of Indiana. It is not an essential part-of the plan ? 

Mr. Prvms. No. 

Mr. Sanvers of Indiana. Suppose that the transfer of the title to 
the new corporation should be accomplished by January 1, 1920, so 
that the employees became employees of the new corporation and 
the railroads were operated by this new corporation for the period 
of a year, what, in your estimate, in subjecting the plan to the tests, 
would be the result with reference to the net profit? 

Mr. Piums. Well, those results would depend entirely upon the 
perfection of the organization for efficiency. Now, naturally you 
would not achieve your 100 per cent working efficiency in one year, 
you could go a long way toward it. For instance, in April of this 
year the employees submitted to the administration a proposition 
asking that the administration permit the employees to adopt a 
thoroughly scientific system of efficiency on one or two divisions, 
where it could be tried out. ¢ 

Under the stress of circumstances of the administration it has been 
impossible for the administration to work out the plan for the adop- 
tion, but I think that the stress of circumstances would be largely 
removed if this plan went into effect the 1st of January, and I believe 
that within three months we could install a thoroughly scientific 
system of efficiency, but it would doubtless take the rest of the year 
to get it in good working order. However, the results of the system 
would be very considerable even in the first year’s experience. 

Mr. Sanpers of Indiana. But you expect at the end of the first 
year to have a profit to divide between the Government and the 
employees ? 

Mr. Ptums. Oh, we would have some profit, but I do not think it 
would amount to so very much, especially with this in view: There 
is a strong element throughout the country that you will hear of 
later that will propose to you that there should be an immediate 
reduction in rates as soon as the plan takes effect equivalent to one- 
half of the savings in rentals paid. That would be a 5 per cent 
reduction in rates at least, and, perhaps, a little more, which many 
re believe would mean a corresponding reduction in revenue. 

ome of us do not so believe. We think it would mean a reduction 
in revenue, but it would cultivate a flow of traffic that would offset 
the reduction. However, that is somewhat speculative. 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 701 


Mr. Sanvers of Indiana. There is some line of demarcation that 
will always occur, but where the line is people do not agree? 

_ Mr. Prius. Yes, sir. If we were to effect the saving in rentals 
which this bill proposes, even under existing conditions and without 
the results of any of the efficiencies which we propose to put into 
effect, there would still be a small surplus. 

Mr. Sanpers of Indiana, Approximately, what surplus do you 
think ought to be obtained at the end of the first year? 

Mr. Prums. At the end of the first year, if we were to place this 
5 per cent reduction in rates in effect, I should be satisfied with the 
results of the system if there was a surplus of $200,000,000 and I 
should be very disappointed if there was not a surplus of more than 
$50,000,000. 

__Mr. Sanpers of Indiana. By the beginning of the second year the 
plan would be no longer a novel plan ? 

Mr. PLums. No; it should be in working condition then. 

Mr. Sanpers of Indiana. During the second year, according to 
your best judgment and estimate, what net profit should there be 
‘to be divided between the employees and the Government ? 

Mr. Prums. I think that the surplus of the first year could be 
increased 100 per cent the second year, whatever it might be. 

Mr. SANDERS of Indiana. That would be. according to your esti- 
mate, $400,000,000 ? 

Mr. PLums. From $100,000,000 to $400,000,000, whatever the 
result of the first year might be; I think it would be increased 100 rer 
cent. ; 

Mr. Sanvers of Indiana. From $100,000,000 to $400,000,000 2 

Mr. Piumps. Yes, sir. 

Mr. Sanpers of Indiana. One-half of the $50,000,000 or the 
$200,000,000 would go to the employees in proportion to the amounts 
that they receive and one-half to the Government ? 

Mr. Prums. Yes, sir. 

Mr. Sanvers of Indiana. In providing for the wage boards would 
you recognize the principle of retroactive effect of wage adjustments ? 
' Mr. Prums. Now, I want to guard myself on that, and I will give 
fo my personal opinion; but, as I have already told this committee, 

am not familiar with the wage question. I have never represented 
‘the unions in any of their wage questions, but, on principle, it seems 
‘bo me that if an occasion should arise that needs investigation, and 
t should arise out of a situation existing at that time, if there is a 
wrong to be corrected, it ought to go back to the time when the wrong 
arose, which would recognize the retroactive Poo of adjustments. 
Now, as to wages, we have two classes of boards here, and ov class 
iakes care of adjustments which do not affect the wage level. 

_ Mr. Sanpers of Indiana. I am speaking of the wage level. 

Mr. Prums. As to the wage level, all that I can give you is a 
seneral principle which appears to my mind to be fair, and that is 
hat if there is a situation Shieh we will say, begins to exist on May 1, 
‘Temanding a corrective, and that is not determined until November 1, 
nd if the determination is in favor of the corrective, then it ought 
/0 reach back and apply to the situation as it arose. Now, I do not 
‘mow that the labor organizations would agree with me on that, or 
‘hat the management would. It is simply my personal opinion and 
|Qy view of the principle that should control. 








702 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Sanvers of Indiana. That principle has been in effect for the 
last few years, has it not? 

Mr. Prums. As a matter of fact, it has been in effect ever since 
the anthracite strike back in 1903 or 1904, and experience seems to 
justify it. 

Mr. Sanvers of Indiana. For instance, if a class of employees who 
were being paid $150 per month should, in May, demand $175 per 
month, and the issue should be litigated, if you want to use that term, 
and the board decided in their favor in November 4 

Mr. Prums (interposing). It would not be necessarily decided in 
their favor. 

Mr. Sanpers of Indiana. But if it were decided in their favor in 
November, then, they would be entitled to the application of the 
retroactive feature, and they would be entitled to six times $25 per 
month to cover that period, and to be continued at $175 per month? 

Mr. Piums. Yes, sir. 

Mr. Sanpers of Indiana. Approximately, how many railroad em- 
ployees are there now engaged who would be included in both classes 
mentioned in this bill ? 

Mr. Prums. There are slightly upward of 2,000,000 in the classified 
organization and about 20,000 in the official classification. 

Mr. Sanpers of Indiana. In your plan you recognize the difference 
between skilled and unskilled labor, and, although not necessarily in 
fixing the wage, in determining the amount of dividends you recog- 
nize the difterence between those who are efficient and otherwise? 

Mr. Ptums. We do. 

Mr. Sanpers of Indiana. The purpose sought by that feature of 
the plan, I presume, is to allow free play of individual initiative ? 

Mr. Piums. Both individually and collectively. | 

Mr. Sanpers of Indiana. Theoretically and ideally 1t would be all 
right for every man to have the same amount of food, clothing, 
shelter, and comforts of life, but there is no plan by which that can 
be afforded without losing individual initiative. The thing that in- 
duces men to work and work effectively very frequently 1s the amount 
of wages that they are to be paid. 

Mr. Prums. That is one of the primary motives, but an equally 
strong motive is the hope of betteiing that condition, coupled wit 
the assurance that he has the right to better it if he earns it. 

Mr. Sanvers of Indiana. And by bettering it, to increase the wage! 

Mr. Prums. To increase the earning capacity and earning power. 

Mr. Sanpers of Indiana. If I understand it, you think that the 
check upon any unconscionable increase in wages by the board, 10 of 
whom would be elected by the employees, is the fact that the official 
class of employees are given twice the amount in dividends that the 
others are given? | 

Mr. PLums. Twice the reward for efficiency. 

Mr. Sanpers of Indiana. Hence, when they were passing upon the 
wage question they would want the employees to receive only a re@- 
sonable wage or a proper wage, because they would have a selfish 
interest in wanting the dividends to be bigger at the end of the year! 

Mr. Prums. If you will pardon me a moment, there is another 
element in wage fixing which many employers now recognize and 
which the great body of wage earners recognize, and that is that the 
level of wages has a great “ini to do with efficiency; that if a man 
receives a wage for his efforts that is sufficient to assure him a fait 





RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 703 


ivelihood, then he can give his attention to the work in hand and will 
zive much better results than he can if he is receiving less than that 
ud is hampered all the time by the knowledge that he has incurred 
jabilities with no power of paying. I have had a very vivid experi- 
mee of that in one of the railroads that I operated. 

_ Mr. Sanvers of Indiana. Now, is there anything in your plan that 
would papvent two controversies or two litigated cases being presented 
0 the board at the same time ? 

Mr. Ptums. Do you mean two different cases ? 

Mr. Sanvers of Indiana. Two different controversies. 

Mr. Piums. Oh, no, sir; we provide this board and give it authority, 
ind it ought to have authority, to hear as many contests as may be 
resented. If a single board can not hear but one at a time or two or 
three at one time, they should do as the Interstate Commerce Com- 
nission does 

Mr. Sanvers of Indiana (interposing). And subdivide? 

Mr. Prums. Subdivide and appoint examining officials to take the 
estimony. 

_ Mr. Sanpers of Indiana. Something like masters in chancery ? 

Mr. Prums. Like masters in chancery, by way of subsidiary boards. 
“here is nothing to prevent organization in that manner. ) 
_Mr. Sanpers of Indiana. Then, there would be nothing in the way 
f this situation—that is, of having a proposition presented to the 
yage adjustment board for an increase, say of 25 per cent of the wages 
f employees below the grade of official employees, and, at the same 
ime, having presented to the same board a controversy involving 
Similar increase for the official employees ? 

Mr. Piums. I see no reason why those two applications should not 
¢ made at once and be pending at the same time. 

Mr. Sanpers of Indiana. If the official employees were drawing 
3,000 a year apiece and were asking for an increase of 25 per cent, 
he thing at stake for each official employee would be $750 per year, 
nd, if the other employees were getting $1,500 per year and were 
sking for a 25 per cent increase, the »mount involved for them would 
@ $375 a year. Now, what would be the approximate amount 
oing to each man as a dividend m that year, assuming that there 
vere 2,000,000 men and that the amount to be devoted to dividends 
‘as $200,000,000 ? 
ta Piums. Now, you assume that there is a surplus of $200,- 

0,000 
| Mr. Sanvers of Indiana (interposing). You estimated for the first 
ear $50,000,000 and then up to $200,000,000. 

' Mr. Prumsp. You have assumed that the employees share in all 
{the profits, we will say, of $200,000,000 ? 

Mr. Sanvers of Indiana. I want the average. ? 
‘Mr, PLums. Well, we will assume that, because we are working out 
peo netical case. If the share of the employees was $200,000,- 














) Mr. Sanprrs of Indiana (interposing). Pardon me, the whole 
‘mount would be $200,000,000, and the share of the employees 
‘ould be $100,000,000. 

Mr. Prums. If the share of the employees was $100,000,000, that 
ould be one-thirtieth of the employees’ pay roll, which would be 
out a 3 per cent dividend. For the official employees, it would be 


152894—19—-voL 1——-45 


ie 


704 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


a 6 per cent dividend. Now, if they were to vote the increase ir 
wages which you have sug ested, of course there would be no surplus 
to meet it, and that would create a deficit which would forfeit then 
rights. But, assuming that they were going to vote an increase now 
that would absorb the surplus 

Mr. Sanvers of Indiana (interposing). If you will pardon me, you 
are getting ahead of the problem I had in mind. Now, the dividend 
ind yield how much on an average per person? Say there are 
2,000,000 employees and that the amount to be devoted to dividends 
is $100,000,000 2 

Mr. Pumas. That would yieid 3 per cent of their salaries. 

Mr. Sanpers of Indiana. What would be the amount in money? 

Mr. Plums. That, of course, would depend upon the salary re. 
ceived. A man receiving $1,500, would get $45, and an officia 
receiving $3,000 a year would get $180. ) 

Mr. Sanpers of Indiana. Where would the greatest incentive be ir 
a case like that—to increase the wage or to refuse to increase it—just 
from the monetary standpoint ? 7 

Mr. PLums. From the monetary standpoint, the incentive of th 
classified employees might be to increase the wage, but they wouk 
not consent to an increase of the wage, we will say, of 3 per cent i 
themselves and 6 per cent to the officials. They certainly are no: 
going to agree to an increase in wage at twice the rate allowed t 
them for the benefit of the 20,000 official employees, and such ar 
increase would have to be agreed upon before there could be such + 
combination. If they did agree to a like rate of increase in wages, thet 
the official employees would be losing their advantage, because 0 
their better rate of dividend, because this flat increase would absor! 
the profits and the official employees would forego their advantage 

Mr. Sanpers of Indiana. What would be their estimated profit 
You estimated it a moment ago? 

i Mr. Pump. Their estimated profit at 6 per cent on $3,000 woul 
e $180. 

Mr. Sanpmers of Indiana. But they were asking in the hypothetiea 
case for an increase amounting to $750. 

Mr. Pump. You can not entertain those two subjects concurrently 
because that increase would create a deficit which would forfeit thei 
right under the entire lease. The most that you can assume is tha 
you could increase the wages so as to absorb the surplus, but the} 
‘vould not ask for an increase that would create a deficit. 

ee AND nEE of Indiana. Why do you say it would forfeit thei: 
rights ? | 

Mr. PLums. Because that is provided in the bill. 

Mr. Sanpers of Indiana. What is that forfeiture provision % 

Mr. PLums. That if they do not observe all of the obligations 0 
the lease, Congress can forfeit it. 

Mr. Sanpers of Indiana. But you grant to the Interstate Commeré 
Commission power to readjust rates all the time, Just the same & 
they have now, and you have given this corporation the right & 
initiate rates. ; 

Mr. PLumps. Yes, sir. 

Mr. Sanpers of Indiana. Do you think that there would be som 
change; or the necessary change, in the rates to meet such a condi 
tion ¢ 





= 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 705 


_ Mr. Prums. We have a rule already established herctofore by the 
- Interstate Commerce Commission that an increase in expenses due 
' tO an increase in wages allowed by the corporation shall not be a 
' ground for an increase in rates. If there needs to be some definite 
ene covering that, why, of course, it would be acceptable, 
_ because there is no intention here to lay any kind of trap which 

would permit the classified employees and the official employees to 
combine for the purpose of absorbing all the profit in increases in 
wages, or to create a deficit by increases in wages. There ought 
to be sufficient guarantees that that can not be done. 

Mr. SAnpERs of Indiana. You assumed in answering my question 
that it would necessarily create a deficit. Now, suppose it did not 

create a deficit ? 

Mr. Pivumps. It certainly would create a deficit if it called for wage 
increases in excess of the money earned as surplus. 

Mr. SanveErs of Indiana. Suppose it just called for a 25 per cent 
increase, and that that increase would not increase the operating 
expenses so as to cause a deficit ? 

. Prums. Then, you have got to have a surplus big enough to 
meet that 25 per cent increase. 

Mr. SanpeErs of Indiana. Would it not be possible to be even on 
- that proposition ? 

Mr. Piums. No, sir; you must make an approximation of it, of 
course. If you could increase a given fund by a definite amount, 
_ you could then determine definitely what percentage in wage increase 

would absorb the surplus. 

Mr. Sanvers of Indiana. What is to prevent them from awarding 
to these employees, representing the different classes of employees, 
an amount in wages which will just about use up the surplus? 

Mr. Piums. Because such an award would deprive the official 
employees of their extra reward for efficiency. 

Mr. Sanvers of Indiana. But it would give each one of them $750 

a year. 

Nr. Piums. No, sir; that is an assumption which I can not enter- 
tain unless you are willing to concede that the surplus was sufficient 
_ to pay them $750 each. 

Mr. Sanvers of Indiana. That is what I am assuming. 

Mr. Prums. We will assume that there is a sufficient surplus to 
| pay the classified employees $150 a year and the official employees 
$750 a year. In that event, in order to make a wage increase that 
would absorb that fund, the classified employees would have to 
agree that in return for the 25 per cent increase to them there would 
be a 50 per cent increase to the official employees, and that they cer- 
tainly never would agree to, in order to maintain the same relation 
that is established in their rights to dividends. They are willing to 
allow the official employees a double rate of dividend as a reward 
. for earning them the highest rate of dividend that the service will 
pay, but they never would agree to have that advantage swallowed 
up in a wage rate level at the same disproportionate percentage. 

Mr. Sanpers of Indiana. Do you think that there would be any 
| attempt to secure through legislation a change in the amount that 
| should be given to the Government and the amount given to the 
» employees? 


706 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Piums. I am afraid there would be to the disadvantage of 
the employees, but I do not fear the possibility of giving any increase 
in that proportion to the advantage of the employees, because, by 
this plan, you set aside this particular industry from all other indus- 
tries. They are now closely tied up, but when you segregate this 
industry in this manner you have got all the employees of the other 
industries in a position where they would object to an advantage 
to these employees which they have not earned. 

Mr. Sanpers of Indiana. If this plan were adopted, would you 
advise giving the Interstate Commerce Commission authority to 
fix maximum and minimum rates? 

Mr. Piums. The minimum rates would be the maximum rates 
under this plan. Now, there is one fundamental point to be con- 
sidered: Under the existing system the right to fix rates is delegated 
to the corporations. We retain the regulatory power over the 
fixing of the rates and prescribe maximum rates to protect the 
public from extortion. We have delegated the taxing power and 
retained the legislative regulation of rates to prevent extortion. 
Under this plan there is no delegated taxing power, but it is exer- 
cised by the Government directly. The Interstate Commerce Com- 
mission fixes the rate—that is, the minimum rate, and, consequently, 
there is no reason why the Government should regulate its own 
rate-fixing power by prescribing maximum rates. It would be just 
like the Government fixing a tax levy and saying the rate shall be 
not less than so much and shall not be more than so much, which 
would leave utter confusion in the collection of the taxes where 
the Government acts directly; but in fixing the taxes we fix a rate 
which must be sufficient to pay the United States. So that there 
is a distinction between our rate-fixing theory and the existing rate- 
fixing theory. 

Mr. Sanpers of Indiana. I notice that this bill provides that the 
title to this property shall immediately vest, or at some future 
time, without any legal action. 

Mr. PLums. Yes, sir. | . 

Mr. Sanpers of Indiana. That is different from the ordinary 
method? ; 

Mr. Prums. Yes, sir; that is because this is a different proposi- 
tion. The ordinary method applies to the apprepneen of private 

roperty not formerly subjected to the use of the public, but this 
as application to property that is already devoted to public use. 

Mr. MonraauE. I asked you the other day very briefly what 
values taken over by the Government would be compensated for ? 

Mr. Pitums. Pardon me, but I do not understand that question. 

Mr. Montracur. Your plan provides, in the first place, that the 
Government shall acquire the property of those corporations ? 

Mr. PLumB. Yes, sir. 3 | . 

Mr. Montracusr. And, of course, they must be compensated for the 
values taken over ? a 

Mr. PLumB. Yes, sir. 

Mr. Monracus. Your bill enumerates in section 4 a category of 
values. 

Mr. Prums. No, sir; I do not think it does. | a 

Mr. Montacug. Well, you itemize what you think are the values, 
or the objects which are to be valued. 

Mr. PiumB. Yes, sir; the rights that are to be valued. 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 707 


: a a Montacue. The right of property, I imagine, is one of the 
_ rights. 
. PLums. The definitions are in the act. The bill defines trans- 
on properties as including all of the private rights existing that 
ave been granted to the corporations under their charters, or have 
_ been secured under such charters or the laws under which they 
operate. 

Mr. Montacue. Then, you use the words ‘‘property rights”’ in your 
enumeration ? 

Mr. Piums. Yes,’sir. 

Mr. Montacue. Do you include in the words ‘‘property rights’’ the 
surplus of the railroad earnings that have been reinvested in improve- 
ments on the property ? 

Mr. Prums. We leave it to the court to determine that. 

__ Mr. Montacus. I am not speaking of what the court might hold, 
but I am asking you for your idea of it. 

Mr. Prums. According to my idea, the surplus earnings paid by 
_the public for services of the corporation in excess of the amount 
_required for operation, maintenance, and a reasonable return may not 
_be capitalized, and do not become the property of that corporation. 

Mr. Montaeuer. And, therefore, in your opinion, it should not be 
included by the court in determining just compensation ? 

Mr. PLums. Yes, sir; that is true. 

Mr. Monraaus. Let us assume that there is a surplus earned and 

_ that the surplus is invested by a single track railroad in a double track 

railroad, and that that double track railroad is taken over under con- 
demnation proceedings: Do you think that the double track or the 
new track constructed out of the surplus earnings should be a subject 
of valuation and compensation ? 

Mr. Piums. Now, | am speaking of my conception of the law. 

Mr. Montacur. Yes; certainly. 

Mr. Prums. That principle will be laid down by the court. In my 
opinion all of the money which was put back into that property out of 

demands made upon the public for the service of that property, 
belongs to the Pabiie interest, and not to the private interest, and, 
therefore, should not be included in the valuation of the private 
interest. 
| Mr. MonracueE. So that, taking the illustration I gave you, if the 
surplus earnings have been devoted to the construction of additional 
tracks, or to the construction of additional terminal facilities, or to 
- the acquisition of locomotives, or rolling stock, etc., then these 
structures and facilities should not be included in the compensation ? 

Mr. Piums. That is my construction of the law. | 

Mr. MontacuE. I only wanted your construction of it. 

Mr. Ptums. Now, Gov. Montague, there may be charters under 
‘Which the public have granted to some corporations such a right, 
‘and if there be a charter that warrant such a right, of course the 

ublic are bound by it, but I have not found any such charter yet. 
‘The charters that I have studied, as I construe the law, do not pass 
that right to the private owner, and it does not become a part of the 
private interest. 

Mr. Montacur. Assuming that the Government takes over these 
‘rights, broadly speaking, the administration of the roads is to be 
done by the directorate provided for in this bill ? 





708 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Piums. Yes, sir; that is the administering body so far as there 
is w legislative body in industry confined to that industry. 

Mr. Monracur. Then, the execution of your plan as applied to 
administration must be by this directorate ? 

Mr. Piums. I think it must be. 

_ Mr. Monrracun. Therefore, we will not bother ourselves even with 
the name of the corporation. The directors run the system which 
you have evolved ? 

Mr. Piums. Yes, sir. ; 

Mr. Monracur. Five of these directors are to be elected by the 
classified employees of the railroad lines ? 

Mr. Puums. Yes, sir. 

Mr. Montacus. How do they elect? 

Mr. Puums. Well, we have not prescribed the method of elections. 
I think that ought to be devised, but it ought to be flexible so that 
it may be improved. I am willing to make a suggestion as to how 
I think it should be done. 

Mr. Monrageus. Your bill makes no provision for that? 

Mr. Puumes. No, sir. . 

Mr. Montague. It makes no provision for the organization either 
of the official employees or the nonofficial employees, nor as to the 
method of selecting directors ? 

Mr. Ptums. Except that the President is authorized to issue such 
orders as will carry the bill into effect. That leaves it largely in the 
discretion of the executive to say what method shall be adopted. 

Mr. Montacur. Do you think that the President should direct 
the terms of those officers and fix their compensation, or, at least, 
should direct the method of the selection of those several groups, 
and fix their terms of office and compensation ? 

Mr. Piums. No, sir; the terms of office and compensation are 
provided for in the bill. The method of selection is not provided. 

Mr. Monracur. Where do you find a provision fixing the terms 
of office ? 

Mr. Piums. For 2, 4, 6, 8, and 10 years. The amount of com- 
pensation we have simply left blank. 

Mr. Monraaue. There is nothing in the bill to prescribe or provide 
for any organization by which those officials are elected, except a 
general direction ¢ | 

Mr. Piums. A general direction that they shall be elected by those 
electors. The method of carrying that into effect we have not 
specified. If a satisfactory method can be devised, it might be 
written in. : 

Mr. Monracur. Assuming now that they have been elected by | 
their groups in some manner, and that there are five appointe 
officials, as you call them, although, as I understand it, they are not 
appointed officials under this system, but that is merely the way in 
which you give us this group——— 

Mr. Piumps (interposing). Yes, sir. 

Mr. Monracur. And there are five representing the nonofficial 
employees. I understand you to say that you think that will reduce 
friction in the operation. | 

Mr. Puums. It will reduce that friction, but it will not eliminate it. 

Mr. Monraauer. Can you not think of any friction that will result 
between those two classes ? 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 709 


Mr. Pius. Yes, sir. I have never participated in the conduct of 
eeprom where there was no friction. | 
-Monraevur. We must not think of this in the incipiency of the 
administration, but look at it as covering a long period of years—100 
‘years ¢ 

: Mr. Piump. Yes, sir; so long as there are three diverse interests 

Mr. Montaavur (interposing). Let me ask you, why do you think 
that the official employees and the unofficial employees have diverse 
interests ? 

Mr. Piums. Because the official employees are given a greater 
percentage of the reward for efficiency than allowed to the unofficial 
employees. 

Mr. Montacur. Would that bring about conflict ? 

Mr. Pump. It does not. It brings about not conflict but a 
‘diversity of interest, and yet there is a common interest there. 

Mr. Monracur. What would be their salaries ? 

Mr. Ptums. That would be entirely for the board of directors to 
determine. 

Mr. Monracur. But they are not fixed by the bill at all? 
Mr. Piums. No, sir. 

Mr. Montacue. These salaries would be fixed by the board of 
directors, the 15 directors ? 
Mr. Prump. Yes, sir. 

Mr. Montacur. Ten of whom come from the railroad employees ? 

Mr. PLums. Yes. | 

Mr. Monracur. And by the term ‘‘employees” I do not mean 
only the official employees. 

Mr. Pumps. You mean the total body ? 

_ Mr. Monracun. Yes. Their salaries are to be determined by 
themselves, are they not? 
Mr. Prums. Yes. Of course, there is the other element, but they 
‘have the power to determine their salaries by themselves, certainly. 

Mr. Monracur. You stated yesterday that they could not be dis- 
-gruntled against themselves; 1 ask you where the friction would 
exist ? 
Mr. Proms. The higher the salaries fixed for the official employees 

the lower the rate of dividend will be for the classified employees. 
Mr. Monracur. Would there be a tendency to increase the salaries 
of the official employees and decrease the salaries of the unofficial 
employees, would not that be human nature ? 
Mr. Prums. That would be the mistaken view of human nature 
which the capitalists have entertamed, but it is not the view we 
entertain, because our employees recognize that it is to their benefit 
_to pay salaries that are required to obtain the highest skill and effi- 
ciency in the management class, and yet it is also to their benefit to 
0° more. | 
_Monracur. Do you think there would be a tendency on the 

part of the official class to increase their salaries ! 
' Mr. Piums. There is a large body of the official class which should 
“have a normal increase. I think the employees recognize the justice 
of such a demand, but it is at the lower end. 
_ Mr, Monracus. And there is a large class which should have a 
' decrease ? 
Mr. Prums. There is a large class. 











710 #$RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Montague. And a large element of the public think as you do? 

Mr. PLums. Yes, sir. 

Mr. Montacue. Where it is human to increase on one side and 
human to decrease on the other, you would have continental friction ? 

Mr. Piums. Not by giving to all of the elements of human nature 
an equal voice of authority. 

Mr. Montaaug. If each had an equal voice to increase his pay, 
you would still be traveling in a circle, and where would be the 
remedy ? 

Mr. Paces By giving the voice of the umpire to the public 
interests. In this triangle the interest least affected by decision 
always becomes the umpire. 

Mr. Montacus. The interest of the official employee: is what? 
Chiefly outside of doing the service would be to increase his reward? 

Mr. Ptums. There is the same human interest that would be 
enjoyed by the official employee under this plan which now motivates 
them, but freed from another oppressive circumstance which now 
circumscribes them. 

Mr. Monracuxr. What is that ? | 

Mr. Prums. That is the demand of the capitalistic management 
for profit regardless of the other element involved. 

Mr. Monracur. I do not know. I am a poor man and not a 
capitalist. I recognize that there are infirmities in human nature 
which have never been eliminated. Do you not think that all people 
in the main—of course, there are exceptions—are looking after their 
profits ? 

Mr. Piums. Certainly. 

Mr. Monracusr. You can not increase one man without taking it 
from another man who wants an increased salary ? 

Mr. PLums. You certainly can not. We recognize and build our 
plans upon that fundamental thing in human nature, but we take 
away from one class of men the power to impose their desire and 
satisfy their wishes at the expense of the other. 

Mr. Montacusn. Have you taken away from these five official 
employees the power to increase their salaries ? 

Mr. Prums. We have. They can not do it without the consent 
of the other two interests. 

ss MontaGuE. Suppose they obtain their consent, how would 
you do? | 

Mr. Piums. If the classified employees obtain the consent of the 
official employees ? 

Mr. Montacug. Yes, sir. 

Mr. Prums. They could only get the consent from the official 
employees at the expense of the official employees. ‘5 

Mr. Montacusr. Suppose that the official employees desired to 
increase their salaries and the classified employees desired to increase 
their pay, their compensation, and they agreed on that. | 

Mr. Pius. Yes, sir. 

Mr. Montacur. How could you prevent that increase ? 

Mr. PLums. You could not prevent it except by this: We have 
established an arbitrary division between the rates of return for these 
two classes which gives to the upper class a double advantage over 
the lower class. 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 711 


_ Mr. Montacur. Would it not be to the interest of the lower class 
‘to reduce that advantage all the time? 
_ Mr. Prius. I do not see how they could. 

Mr. Montacus. In order to equalize their interest ? 

Mr. Piums. They could not do it without the consent of the official 
employees. . 

Mr. Montacur. And make it to the advantage of the official 
employees ? 

Mr. Piums. I do not consider it a possibility that the classified 
employees could agree to an increase all the way along in the rating 
that gives the official employees twice the rate of increase which 
the classified employees receive. 

_ Mr. Monracur. You might do it on the first election, but how 
would you do it after a few or some years ? 
Mr. Ptums. You mean as the men retire? 

Mr. Montacus. No; they do not live forever. 

Mr. Piums. No; but we provide for the election of a new member 
in each class every two years. 
| Mr. Montacux. Mr. Plumb, many people think that the five men 
taken from one class and the five from the other class of employees 
will at once coalesce and become a solidified body ? 

Mr. Piums. I know there is that fear, but that is because of a 
Jack of understanding. 

Mr. Montacur. Might it not be so much a lack of understanding 
as overoptimism ? 

Mr. Pius. I know of no experience that would warrant that. 

Mr. Montacur. There is the experience of men in the same boat 
with the same interest each looking for their salaries ? 

Mr. Piums. We arbitrarily divide their interests so that they can 
not get into the same boat on that proposition. 

a MontaGuE. That is, you keep them out of the same boat? 
How? | 

Mr. Prums. By giving the official employees twice the advantage 
that we give to the classified employees. 

Mr. Monracur. You give them twice the advantage; how? 

Mr. Piums. By giving twice the rate of dividend and a double 
share in the profits from efficiency. 

Mr. Montacur. Do you think that will keep them distinct? 

Mr. Pius. [ think it will. 

Mr. Montacur. You think that the monetary reward will keep 
them distinct in interest? 

_ Mr. Pius. I think it will. I do not see how it could do other- 
wise. 

Mr. Montacur. Assuming that your rate charges for transporta- 
tion would not yield a just and fair compensation to the employees, 
how would you meet that? | 

Mr. Prums. If it does not yield fair and just compensation I 
should say that the Interstate Commerce Commission would then 
merease rates, just as they have always been doing. 

Mr. Montacur. Who in the main would determine whether the 
compensation was just and fair ? 
| r. Prums. Ultimately that lies with the Interstate Commerce 
Commission, although it has no power to fix wages, but it would have 





12 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


the power to say, just as it has done in the past, that the increase in 
wages is not justified, and that we will not increase the rates. 

Mr. Montacur. Suppose the employees say that the increase in 
the rate is justified, and that they should have it? 

Mr. Pitums. Then, if they want to take that position, they face a 
deficit which they have created, and that ends their profits. 

Mr. Monracus. You think they would not reserve the right to 
strike in order to carry their point? | 

Mr. Puump. There is no power on earth that can deprive an indi- 
vidual or body of individuals of the inherent right of revolt. 

-Mr. Monracus. Of course not. 

Mr. Proms. There is not any law that can be devised either under 
this plan or any other plan that will do that. You encourage that 
revolt if you follow the old capitaliststic system, where they feel 
that they are working for profit, and not for the public service. 

Mr. Monracur. I understood you to say yesterday that when 
labor and capital joined they would exploit the public? . 

Mr. Prue. Certainly, they would. 

Mr. pi ae And your purpose now is to divorce labor from 
capital ? 

Me. Prums. To divorce labor and capital. 

Mr. Monraaur. This bill proposes that the Government shall pur- 
chase the railroads and own them? 

Mr. Piums, Yes. sir. 

Mr. Montacusr. And they shall at once give what they have pur- 
chased over to the corporation to be controlled by these directors? 

Mr. PLtums. Yes. . | 

Mr. Monracur. The Government has no control over this direc- 
torate legally, except the five appointments made by the President? 

Mr. Piums. Oh, no. We provide in the bill that the Government— 

Mr. Monracvus (interposing). No control over them after appointed, 
except to remove them ? 

Mr. Puums. Yes, sir. We provide in the bill that the Government 
retains all of its rights and powers of regulation the same as though 
the corporations had not been created. 

Mr. Montracur. You do not provide that the Government may 
repeal or amend the charter ? 

Mr. Piums. I would be glad to put that in. 

Mr. MontacuE. It is not in now? 

Mr. Piums. No, sir; I should be very glad to accept that. 

Mr. Monracusr. You think the remedy of the Government would 
be the enactment of new laws ? 

Mr. Prums. Certainly. 

Mr. Monraaue. I am speaking of the sufficiency of this plan and 
not additional laws. 

Mr. Ptums. We do not want to create a condition that is beyond 
the absolute control of the people of the United States at any time 
and in any manner they desire. 

Mr. Monracur. You say that you want to divorce this entirely 
from politics? 

Mr. PLums. Yes, sir. 

Mr. Monraaue. I understood you to say yesterday that no political 
management by a government of an institution is efficient, and you 
instanced the post office ? 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 718 
_ Mr. Prums. I know of no political management of any industry 
hat realizes our hopes of efficiency. 

Mir. aa What industry do you know of that is politically 
nanaged ? 

BP oun. The post office is the only one that I know of. 

Mr. Montaeusr. You do not think that is efficiently managed ? 
Mr. Prue. I think it has been efficient. I do not want to be 
inderstood as saying that it is not efficient; but “efficient” is a com- 
jarative term, and whatever efficiency the post office has obtained 
tas resulted in great dissatisfaction to the employees and we believe 
much higher rate of efficiency could be obtained if that instrument 
if public service operated under the democratic principles embodied 
‘inthis bill. 

’ Mr. Monracur. What do you understand to be the democratic 
‘winciple? 

Mr. Piums. The right of the individual to have a voice in the direc- 
ion of his government; that is political democracy. 

Mr. Monracug. Of the public business? 

| Mr. Prums. The right of the individual to have a voice in the 
lirection and control of the industry in which he is employed; that 
3 industrial democracy. 

' Mr. Monracus. But if you use the Government to buy that busi- 
iess and turn it over, do you not think that the Government should 
iave some say in the management? 

| Mr. Prums. The Government does have. 

Mr. Montacur. Only a one-third say. 

Mr. Piums. But that, you see, is the accepted balance in all 
ociety for this service as against the rights of those who produce the 
ervice and the power of those who manage it. 

Mr. Montacus. I appreciate your statement, but that is not a 
emonstration. 

Mr. Prumps. Of course, it is not a demonstration, because we are 
acing an era which demands remedies without precedent, and there 
‘an be no demonstration until there is a precedent. 

Mr. MontaGuE. IJ gathered from your remarks on yesterday when 
‘ou spoke of political administration that you meant governmental 
dministration ? 

Mr. Prums. Yes; I mean administration by the agency of political 
overnment. 

_ Mr. Monracue. It can not be that you meant powerful political 
‘gents in America who are not governmental agents ? 

Mr. Prums. Yes. I think Cesar said there are some individuals 
f the community who are stronger than the entire government and 
‘here are some agencies in the United States, not political, that are 
tronger than the entire Government. | 
_ Mr. Montacuz. That is what is generally called hidden or secret 
‘Overnment? You recall that? 

_ Mr. Pius. Yes, sir. 

' Mr. Montacurt. The power of organization outside of government? 
_ Mr. Pius. Yes, sir; outside of government. 

Mr. Monracur. Do you think that you remove the gentlemen 
thom you represent from that category ? 

' Mr. Pius. As to this industry, undoubtedly we do, because these 
Tganizations exist only where political government has privileges to 





| 





714 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


grant that it is profitable for them to acquire and as to the railroad 
industry we take away from political government.the power to grant 
privilege in the railroad industry and therefore the organizations cease 
to have power outside of the Government. 

Mr. MontacuE. You avail yourself of government to get a profit 
and then exclude the responsibility for the conduct or the adminis- 
tration of the property; that is, you take government influence as far 
as it gives you what you want and then divorce yourself from all 
governmental control or direction ? 

Mr. Piums. It does not seem to me that that is a fair statement, 

Mr. MonraaukE. If it is not, I should like to be corrected. I infer 
that from this bill. 

Mr. Prums. We are not asking an advantage for the wage earner 
at the expense of the entire industry; all we are asking is that he be 
permitted to share equally with the consumer, not in excess of what 
the consumer receives, but equally with the consumer. 

Mr. Monraaur. Nobody objects to that. The question how you 
obtain it is a different one? . 

Mr. Pitums. The only way it can be obtained is by political action; 
that is, governmental determination. 

Mr. Montague. To quote roughly Burke, “A great many troubles 
are not due so much to the imperfections of government as to the 
infirmities of human nature.’ We have to deal with them? 

Mr. Piums. No; but we ought to take advantage of the good part 
of human nature in passing laws. | 

Mr. Monracue. That is true, but the infirmities of human nature 
do not always enable us to pass laws that are good and wise. 

Mr. Piums. That is true. 

Mr. Montacur. To whom are these agents, the five directors of the 
official employees and the five directors of the unofficial employees, 
responsible ? 

Mr. Piums. They are responsible to these three elements equally. 

Mr. Montaaur. What elements ? 

Mr. Piums. The producer, the consumer, and the management. 

Mr. Monracur. That is a moral responsibility more than a legal 
responsibility ? 

Mr. Piums. It is absolute responsibility for the violation of which 
they may be removed. 

Mr. Montacusr. Who will remove them ? 

Mr. Piums. Their electors. 

Mr. Montacus. How about the five appointed by the President? 

Mr. Pitums. He has the power to remove them. 

Mr. Monracur. How can the other 10 be removed ? 

Mr. Piums. The classified employees have the power to remoyé 
ee nominees and the official employees have the power to remoyé 
theirs. | 

Mr. Monraaus. You said that this system would bring about such 
harmony that there would be no disgruntlement and no friction? 

Mr. Prums. No;I said it would reduce friction, but not eliminate it. 

Mr. Monracug. You can only reduce friction by bringing about 
harmony in such an agreement ? 

Mr. PLums. Certainly. : 

Mr. Montaeur. Does it not inevitably follow that it would be 
more to the interest of the directors of the employees to come to at 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 715 


igreement in conflict with the views or position taken by the five 
ippointed by the President ? 

| Mr. Prums. By the very law which creates them we erect a barrier 
detween those two classes by giving a double advantage to the official 
smployees. 

_ Mr. Montacur. How will you continue that advantage ? 

_ Mr. Prums. That advantage would be removed by a combination. 
| Mr. Montacuer. But you say that this would democratize these 
‘ailroads, yet would there not be antipathy between one class and 
nother ? | ; 

Mr. Prums. I hope there would be no antipathy. 

Mr. Montacur. I hope so. 

_ Mr. Prums. I do not think there would be, due to the natural 
idvantages which each class receives under this law. 

Mr. Monracue. Would not that natural advantage drive them to 
gree rather than to disagree ? 

_Mr. PLums. Not at the expense of tearing down that advantage, 
len do not agree between themselves to lose an advantage. 

_ Mr. Monracur. No. They agree among themselves to increase 
heir own wages to their own advantage? 

Mr. Proms. Yes, sir; but they can not do that if by such an 
nerease one-half of those agreeing lose an advantage already possessed. 
_ Mr. Monracur. They may not do it to that extent, but there is 
1othing in the way of law to prevent their doing it from time to time? 
_ Mr. Pioums. No; there is not; but there is the fundamental self- 
oterest of human nature which is stronger than any law. 

Mr. Monracusz. That belongs to the infirmities of human nature? 
Mr. Prius. Yos; that belongs to the infirmities of human nature, 
ut in taking advantage of those common infirmities you must 
‘onsider both advantages and disadvantages. You can not arbi- 
rarily select one and disregard the other. 

Mr. Monracusr. You said to Mr. Sweet that you believed this bill 
estored to these individuals the equal opportunity of which they 
lave been deprived ? | 

. Plums. Yes, sir. 

Mr. Monracur. Did you speak of the opportunity for advancement 
t the equal opportunity of remuneration ? 

Mr. Prums. Both. 

Mr. Montacuz. Has there been any lack of opportunity of the 
ailroad men of this country to rise in their own employment? 

Mr. Prums. Any lack? 

Mr. Monracur. Has there been any undue repression in the 
dministration of the railroads of this country to the end that it 
revented the rise of men from the lowest employment, I mean 
skilled, in the railway service to the highest position in the railway 
ervice ? 

_Mr. Prump. I do not think there has been any great repression 
nacertain kind of initiative, but the initiative that has been rewarded 
‘nder the old system of promotion is that kind of initiative which 
xtorts more profit from the labor of others, not the kind of initiative 
hat increases the efficiency of others. 

_Mr. Monracur. This was the point that I was getting at. To put 
t concretely, are not the majority of the highest paid and most 


716 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


responsible railroad employees the men who have come from the 
very bottom of the employment? 

Mr. Prums. The ablest men, perhaps a majority of them, are men 
who have won their way up through their experience. : 

Mr. Montacun. They have come from the bottom up? 

Mr. Pius. Yes, sir. 

Mr. Montaausr. That has been democracy, has it not? 

Mr. Prump. That has been, in a way, democracy, but they have 
not come up by the impulse of their fellow employees. They have 
come up by the selection of the autocrats who realized that they were 
able to get more profit out of the men with whom they were asso- 
ciated than anyone else. They were the most practiced extorters 
of human effort and that has won them their reward. 

Mr. Monracur. You would change that by making the employees 
elect these people ? 

Mr. Piums. [ would make the employees through that share of the 
directorate have a voice in the election of these people. 

Mr. Monracus. Therefore, it comes back that those who are 
elected are responsible to those by whom they are elected ? 

Mr. Piums. Yes, sir. 

Mr. Monracus. They are responsible to an unofficial body? | 

Mr. Prums. Certainly; they are responsible to these three elements 
and they are all unofficial. 

Mr. Monraaur. There is nothing to hold them responsible, except 
moral suasion ? 

Mr. Prums. The entire system is so framed that they can not 
shirk their responsibility without being removed. Nothing but 
efficiency can hold any man’s position in this organization for if he 
does not have skill and efficiency every member of the organization 
suffers by reason of the lack, and if he does have skill and efficiency 
every member of the organization and the public profit by reason 
of that possession. : 

Mr. Monracus. Did you ever know of any military system where 
the men in that system selected their own officers ? 

Mr. Ptums. No; but they are not classed as an industrial element. 

Mr. Montague. I just cited that to show the responsibility, not 
the class. Did you know that there was a military system im the 
late war where the Confederate soldiers selected some of their own 
commanding officers ? 

Mr. Piums. I did not know definitely that it obtained. 

Mr. Montacur. I do not know. The result would seem to ind 
cate that it was not the most efficient method. 

Mr. Piums. A military system is based on absolute autocracy. | 

Mr. Montague. It is not based any more than the other when lt 
comes to the question of efficiency. You do not want to have a cap 
tain or anybody else who is not efficient. 

Mr. Piums. I think that is true. . 

Mr. Monraeur. You and I would not risk our lives on that kine 
of efficiency. 

Mr. Piums. Some 2,000,000 soldiers have been brought back from 
Europe who are now forming an organization and I saw in the papél 
the other day that they had indorsed this plan. 

Mr. Montague. I did not see that. I do not think that is true 
I do not doubt that you saw it. 










RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1717 


Mr. Pius. I saw it in the papers. 

Mr. Montacur. I saw in the papers a notice in regard to the or- 
ganization in Washington of a branch of the legion, but the legion has 
‘not had:a meeting except in St. Louis. 

Mr. Puums. It is the private organization that I read had indorsed 
‘It. 

Mr. Montacur. How many members? 

Mr. Piums. I do not know anything except the little notice that 
I saw in the paper. 

Mr. Montacue. If it was an important event, there should have 
been something more than a line in the papers. 

Mr. PLtums. The purpose of citing that is this: We have had some 
very able officers in the recent unpleasantness and if the privates had 
been permitted to select a portion of them we might have had a great 

many more. 
Mr. Montacus. I do not care to argue that with you. I just spoke 
of the principle of selection. 
__ Mr. Priums. The principle of selection under the autocracy and 
under democracy can hardly be compared. 
Mr. Monracur. The President has defined autocracy to be “the 
exercise of an irresponsible power.” Do you agree to that as a general 
definition ? 
_Mr. Piums. For the moment that seems to be a pretty good defi- 
‘Bition. 
' Mr. Montaeur. Men can do what they want, be governed by them- 
selves, and be responsible to no one else ? 
__ Mr. Pius. That seems to be a pretty good definition. I should 
think that that fitted the present situation. 

Mr. Montacusr. Do you think that you could remove the 10 
directors from that classification. 

Mr. Pitums. Yes, sir. 

Mr. Montacue. I wish you could satisfy me on that point. 

Mr. Piums. I wish I could. 

Mr. Watson: During your statement you have dwelt very minutely 
on the plans of your bill and you have answered the questions in 
detail. I want to ask a few general questions. I am interested in 
your statement regarding the extension of railroads. In the year 
previous to the war there were only 1,060 miles of railroad con- 
structed. As I understand, they were the extension of old lines, 
there were no new corporations formed. Can you give me an opinion 
why the railroads were not extended in the last two or three years ? 

Mr. Prums. Yes; 1 think I can. I think I know why they were 
Dot extended. It was because there was no credit in the railroad 
industry to provide the funds required for such extensions. 

Mr. Watson. That is, private funds ? 

Mr. Piums. Yes, sir; private funds; no credit for the private 

funds required for such extensions. 
Mr. Watson. Do you think that the laws extending the powers of 
the Interstate Commerce Commission prevented the raising of 
‘Money ? 
Mr. Prums. Not at all. 
Mr. Watson. Do you think that the bankers of the country organ- 
‘ized themselves into a unit, I mean the larger bankers, and agreed 
among themselves not to underwrite bonds for new railroads because 
they were allied with the old railroad systems ? 


vib: RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Piums. No, sir. 

Mr. Watson. I thought you intimated that? 

Mr. Pius. No, sir. I think that the public had become so 
distrustful of railroad securities that in spite of the organization of 
bankers to sell the securities they could not find buyers. 

Mr. Watson. Therefore, if the railroads are to be extended in the 
future, we must depend upon Federal appropriation ? 

Mr. PLums. We must depend upon a security based on publie or 
social credit and value. 

Mr. Watson. If the public have lost confidence in the railroads, of 
course they will not contribute their money, and therefore there is 
no alternative except Federal appropriations ? 

Mr. Prius. If I might, I should like to tell you why the credit is 
not sufficient now to procure new funds, but I will let that pass 
unless you care to have the answer. 

Mr. Watson. Your plan is to tax the lands through which the 
proposed railroads would be built? 

Mr. Prums. Yes. There are portions of this country that need 
extensions and that want them badly where the value of property 
has not reached its normal level because it is denied these extensions. 
If those sections of the community could procure that extension by 
mortgaging the increased value of their property, or a portion of it, 
which would result from the extension, they would be very glad to 
do it and there would be no trouble in marketing securities necessary 
for the extension. 

Mr. Watson. I think you said there would be a tax of 25 cents 
an acre ? 

Mr. Piums. I gave that as an illustration, a tax of 25 cents an acre. 

Mr. Watson. How many miles on either side of the railroad ? 

Mr. Piums. Five miles. } 

Mr. Watson. And that would raise $36,000 ? 

Mr. Prums. A mile. 

Mr. Watson. For instance, if a proposed road passes through a 
village not incorporated, would you tax all the lots? 

Mr. Prums. My suggestion on that is that the tax be provided by 
local laws and that it should then be distributed in porportion to the 
benefits. My 25 cents an acre was merely an illustration of how it 
could be done going through an agricultural district, but if it went 
through a village that would be benefited the local authorities 
should have power to assess the benefits. 

HOM ase be That is only your suggestion, not a plan devised in 
the 4 

Mr. Piums. All that is in the plan is that it should be done unde1 
local laws. | 

Mr. Watson. There has been much said about proposed revolu- 
tion if this bill should not pass. Do you believe that this bill would 
end all talk of revolution, either revolution of mind or of powder? 

Mr. Prums. May I speak on the word “revolution” for just a 
minute ? 

Mr. Watson. Yes, sir. I do not want to go into detail. | 

Mr. Prums. Many of these men who are using that term hardly 
realize what is comprehended by the economics in the term. There 
was a celebrated Congressman in the House from California who in a 
recent address at Yale spoke of the Yale alumni as “going abroad 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 719 


throughout the country to spread the word of the gospel and to raise 
hell generally.” What I think most of these workmen mean by that 
term “revolution” is that they are just going to object, object for 
all they are worth. As Mr. Kent said, “Raise hell generally.” 
_ Mr. Warson. I do not believe that the American workmen will 
ever rise in revolution. 

Mr. Piums. I do not, either. 

Mr. Watson. Too many of them own the property in which they 
live and too,many of them understand the liberties of this country 
to rise in revolution and to destroy their own property. 

Mr. Piums. I do not, either. I think it is the equivalent of the 
expression that they mean to object, to reconstruct, and they are 

going to do something about it. | 
~ Mr. Watson. Do you think that the workmen will be as discon- 
tented as they are now, provided your plan goes through ? 

Mr. Pius. I think you would open an era where discontent would 
begin to vanish. 

a Watson. Is there any more discontent to-day than 10 years 

ago? 
| P Mr. Pius. I think there is much more discontent to-day than 10 
years ago. 

Mr. Watson. Do you think that 10 years from now there will be 

more or less discontent ? 

Mr. Prums. Under the existing system I think that the discontent 

Is growing. 
__Mr. Watson. Without discontent we could never have enlightened 
civilization. Do you think that this discontent is represented by 
the revolution of mind and not by the revolution of power ? 

Mr. Pius. I think this plan is one of the steps of evolution which 

has been brought to the American people out of the discontent of 
existing conditions. 

Mr. Watson. From your experience, how many of the employees 
of the railroads believe in universal military training ? 

Mr. Piums. I have never conversed on that subject with any single 
man or any group of men. I have never heard an expression on it. 

Mr. Watson. With the knowledge which you have of the men’s 
character, do you think they believe in universal military training ? 
| Pius. I can only give my own personal view on that. “tf 

we establish a league of peace there is no reason for universal military 
_ training. 
_, Mr. Warson. It has been stated about 15 per cent of the soldiers 
In the Army could not read or write the English language. I do 
hot know how true that is. How many employees in the railroad 
) oo of the whole United States, from working on the track to 
the highest, can not read and write? | 
_ Mr. Pius. I do not believe there is a single workman above those 
in the construction gangs—only a few there—who do not read and 
write the English language. 

Mr. Watson. Not even through the southern district ? 
_ Mr. Prums. Any employee in the actual transportation of trains 
‘Must be able to read and write in order to obey the orders. 
_, Mr. Warson. Do you believe in compulsory education; that is, 
do the employees believe in compulsory education ? 


152894—19—vo1 1——-46 





720 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Prums. Why, there could be no question about that, in my 
mind. We must believe in education. . 

Mr. Watson. If all the employees had a common-school education 
do you think that that would eliminate strikes? _ 

Mr. Piums. Oh, no; that has nothing to do with the industrial 
situation. 

Mr. Watson. Employers who have under them thousands of the 
men have told me that if they all had a common-school education 
there would be no strikes, that they could deal with them in an intel- 
lectual way ? 

Mr. Prums. I think these men can deal in an intellectual way with 
any problem that arises. We are trying to do that now. 

Mr. Watson. You do not think that universal education would 
help the employees ? 

Mr. Ptums. Yes; it would help, but it would not solve the indus- 
trial problems. 

Mr. Watson. Of course, it would not solve the industrial problems, 
and there would be no strikes settled without the consideration of 
men who look at questions in an intelligent way ? 

Mr. Pitums. We have questions that have to be solved to-day. 
Universal education would prepare the next generation for the 
solution of its problems, but it will not help in the solution of ours. 

Mr. Dewar. Mr. Plumb, let me see whether you and I can agree 
upon some things. First, are you willing to concede that capital 
and labor have in many instances identical interests ? 

Mr. Piums. Certainly they have. 

Mr. Dewaur. Let us start out, then. Now, are you willing to 
concede that capital invested even in public utilities and even where 
the franchise was granted by public authority has a right to fair 
remuneration for such capital ? 

Mr. Piums. That is the basic principle announced in our plan, 
We agree with that. : 

Mr. Dewatr. All right. Are you willing to concede that labor 
also has its rights to a fair remuneration and no more, a fair and 
reasonable remuneration ? 

Mr. Puums. Well, you have introduced the ‘‘no more” element 
which you did not introduce in the other proposition. 

Mr. Dewatt. Wait a moment. Are you willing to concede that 
labor as a component part of the public is entitled to reasonable 
compensation ? 

Mr. Piums. Yes, sir. 

Mr. Dewatt. Conceding what you have stated, that the actual 
capital in railroad enterprise is largely inflated by stock manipulation 
and that the actual valuation would be perhaps 334 per cent less 
than the stock, what would you consider to be a fair return for the 
investment of capital ? 

Mr. PLumMs. sae mean.the actual investment ? 

Mr. Drewatt. Yes, sir. 

Mr. Piums. Whatever return at the time it is made is necessary to 
induce the making of the investment. 

Mr. Dewar. Now, suppose we say that money is worth 6 pe 
cent, which is the general rate prevailing; I suppose you would be 
willing to concede—and if you are not, say so—that a fair return for 
capital invested as fairly represented by stock issue should be 6 per 
cent, if that was the money rate and the normal money rate? | 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. W21 





‘Mr. Pirums. Should be 6 per cent upon 
Mr. Dewatr (interposing). The capital honestly invested and rep- 
sented by stock issue. 

‘Mr. Prump. Yes; if you are going to have that investment under 
nditions which require 6 per cent to induce it. If you are going to 
we that investment made under private operation and ownership, 
think it would require that rate to induce the investment. 
‘Ma. Dewatr. Are you willing to concede that there are three great 
terests here involved in this legislation and all similar legislation, 
wit, capital as invested, the puble, consisting of the consumer and 
‘oducer, and also of the 2,020,000 men who work on the railroads, 
ing a part of the public, and, third, the Government itself? 

Mr. Prume. You have four interests. 
‘Mr. Dewatrt. Let us have the four. 

Mr. Prums. You named capital, the public, the wage earner, and 
e Government. 

Mr. Dewatt. Yes, sir. 

Mr. Puume. You take the wage earner in with the public. 

Mr. Dewar. Yes. 

‘Mr. Prume. And then you combine the producers and consumers 
one intreest. 

Mr. Dewatr. Because the wage earners upon the railroads are 
nsumers. There is no doubt about that. 

Mr. Proms. To be sure, they are consumers of other commodities 
addition to consumers of transportation. 

‘Mr. Dewar. Yes; I am taking the general consuming public in 
y phraseology. 
Mr. Proms. I can not put into one class both consumers and pro- 
‘cers. 
‘Mr. Dewarr. Let us make it four. I am perfectly willing to do 
at: Capital, public, Government, and the wage earncrs upon the 
ilroads. 
/M. Prume. Then, I can not separate the public from the Govern- 
ent. 
: Mr. Dewarr. You do not agree with my propostion that there are 
ur interests to be considered in this legislation ? 

Mr. Puumps. No; I find only three. 

Mr. Dewar. What are those three? 

‘Mr. Prume. These three exist after capital has been guaranteed by 
| of the interests and eliminated. There is the consumer, the pro- 
icer, and management. 
|Mr. Dewarr. Consumer, producer, and management‘ 
\Mr. Prume. Yes, sir. 
tMr. Dewaur. What becomes of the capital interest? 
‘Mr. Prump. I said that those existed after the capital had been 
jlaranteed and eliminated. 
| Mr. Dewatr. In the final consummation of any plan 
| Mr. Prump (interposing). If you want to include capital 
|Mr. Dewatr (interposing). Wait a moment. I want to get to the 
| ot of this thing. In the final consummation of any plan must you 
it take these four elements, capital invested, wage earner, which 
jakes capital productive, and consumer, that is dependent upon the 
‘vestment of the capital and the wage earner, and the public repre- 
nted by the Government itself; is not that the true basis? 














* 
. 


es 


122 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Prums. No. 4 
Mr. Dewaur. Where is the fault. t 
Mr. Prums. The fault is that when you say public you include a] 
interest that is Government because the Government represents al 
of these interests; you can not separate them. | 

Mr. Dewar. That is merely a differentiation without a difference: 

Mr. Proms. I agree with you. 

Mr. Dewar. When you speak of the public necessarily you hav 
the idea of governmental functions as representing the public. W 
have now governmental regulation of the roads, and therefore th 
public must be considered and with that governmental regulation w 
have governmental guaranty of certain elements that capital ha 
invested in the railroads, and therefore the Government must be con 
sidered; whether you call it the public or whether you call it th 
Government there can not be very much difference in the fina 
conclusion. You have capital invested which you admit is entitle 
to fair remuneration and you have 2,020,000 men, and you and 
agree essentially that they must be reasonably remunerated for thei 
labor. 

Does your plan have in contemplation something lke this or doe 
it not, and would this, in your judgment, be feasible? To form | 
directorate of these public-utility corporations which we call th 
railroads, consisting of the representation of the Government, als 
a representation of the 2,020,000 wage earners, and also a representa 
tion of the official management of the railroads as representing privat 
ownership, and then say by legislation that those transportatio 
companies shall receive an income, if earned, which shall not excee 
an amount which would be a fair dividend upon the capital honest 
invested, and that the balance or surplus, above that amount, shoul: 
be divided between the Government, representing the public, am 
the men who are the wage earners, to wit, the 2,020,000 men wh 
earn this money. What*do you think of a plan like that? : 

Mr. Prumes. If the men who are the producers, or the men wh 
earn the money, and the public, or the people who consume tra 
portation, had a voice in the control and management equivaler 
to that of the other element in the management, it would be a vas 
improvement on the present situation; but then you introduce 
another element in the form of a public guaranty on private capit 
held- by private owners operating under a management which t 
private owners do not control, and are not responsible—— 

Mr. Dewar (interposing). Are you right about that? Wh 
do you get that? 
Mr. Prums. The responsibility for the deficit would go somewh 
else. { 

Mr. Dewaur. Are you right about that? You start out with th 
premise, to wit: That the railroads are privately owned by priva 
capital. Now, permit me to say that I do not think that is a corre 
premise. If my judgment is at all correct, then the railroads of th 
country are owned by the public, and a large percentage of tl 
railroad stocks is owned by the 2,020,000 men who work for 
railroads. I think I know what I am talking about there. The 
fore, when you start out with your premise that the railroads of th 
country are privately owned, I must differ with you. The widow 
orphans, merchants, shopkeepers, farmers, and men in every vocati¢ 













RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 723 


id calling of life are owning the railroads to-day. You say that 
ley do not control them. I might grant you that, but they do own 
em. The consumers of this country in large measure partially 
vn the railroads. The very men for whom you are pleading in a 
rge measure own these railroads. Therefore, I ask you, if that 
‘true, where is the inequity, if there be any, of saying that the capl- 
l invested, which is the capital of these different classes that I 
ive mentioned, including the very men for whom you are pleading, 
ould receive a fair remuneration, and that the Government that 
ants the franchise, for the public at large, or for the 110,000,000 
ople of the United States, should receive one-half of the surplus, 
any, and that the men for whom you are pleading, to wit, the 
)20,000 employees, should receive the other half? 
Mr. Prue. I do not think there is any inequity in that. 
a: Dewar. Then, why does not your bill do something of that 
ad? 
Mr. Prums. This would be to the satisfaction of the holders, 
cause they would rather get a lower rate of return with a Govern- 
‘nt security than to have a private security 
Mr. Dewatr (interposing). Are you sure that they will get a lower 
of return? That is another statement. The great trouble that 
fave in my arguments is this, that I sometimes make statements 
d accept them as facts. Right there, are you sure that there will 
‘a lower return ? 
Mr. Proms. A lower return is always obtained where you are 
‘ting a broader security, and the difference between the returns 
nanded depends exactly upon the security afforded. There is 
private corporation that can give us as good security as the 
yple of the United States can give. 
Mr, Dewaur. Well, that might be axiomatic, but I do not think 
is relevant. Let us go to something else: You have 15 directors 
e, and 10 of them are elected by what I suppose would be generally 
| fairly considered interests which, if not identical are, at least, 
gely similar, to wit, the classified and nonclassified employees, 
I five of them are selected by a Govérnment functionary, to wit, 
| President of the United States. Now, will you admit this, that 
‘Ty political administration, whatever its name, is very largely 
ject to popular opinion and popular influence? In other words, 
me its ear to the ground all the time, does it not? Do you admit 
tf? 
fr. Prums. It ought to have. 
Mr. Dewarr. I will make that argument apply directly to the 15 
‘1, 10 of them elected as I have indicated, and if I am wrong in. my 
‘Mises, you will correct me. As I have said, they are elected by, 
lot identical, similar interests, those identical or similar interests - 
Tesenting an electorate or body politic of the United States. 
W, the election is coming on in 1920, and for some reason best 
wn to those 10 directors representing, as I have said, if not 
itieal, similar interests, and for sorne reason best known to the 
y of the electorate, they determine upon a certain policy in regard 
ailroad management and administration. Do- you not believe 
| your plan would be a political engine which would either impel, 
perhaps, compel the administration through political needs either 
‘orm or so change its portion of that directorate as to meet the 
| ands or requirements of the other 10? 













q 


- 
ote. RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. } 


Mr. Prums. Why, it seems to me that merely requires this dire 
torate to submit to a public referendum. 

Mr. Dewar. Would you believe in that sort of railroad manag 
ment ? 

Mr. Prums. I think it would be a tremendous improvement ove 
the situation where the capitalistic directorate adopts policies wi 
any reference to public opinion. 

Mr. Dewar. Did I understand you to go to the length of sayin 
that you would favor a public referendum in regard to the directorat 
of $20,000,000,000 of capital, or $15,000,000 000, or $13, 000,000,000 ¢ 
capital inv ested in the railroads of the United States, in which almos 
every woman, child, and man of this country is interested eithe 
financially, physically, or socially ¢ 

Mr. Piump. No, sir; I did not say that, and we do not propose tha 
I said that the assumption you made was equivalent to a publ 

referendum on policy. 

Mr. Dewatt. Then, in other words, as I understand, you say the 
I would advocate the changing of the directorate by a popula 
referendum ? 

Mr. Piump. No; I did not say you coeornnieae that or believe 
in it, but the assumption in the question which you put to me wa 
equivalent to assuming that the action of this directorate would b 
submitted to a popular referendum. : 

Mr. Dewatt. Let me put it to you again: i 

Ten men are on this board of directors and you and I help to selec 
the railroad men. You are of the unclassified ranks and I am of t 
classified ranks. The human equation is bound to come in, 
Plumb. We are looking for our end of it. We may be altruistic? 
some things, we may be public spirited in a great many things, bt 
we are trying to do the very best we can to ‘Tread the light; we 
looking out for our end of it, and we are looking out for the end of t 
employees and wage earners. We have five men appointed by w 
President of the United States admittedly conservative, pains 
honest men, but there comes a political furore, there comes a po ia 
crisis where the success or defeat of a party, either in power or d 
ing to get power, is dependent in large measure upon the labor vo 
of this country. Those are the facts T have stated in my preliminar 
I ask you now, as a man of experience, a man who ought to kno 
human nature, as a man who ought to know something about politi 
if you do not, because you are in Y public life, is it not a very dane ‘0 
thing, under such circumstances, to say that those five men would? 
be subject to any such influence; is it not likely that they would } 

Mr. Prums. Those five men would occupy positions similar to th 
of the Interstate Commerce Commission, and the thing that has esta 
lished the Interstate Commerce Commission in the esteem off i 
public is that it has not been subject to political influence. A 

Mr. Dewatrt. Possibly so, and there is no ground for my fear. © 

I want to clear something up in my mind. I have not heard yo 
testimony, but I have been reading with a great deal of interest 
of the remarks quoted in the newspapers and I wish to disabuse | 
mind. 

Before I go to that will you please tell me what your oficial 
nection with the American Federation of Labor is? 











RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 725 


Mr. Piump. I am the general counsel in this matter for all of the 
organized railway employees of America. I have no official con- 
nection with the American Federation of Labor as such, though of 
the 14 organizations which I represent 10 are affiliated with the 
American Federation of Labor. 

Mr. Dewatr. Is it fair to say, Mr. Plumb, that you are voicing 
their sentiment here in the testimony which you have given ? 

Mr. Prune. I think it 1s. 

Mr. Dewar. Now, coming down to my question, the newspapers 
report—I do not believe everything I see in the newspapers—you are 
alleged to have stated that unless this plan or something similar to it 
was adopted the men engaged as the workmen of the railroads of this 
country would take measures in their hands and there would be a 
revolution. Now, did you mean by that a resort to force? © 

Mr. Piume. I did not say it. : 

Mr. Dewar. I am glad you did not. What did you say? 

Mr. Prump. I said that I had overheard a man in St. Louis in a 
crowd surrounding me say: “ By God, if we can not agree on some- 
thing of this kind, there will be revolution.” 

Mr. Dewar. Do you agree with that sentiment? 

Mr. Pirums. No. That depends upon what construction you place 

upon it. 

™Mr. Dewatr. Let us put the general construction which the Eng- 

lish language would bear in general phraseology as used among rea- 
sonable people, “ By God, unless something of this kind is adopted 

there is going to be revolution.” . 

Mr. Prums. I do not believe there is going to be in this country 
and I do not believe that the workmen of this country ever intended 
to be understood as saying that there will be a revolution overthrow- 
ing this Government, because they believe that this Government is the 
foundation upon which to build a new order of things. I can not 
interpret that word “revolution ” in connection with that situation to 
mean anything other than a reconstruction by governmental processes 
of the industrial situation. 3 

Mr. Dewar. Permit me to interrupt you there. Am I correct, 
then, in understanding you, as the mouthpiece of this organization 
and their counsel, as saying that you do not believe in any measures 

' which would result in force, but that you would confine the efforts 
to legitimate legal process? 1 

Mr. Puums. Absolutely. 

Mr. Dewatr. I am glad to hear you say that. I want to put those 
people right, if I can, and put myself right. Are you sure that you 
are voicing the sentiment of the organizations whom you represent 
as general counsel when you make that statement ? 

Mr. Prump. I am sure. Indeed, if I were not sure, I would not be 
here. Now, Congressmen, if I may say this, there has been a great 
deal of misrepresentation in the papers saying that we intended to 
force this legislation by the power of strike. No one has said that. 
_ It has been positively dontias by Mr. Stone and Mr. Morrison and by 
myself. The fact is there is a wage discussion pending under the old 
" system, and the only mention of strike has been in connection with 
that old discussion, which is entirely separate and apart from the 
proceedings which we are presenting here. This is a question of 
_statesmanship. It depends upon an appeal to the patriotism and 


726 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 

\ 
the wisdom of the citizens of the United States, and we would be 
blind to our own interest if we attempted to bring into this dis- 
cussion any such methods as are used for the settling of a wage 
dispute under the existing employment system. There is not any- 
body here representing our interest who has said a word on which 
any other interpretation can be placed. When we say that if these 
questions are not solved there will be trouble, we are merely statin 
the fact of the discontent which we find throughout the country a dj 
the necessity for finding a solution. That is all. 

Mr. Dewar, Let me go a little further and then I am through. 

In comparison with men who are engaged in other walks of life, 
other than skilled labor and highly skilled labor, is it true or is it 
false that railroad men, with the exception of a class, are to-day 
proportionately on a higher wage scale than others? 

Mr. Pirums. Congressman, the Railroad Administration has pre- 
pared a tabulated statement of the wages paid railway employees by 
classes and positions both before the Government took control of 
operation and since the Government took control down to May 1 of 
this year, I believe. That would be very illuminating and it would 
give you more information than I can. : 

Mr. Dewatr. Perhaps, I can give you some. Do you know of any 
other class of labor that has had a raise similar to the Adamson bill 
raise? Iam talking of classes. - 

Mr. Prumps. I am not informed. I have had no connection with 
the wage question. 

Mr. Dewar. Then your answer to my question is, “I do not 
know”? — 

Mr. Piums. I do not know anything as to wages or labor condi- 
tions. 

Mr. Dewatr. If it be a fact that men engaged in this sort of labor 
are paid proportionately as much or perhaps more than the other men 
engaged in other avenues of labor, then I ask you this question: Why 
should there be any distinction made and classification made by this 
legislation in favor of the 2,020,000 men who are engaged in this walk 
of life unless we at the same time say that these other millions of 
men who are engaged, we will say, in the manufacture of iron, in 
leather production, sugar production, and all the other things that 
go toward making up of life should also have similar legislation? 
Now, wait. Your reply to that would be, “ Well this is a semipublie 
enterprise.” Primarily, the transportation systems of the country 
are owned by the Government itself. That is, every corporation 
receives its franchise from the State or some authority in the State. 
Therefore it is under public regulation and governmental regulation; 
but permit me to say, Mr. Plumb, that that argument to my mind 
is not conclusive, because if we basically start that every man is 
entitled to a fair wage, and you agree with me in that, reasonable 
compensation for what he does in this life, then if your process of 
legislation in regard to this governmental function is going to give 
2,020,000 men the preference, I ask you why do you not go right 
along the line and give it to every fellow, and why make the dis- . 
tinction ? 

Mr. Prums. Well, if it proved of benefit to the men and to the 
public in its application to this industry, I can see no reason why it 
should be limited. : 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 727 


_ Mr. Dewatr. It is not quite certain in your mind whether it is 
ryoing to be of benefit ? 
_ Mr. Proms. No; I am confident that it will be a public benefit. 
_ Mr. Dewaur. If you are confident that it is going to be of public 
jenefit, why not go along the whole line and let us have what you 
ay, a tripartite directorate of every enterprise of any large commer- 
ial value which looks to the sustainment of life and the happiness of 
he people? . | 

Mr. Prums. This principle is not applicable to any industry at all 
ther than those based either on a grant or a monopoly. I can not 
ay that it would be sound economics to apply it to industries not 
o based, and it would not be democracy in government to impose it 
{pon any industry, even so based, unless the public desired jt to be 
o imposed. Here we have this industry organized appealing to the 
vublic to have democracy in industry established as to this activity, 
nd if the public agreed that it would be well to do so, then it ought 
0 be established, but the other industries are not so organized and 
re not asking at this time for the application of this principle and 
i would be very difficult to apply it. 
Mr. Dewar. Then, as I understand, if at any time in the near 
uture or in the distant future all the men engaged in a certain enter- 
rise which is not monopolistic, because that was one of the things 
ou incorporated in your answer, should determine that it was for 
heir interest that legislation of a similar character should be en- 
cted, that would be the thing to do? 

Mr. Puoms. If the public concurred in that determination. 

Mr. Dewatr. Therefore, leading down to the analysis again, if all 
{ the farmers of the country—not all, but a majority—came to the 
m¢lusion that they would be best benefited by having all machinery 
pplicable to the working of their farms and all labor used in connec- 
on with the production of their farms covered by somewhat similar 
‘gislation, to wit, the establishment of a directorate, do you think 
‘eshould do that because the farmers want it established ? 
Mr. Prume. If the public and the farmers wanted it done—it is 
‘absurd hypothesis. 
Mr. Dewarr. I know. That is just what I am trying to get down 
) the reductio ad absurdum—that is just what I am trying to get at. 

Mr. Prue. I think you have done it with the farmers. 
Mr. Dewatzr. I think I have. We will get all the steel men and 
‘at them together and say they want this thing done? 

Mr. Prume. I think you will probably see it. 
Mr. Dewar. Exactly. 

My friend, Mr. Plumb, where is your line of demarcation; where 
Poe going to stop ? 
Mr. Prums. Stop where grant and privilege cease. 
Mr. Dewar. Where grant and privilege cease? 
Mr. Prums. Yes, sir. 
Mr. Dewatr. Let us follow that up a little bit. I live in the State 
{t Pennsylvania. There are about 12,000,000 people there now, I 
‘uess. I do not know how many corporations there are, but I know 
ere are thousands of them. Every one of those corporations derives 
|S power from the State of Pennsylvania. Some of them are private 
Urporations and some of them are public utility corporations. 
thers, again, are banking institutions. Every one of them in their 












728 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 



























5 
nature has just what you say, a grant, a grant given by the suprem 
power of the State of Pennsylvania. If I understood your answe 
you said that your line of demarcation was to be fixed where gran 
hi Then, it would apply to all of them. Am I correct in sayin 
that ? 

Mr. Piump. No; because a grant to be a corporation is not 
grant. But, Congressman, an industry based upon a grant of 
special privilege implies a grant beyond that to exist as a corporation 
it implies a grant to do something as a corporation which an individus 
could not do. 

Mr. Dewatr. All right. 

Mr. Ptums. But it can only be done by the public consent. __ 

Mr. Dewatr. All right. Take all the water there is in the State 
of Pennsylvania, owned by the State, every drop of it, primarily, 
There are hundreds of water corporations in the State furnishi 
water and they charge for it. Would you say that they would fall 
within this line of demarcation ? 

Mr. Piums. A water corporation furnishing water ? 

Mr. Dewatt. Yes, sir. 

Mr. Piumps. I should think it might be applicable to that corpor 
tion. 
Mr. Dewatr. All right. Take the manufacture of gas for luni 
nating purposes; would that also fall within the line? 

Mr. Prums. Yes; of course, confined to the territory it served. 

Mr. Dewatrt. All right, confine it just as much as you can, becaut 
I want you to do that. Take the trolley systems. They fall within 
that nomenclature ? 

Mr. Ptums. You mean would my principle be applicable to them! 

Mr. Dewatt. Yes, sir. é 

Mr. Pirums. Certainly. | 

Mr. Dewar. There is not a public highway in any State of t 
Union that does not belong to the Commonwealth in which the 
higway is situated. Some of them are toll roads, people have | 
pay toll. You say those should be included? | | 

Mr. Piums. Yes, sir. 

Mr. Dewar. We are going pretty far; where will we stop? 

Mr. Prums. Stop the minute they cease doing business on a pryi 
lege which individuals can not enjoy. - _& 

Mr. Dewar. Then, you would do away with all united effort 
the final analysis and resolve the problem intv individual effort alt 
the right to have individual effort in every avenue; is that it? | 

Mr. Proms. I hardly understand that question. I would do awa) 
with united effort? S | 

Mr. Dewaxr. You said that you would let this, thing run and Bl 
applicable to everything in which neither corporation nor cis 
enjoyed privileges which the individual did not have, somevt 
of that sort. Therefore, I will ask you again, do you believe tha 
this problem can be solved by resolving it into a question of individ 
effort and not a concentration of efforts, of the unification theredl 
and by the formation of these large corporations with proper Tegulé 
tion of the capital invested ? “ss 

Mr. Prums. Our plan contemplates preserving the benefits 
coordinated effort through corporate existence, but merely directit 
the benefits of the effort from profit to service. a 


- a 
Pah te.” 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 729 


Mr. Dewatr. All right; if that is so, what becomes of the future 
if this thing should go on and if individuals were to be deprived of 
the same privileges ? 

Mr. Pius. I did not say that. 

Mr. Dewar. Then I misunderstood you. 

Mr. Prums. I said that it was applicable only to those industries 
based upon a privilege which an individual could not exercise of 
inherent right. No individual can own and operate a railway. 

Mr. Dewatt. I am not so sure about that, either. 

Mr. Piums. Unless he has a grant. 

Mr. Dewatt. Yes; that is just it. He gets a grant. 

Mr. Prums. He does it not by inherent individual right, but be- 
cause he has received a grant from the sovereign. 

Mr. Dewatt. He receives his grant from the sovereign and then 
you place yourself again in this position 

Mr. Piums (interposing). Then he becomes subject to this prin- 
ciple so far as he is exercising that grant. 

Mr. Dewatt. Yes; and therefore, as I understand you, you would 
resolve this thing finally into this, that every industry which has as 
its inherent basic principle a grant, whatever its nature or purpose, 
in the final analysis then its existence should be governed by princi- 
ples such as you set forth in your bill for the reculation and man- 
agement of railroads. Is not that the final analysis ? 

Mr. Piums. With the proper understanding of the term “grant”’ 
—or “privilege.” 

Mr. Dewar. I am taking the legal terms, grant and privilege. 

Mr. Piums. Yes; so am I. 

Mr. Dewarr. Does not that lead, Mr. Plumb, to what you call 
socialism ? 

Mr. Piums. Not at all. 

Mr. Dewar. What does it lead to? 

Mr. Prums. It leads you to a situation where those grants which 
the public has made are preserved for the banefit of the public and 
not diverted to private interest, and that is not socialism. 

Mr. Dewatr. You will pardon me, Mr. Plumb, for going along this 
line of inquiry, but it is interesting to me and I wanted to know your 
views about it. I am glad that you voice the sentiment of the 

eople who are engaged in railroad operation when you declare that 
it is not their idea to pursue any except legal and orderly procedure 
in remedial legislation. 

Mr. Prume. If I thought for a moment that any of the men whom 
I represent entertained that idea or that purpose and controlled my 
activities in any way in conformity with such ideas and such advice 
I would not be here for one minute. 

Mr. Dewatt. I beg your pardon for the interruption. : 

Mr. Merrirr. Mr. Plumb, I want to ask you about one or two 
matters in the bill. First, on page 3, section 2, there is a provision 
for acquiring by the railroad board of appraisement the railroads, 
and at the end of the section also, “all auxiliary plants or facilities 
for manufacturing or repairing, purchase and distribution of stores 
and supplies,” etc ? 

Mr. Piums. Yes. 

Mr. Mrernrirr. Does that contemplate the acquisition by condemna- 
tion of such corporations as a locomotive manufacturing company, 
the Baldwin and the American locomotive works ? 





730 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. PLums. I think it contemplates the acquisition of the properties. 
of those corporations which might be deemed desirable, but it does. 
not consider the corporations themselves as being subjects of acquisi- 
tion. 

Mr. Merritt. If you should proceed to condemn, for instance, the: 
Baldwin Locomotive Works, would your definition in the bill preclude 
allowing anything for the good will of the corporation ? 

Mr. Piums. No; because I do not contemplate that this would 
cover the condemnation of a corporation. We might take some or all 
of the properties of the corporation and if we did that we would not 
take the corporation, it would still exist, it could continue and if it 
desired to build new properties it would retain its good will; but if our 
taking of the properties meant the extinction of the corporation, 
I think it would include the good will in that case, because that is a 
private corporation not exercising any public franchise or privilege 
other than the right to exist as a corporation and it should be treated 
as an individual owner, because an individual could own and operate 
that plant without any grant at all. 

Mr. Merrirr. You say in that case that you might pay for the 
good will? 

Mr. PLums. It seems if we condemn the plant it should be entitled 
to every return of an individual owner because the charter gives it all 
of those powers. 

Mr. Merrirr. The theory under which that part of the section is 
put in, I take it, is that this great railway corporation should do all of 
its own manufacturing ? 

Mr. Piums. Should do all that was deemed necessary for it or 
expedient. ; 

r. Merritt. And the tendency would be ultimately to do all its 
own manufacturing ? 

Mr. Pirums. I should think so. 

Mr. Merritt. Do you think that would tend to efficiency and to 
greater improvement in the appliances used on the railways ? 

Mr. Piums. I think it would facilitate the adoption of improve- 
ments to a very great extent. 

Mr. Merritt. Do you think that that would facilitate and encour- 
age invention ? 

Mr. Pius. I think it would. | 

Mr. Merrirr. You do not think then that the individual railroads 
in competing between themselves have helped inventors ? 

Mr. be ag They have obstructed. 

Mr. Merrirr. If you had one purchasing agency and that pur- 
chasing agency had standardized on certain goods, is 1t your view that 
the purchasing agency would be more open to new devices ? 

Mr. Piums. I think it would be. 

Mr. Merrirr. Has that been the history of governmental pur- 
chasing agencies ? | 

Mr. Ptums. I do not know about Government agencies. This 
would not be a Government agency. This would be an agency in 
which every employee throughout the entire system would be inter- 
ested in the efficiency of the agency and would be a different thing 
from a governmental agency. 

Mr. Merrirv. If that is the answer, I do not care to go into that. 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 781 


On page 12 there is a provision for the appropriation of money out 
-of the operating revenues of the national railway operation corpora- 
| Gan If there should be no operating revenues what would happen 

then ¢ 

Mr. Prums. Well, that is rather a violent assumption, but if there 
Was no operating revenue, then this appropriates it out of any other 
funds in the treasury not otherwise appropriated. I think there is 
a@ provision for that. 

- Merrirr. What I am getting at is this: If there are not suffi- 
cient operating revenues to carry out the provisions of this section or 
other sections, what will happen? 

Mr. Prums. If there were not sufficient operating revenues the 
Government would terminate it immediately. 

Mr. Merritt. The Government in the meanwhile having acquired 
all the railroads, how could the Government terminate it ? 

Mr. Prums. In any manner that it saw fit. There would be no 
Jack of bidders for the opportunity. 

Mr. Mererrr. It would be rather a big bid ? 

Mr. Prums. Oh, yes; but we have almost as large bidders now 
who are bidding to finance Europe to-day. 

Mr. Mrrrirr. Not in one bid. 

Mr. Prums. The financing required for this operation would be 
ey less than some of the bids that are made for foreign financing 
to-day. 

Mr. Merrirv. Is it or is it not your view that having once acquired 
these railroads the Government would be obliged in one form or 

another to continue to own them and possibly operate them ? 
Mr. Prums. It would be obliged to operate them directly or 
through some agency which it might create, certainly. 

Mr. Merrirv. If it should be found that the competition in service 
was inefficient that never could be restored very well ? 

Mr. Prums. The present complete failure of the railroads under the 
old system ought to disillusion us on the benefits of competition. 

Mr. Merrirv. I did not know that that supposition was generally 
accepted ? 

Mr. Pirums. True, it may not be, but it is. being quite broadly 
accepted now. 

Mr. Mrerrirr. Under your plan you provide with certainty for a 
surplus during the first year and, if I understand your testimony 
correctly, that is due to the fact that charges are cut in two? 

Mr. Prums. Yes, sir; that would insure a surplus. 

Mr. Merritt. If that is done naturally those securities to which 
these charges were apportioned will either go out of existence or be 
very much diminished in value? | 

Mr. Prums. I do not believe that they would be diminished very: 
much below their present market value. The amount which the 
sorporation would receive would pay 5 per cent on $10,000,000,000, 
which would bea little more than the fixed charges. 

Mr. Merrirr. You assume you could pay the same dividend out of 
aalf of the apportionment as out of the whole? 

_ Mr. Priump. Yes, sir; until the Government took over the thing 
efore they had never had such funds for dividends as they have 
een receiving now. 

Mr. Merrirr. That is admitted on all hands, is it? 

\ 


152 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Piums. Yes, sir. 

Mr. Mererirr. Just a moment, and I will not detain you longer. 
In regard to the industrial democracy which is sought in your bill 
and referring again to the directors and the way they are elected, 
these directors would be in charge of one of the greatest, if not the 
greatest, corporations in the United States ? 

Mr. Ptums. Undoubtedly. 

Mr. Merritt. That would be, would it not, an attraction to people 
who like the power or, if you please, wanted to do public service or 
for any other reason wanted the job? 

Mr. Piums. I think it would. 

Mr. Mrerrirr. Would it not involve these 2,000,000 employees in 
ereat political campaigns ? 

Mr. Pirums. No; I do not think that it would. I think there 
would be necessarily an industrial political policy to be carried out, 
but since the satisfaction of ambition undeserved means a loss to 
those who have power of promotion, I believe we could be absolutely 
sure of having promotion placed where it was most deserved and 
where it was most profitable to the community to have it placed. 

Mr. Merritrre You do not think that the employees could be 
influenced as they are now unfortunately in general politics by pro- 
motion, preferment, or increase of salary or anything of that sort ? 

Mr. Piums. Not enough to vary the results; that is, no such great 
numbers could be influenced. 

Mr. Mernirt. I call your attention to these facts from the official 
census of the United States. The official report of the vote of the 
State of New York in the election of 1916 was 1,760,000 votes, and 
in the State of Illinois slightly over 2,000,000 votes, just about the 
same as you have in these railroad organizations; the entire esti- 
mated wealth, according to the census the year before that for the 
State of New York was $15,000,000,000, and for the State of Illinois 
$9,000,000,000. I do not understand why in the election of a direc- 
torate controlling about the same estimated wealth, a directorate 
controlling the interests. of 110,000,000 people, the same force of 
evil would not work in the 2,000,000 voters as in the 2,000,000 voters 
in New York or IJlhnois. 

Mr. Prums. Do you think that the force of evil did work in New 
York and Illinois? 7 

Mr. Merrirt. I think it did. I think for administrative purposes 
you are going to get all the evils that you get from political action, 
and I should like your opinion as to whether or not you are creating 
a great political machine internal and external? 7 

Mr. Pius. I can not say, because I do not see what rewards would 
come for political activity. 

_ Mr. Merrirr. You do not think it would be a reward to be one of 
the most powerful board of directors in the world ? ’ 

Mr. Prius. Certainly, but they can not get that reward through 
political activity. | ; 

Mr. Merrirr. Not among the 2,000,000 people who voted for them? 

Mr. Ptums. No; because they elect the directors. It seems to me 
there would be less evil in that system than in a like system con- 
trolled by private capital where the rewards obtained were not the 
satisfaction of ambition, but such moneys as could be diverted for 
private benefit. 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 7338 


Mr. Merritt. I recall in your testimony you spoke of some opera- 
ym you conducted when receiver of a railroad and had absolute 
;wer under the court to cooperate with the men, and would it not be 
‘ster to have some system under which you had the advantages you 
id in that case of a responsible executive cooperating with the men ? 
Mr. Prums. We have had such a system used in another way, per- 
ps, under the Railroad Administration. Ido not suppose that the 
allroad Administration was free to cooperate with the railroad em- 
oyees in the way that I was free to cooperate with mine, but 
rough my cooperation I did procure the results, but it was a cooper- 
ion that the Railroad Administration could not undertake. 

The CoatrrMAn. Mr. Sweet of Iowa wants to ask a question about 
e Monongahela case. 

Mr. Sweet. I call your attention to Section IV: 

That in the determination of the amount of compensation to be paid to the corporate 
d individual owners of transportation properties so vested in the United States the 
praisement board shall ascertain the value of all the rights, property interests, 
wers, authorities, and privileges granted in and acquired under the charters of the 


reral corporate owners and the laws under which they operate and the grants made 
individual owners owning or operating such properties. 


Then you state: 


That all values not included in the grants made in the charters of the corporate 
ners or the laws under which they operate or in the grants made to individual 
ners shall be regarded as values retained by the public in the public highways of 
2 United States and not subject to compensation. 

Mr. Prums. Yes. 

Mr. Sweet. I am not just clear as to your line of demarkation. 
ader the term ‘‘all the rights’? would you include franchises ? 

Mr. Prums. I think you would have to include franchise for such 
ues as were authorized under the charter. 

Mr. Swrer. Now, you are familiar with the case of Monongahela 
avigation Co. v. United States, in 148 United States, page 312? 

Mr. Prums. Yes. 

oe. Are you in conflict with that case in presenting your 
an here ? 

Mr. Prums. Not at all. In that case it was decided after the first 
cision had not allowed any value for the franchise and the company 
ipealed, that the franchise granted by the State was one of the 
ments of value that would have to be taken into account, as I 
member the decision. 

Mr. Sweet. That is true. 

Mr. Prums. And a new ruling was made, or it was sent back to be 
ard over again, to take into account the franchise, and then [ think 
ere was a settlement or an agreement made subsequent to that, so 
at there was no final determination of what value was allowed for 
e franchise, but it was held to be error not to include any value for 
e franchise. 

Mr. Sweet. The case here says, of course, thatnot only the tangible 
operty shall be taken into consideration in determining the value, 
t the value of the franchise as well. 

Mr. Prums. The value of the franchise, because under its charter 
had been granted certain rights by the State of Pennsylvania, 
ich were of certain value, and they were to be taken into account. 
W, we are in exact conformity with that decision, because we say 
at they must value every right, privilege, property, or interest 


734 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


which has accrued to them under their charter or been granted by 
their charter. That leaves us free to contend before the court thu 
this demand which they make is not found in the charter, but i 
does not leave us free to say that we can not take into account anj 
demand that is within the charter, and I think this is drawn im stri¢ 
conformity with the decision in the Monongahela case. . 

Mr. Swerer. My question was whether the term in section 4, “‘al 
the rights,” included franchise, as set forth in this case ? 

Mr. Prums. Now, Congressman, in some jurisdictions the law 
under which the charters are granted forbid the inclusion of franchis 
values. In some of the States there is no such provision, and in sony 
of the States there will be provisions which necessarily include thos 
values, and each case must stand upon the conditions of its owi 
charter. 

The CHarRMAN. What was decided in the Wilcox v. Consolidatec 
Gas Co. case ? n 

Mr. Prums. In the Wilcox v. Consolidated Gas Co. case the particu 
lar point that I have in mind is this. There had been a valuation 
agreed upon in years past, which the company had capitalized 
The securities so issued had been recognized by legislative enactment 
A new valuation was to be had in the Wilcox case, and they contendex 
that those seven millions of securities did not represent any investmen 
and should not be included in the values, and it was held there tha 
since these securities had been recognized by legislative enactmen 
the court would not permit or consider any evidence as to whethe 
or not they actually represented investment, and they were taken int 
the account in the valuation on the basis that they did represen 
value to the extent that they had been recognized by the legislature 

The CuarrMan. I want to ask Mr. Plumb if he could conclude thi 
afternoon, should we go on. | at 

Mr. Piums. I am preparing a statement, which I promised ti 
submit to this committee, and naturally, after being here all of th 
hours that I have, I have been unable to work that out. I had hope 
that we might recess so that I might have that completed. : 

The Cuarnman. As I understand it, about all that would be lef 
of your testimony would be your synopsis or analysis of other plans 

Mr. Ptums. Yes. 

The Coarrman. How long would it take you to do that? 

Mr. Pump. That would take me, [ judge, about an hour, and thei 
I want to present my statement. Whether I do that at the close 0 
my testimony or at the close of Mr. Garretson’s is immaterial. 1 
will be a prepared statement that I want to submit, and [ have no 
got it prepared now. 

The CHarrman. [ do not think we will spend much time on cross 
examining you as to your views with reference to the plans presentec 
because we have had the opportunity of cross-examining the p 
ponents of those plans. . 

Mr. Prums. Yes. 

The CHARMAN. We want to finish with Mr. Plumb on Monday, an! 
with Dr. Haney of Jacksonville, Fla., on Monday, and start wit 
Mr. Garretson, and that is as far as we can outline the program now 
Recess until 10 o’clock Monday morning. {. 
_ (Whereupon, at 1 o’clock p. m., the committee adjourned unt 
Monday, August 11, 1919, at 10 o’clock a. m.) ,? 











e 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. fist, 


_ CommittTre on INTERSTATE AND ForEIGN COMMERCE, 

| Hovusr or REPRESENTATIVES, 

- | Monday, August 11, 1919. 
_The committee met at 10 o’clock a. m., Hon. John J. Esch (chair- 
aan) presiding. 
ae OF MR. GLENN E. PLUMB, GENERAL COUNSEL 
FOR THE ORGANIZED RAILWAY EMPLOYEES OF AMERI- 
~CA—Resumed. 





“The Cuarrman. Mr. Plumb, we are now ready to proceed. You 
ere to make a statement as to your views of various plans. 

Mr. Prums. An analysis of the other plans now pending. 

‘The Cuarrman. Very well. You may proceed. 

| Mr. Pus. Taking first the plan of the United States Chamber of 
ommerce, it has been argued by the attorneys representing the 
ulway presidents’ conference committee and the counsel for the 
ansas City Southern Railway that value of rate-making purposes 
ie be determined in the same manner that value is to be determined 
_ condemnation cases. That the basis upon which rates were to be 
tablished involved such determination of valuation and that that 
as a judicial question. It is so held by the United States Supreme 
purt. Quoting now from the Monongahela case: 

‘The question as to what is the nature of just compensation, either for use or for 


|king, 1s a judicial question and not a legislative question. The legislature may 
jtermine what private property is needed for public purposes—that is a question of 


‘litical and legislative character—but when the taking has been ordered, then the 
estion of compensation is judicial. It does not rest with the public taking the 
dperty through Congress or the legislature, its representative, to say what com- 
nsation shall be paid or even what shall be the rule for compensation. The Consti- 
don has declared that just compensation shall be paid, and the ascertainment of 
Mt is a judicial inquiry. 

The attempt of the framers of this plan—that is, the chamber of 
mmerce plan—to have the legislature determine the basis upon 
ich compensation shall be paid is an usurpation of the judicial 
action. It is an attempt by statute to determine the rights and 
Operty interests upon which rates must earn a return. It is an 
tempt by statute to determine the rights and property interests 
| the amount of the rights of property interests upon which rates must 
m-a return. 

| Referring to our bill, our bill does exactly what the Monongahela 
‘6 says is the function of the legislative body. It determines what 
hts shall be taken, not the method of determining the value, 
@reas the chamber of commerce bill and in that particular the 
Aer two plans—I am mistaken when I say the bill; there is no bill— 
)} Chamber of commeice plan, the executives’ plan, and the War- 
id plan instead of determining what rights shall be taken deter- 
‘Q¢ the basis of fixing compensation for the rights taken. 

jUhe report of the chamber of cormmerce submitted to this com- 
rutee on pages 8 and 9 says: 

li aefly stated, it is recommended that Congress develop a statutory rule of rate- 
ang, requiring the Interstate Commerce Commission to be responsible for railroad 
|S and fares designed to allow the carriers in each designated traffic section not 
| than 6 per cent net upon the aggregate fair value of the railroads. 


" 152894—19—vor 147 




















736 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


In this quotation the term ‘‘fair value” would naturally be in- 


tended to mean that which was meant by the use of these words im 
thé decisions of the Federal Supreme Court in Smythe v. Ames, the 
Minnesota rate cases, and other like judicial pronouncements, but 
in the plan submitted its proponents provide what interpretation 
shall be placed upon the term ‘‘fair value” and lay down the rule for 
that determination, as follows: That fair value for rate-making pur 
poses ‘‘shall be their aggregate property investment accounts,” and 
that fair value must be so determined. This leaves no room for 
judicial consti uction. 

In this way the Interstate Commerce Commission ‘‘must’’ deter- 
mine the fair value of all of the railroads within a transportation dis- 
trict. That is, all of the roads are to be so determined, the aggregate 
of all of them, but the fair value of the property of an individual road 
must be determined in an entirely different manner. 

The fair value of the property of an individual road must be deter- 
mined as that share of the aggregate property investment accounts 
of all the railroads in the traffic section in which the road is situated 
which the particular road’s annual railway operating income bears 
to the uggregate annual railway operating income of the railroads in 
its traffic section. The fair value of all of the roads is made to 
become the sum of their property investment accounts; the fair 
value of the individual road-is made to depend entirely upon its 
earning capacity, which, of course, varies with the rates prescribed, 
the volume of business transacted, and is measured accurately only 
by the needs of the community for service. They set up a fixed 
standard of determining a fair value of the aggregate within the dis- 
trict and a constantly varying standard for determining the value 
of the individual roads within that district. That inconsistency 
alone would make that provision unconstitutional, because it denies 
to the individuals the rights conferred upon the aggregate. 

This sets up an entirely new standard for determining a fair value, 
a standard that has never received judicial sanction, but has always 
been judicially condemned. The only purpose or motive that 
could justify asking for the establishment of such a standard is that 
announced in the next paragraph, to wit, a “plan for strengthenmg 
and stabilizing the railroad credit.’”’ This plan disregards every 
other motive, every other purpose, every other intent than that of 
strengthening and stabilizing the credit of the railroad corporations. 
The need of the public for service, the right of consumers of transpor- 
tation to receive that necessity at the lowest possible cost, the right 
of employees to adequate compensation are all disregarded in this 
purpose of “strengthening and stabilizing the credit of railroad 
corporations. ”’ 

n order to strengthen and stabilize this credit the proponents of 
the plan claim that it is necessary in addition to earning 6 per cent 
net upon the aggregate fair value, defined in their plan as meaning 
the aggregate of the property investment accounts of the railroads, 
there must also be established company contingent funds amounting 
to 6 per cent upon the fair value of the individual company’s prop- 
erty, and that fair value varying with the conditions of traffic each 


‘ 


year, never being fixed or constant, and therefore the contingent, | 


: 
: 


fund never being fully complied with, and also a general railroad 


contingent fund equivalent to 6 per cent upon the aggregate property 


investment accounts of all railroads in that traffic section. 


, <a 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 737 


__ This means a total of 12 per cent in contingent, funds in addition 
to the annual return of 6 per cent. 
__ Afurther demand for “strengthening and stabilizing their credit?’ 
is found on page 18 of the chamber of commerce report, in the pro- 
‘vision for the establishment of a railroad reserve fund, for which 
shall be appropriated $500,000,000 by Congress, to be repaid out 
of the accumulations of the contingent fund in excess of $500,000,000; 
so that the rates demanded must be so fixed by the Interstate Com- 
merce Commission as to provide an annual income which will pay 6 
‘per cent on the property investment account of $19,000,000,000, 
and, besides that, provide funds sufficient to create the individual 
contingent funds, the aggregate contingent fund, and to repay the 
half billion appropriation for the foundation of the reserve fund. 
This program makes no provision for repayment to the Government 
‘of the indebtedness already accrued and its projectors calmly assert 
in what must have meant to be irony, ‘ Without imposing upon the 
public the burden of unreasonable transportation rates. ’’ 
_ These demands, made as being necessary to strengthen and sta- 
‘bilize the credit of the railroad companies, show the extent to which 
that credit has been dissipated and demoralized by the private 
owners and managers of these properties. 
| An analysis of what these demands amount to in actual receipts: 
The Government showed a deficit last year from railroad opera- 
tions of $236,000,000, and shows an estimated deficit. this year of 
$400,000,000. In the absence of a guarantee these deficits must 
de overcome before we can begin figuring on net receipts. The 
iggregate property investment account is to-day 19 billions; 6 per 
sent of that amount would be $1,140,000,000, an increase of 
5200,000,000 over rentals now paid. Add to that increase the 
‘stimated deficit for this year of $400,000,000, and the demand as 
'} minimum would require $600,000,000 increased revenues. To 
stablish the contingent funds required, if they were to be com- 
eted in six years, would take $200,000,000 a year more and if in. 
9 years $100,000,000 more, without repaying the $500,000,000 con- 
‘ributed by the Government. To effect then the net diminution in 
be would require an advance in rates of 20 per cent over the 
| Xisting rates. 
_ Taking the rate level of Janury 1, 1917, as 100 per cent, there 
\7as added too that by the Interstate Commerce Commission in its 
ate increases allowed during that year, 15 per cent. These rates 
ere then increased by the director general as a war measure by 
| per cent. The rates so established must now be increased to 
t least 20 per cent to meet the demands of this measure proposed 
y the United States Chamber of Commerce. That increase would 
jlerely meet the demand for fixed charges; it would not provide 
ay extra revenues for increased operating expenses. The sum of 
us demand would amount to an advance of 71.8 per cent in the 
Me level over the 100 per cent of January 1, 1917. 
| The prewar rate had been sustained by railroad management as 
(4ng that rate which permitted traffic to be moved at the highest 
|te of profit. Had the rate been higher profits would have de- 
eased; according to the testimony of the railway officials who 
we defended their rate structure. Manifestly, a rate structure 














; 


“7.38 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


built upon that theory can not be materially increased without 
materially decreasing profits, and when such increase passes the 
‘margin of safety operating deficits inevitably appear. By like 
reasoning, supported by past experience, those deficits increase as 
the rate level is raised. . ; 

These deficits have appeared; therefore it is demonstrated that the 
existing rate is too high, and any increase in that rare level must pro- 
duce increased deficits. | | 

Railroad credit has been destroyed, company liabilities have ex- 
panded beyond actual investment. These expanded liabilities, de- 
manding earning power in excess of that produced by rates which have 
been adopted as those rates which produce the greatest profit, make 
the deficit in earning power created by fictitious securities. It is 
proposed to create deficits by establishing rates so high as to prevent 
a flow of traffic at any profit whatsoever. 

This attempt to stabilize credits by injecting value where none 
exists threatens the security and return on the value which does exist 
by totally destroying the earning power of the capital actually 
invested. 

The plan of the security holders as presented by Mr. Warfield and 
of the railway executives presented by: Mr. Thom include as the fun- 
damental basis of their propositions the same evil that vitiates the 
plan of the United Chamber of Commerce; to wit, that the basis for 
fixing rates must be by statute declared to be the property invest- 
ment accounts of the carriers. By various terms this demand is dis+ 

uised as being “‘fair value”’ of that property, ‘‘ the investment made 

y security holders,” and other like misleading definitions. But in 
every case an analysis of the plans so far as they have been presented 
discloses an ultimate definition of fair value as being the amount of 
money represented by the property investment accounts, the spon- 
sors admitting that the property investment account does not actually 
measure actual investment made. But by some intangible process 
et yet explained, it must be assumed to represent the actual fair 
value. 

No plan yet presented is based upon the grants actually made by 
the States or by the United States to any of these corporations. 16 
is not claimed, nor do they attempt to demonstrate, that their claims 
can be supported under any charter provisions or any laws preserib- 
ing the manners, methods, or regulation of the operation of these 
public highways. These claims are supported only by comparison 
with the interests which private owners have in properties wholly 

rivate. The issue which we have tendered seems to nave a certain 
earfulness that prevents any definite joinder on their part. We know 
that existing property rights depend upon existing laws. Right 
which either a corporation or an individual has, to use and possess) 
can not be taken away or diminished by the passage of any new legis} 
lation. An attempt to circumscribe the rights which have been vestet) 
by legislative act would be prevented by the Constitution. If thes¢ 
corporations now enjoy any grants of rights or privileges which givé 
them at the present time a property interest in these properties 
equivalent to their property investment accounts, they would seek 
the prover on of the courts for the enjoyment of that right. They 
would not be asking Congress to grant it to them. 













abr 
= 
Pe 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 739 


9 But while rights which have vested under past grants may not be 
‘diminished, they may be enlarged by present or future erants and 
the embodiment of any of these three plans in the written law would 
be equivalent to a legislative recognition of new rights not previously 
mm existence, and would afford the basis for judicial enforcement of 
the claims now asserted but which are admittedly not supported by 
Taw. Any such extension of existing rights can only be made at the 
expense of the public interest, as the private interests would be 
“expanded by such a grant and the public interests would be dimin- 
ished. It becomes necessary, then, to investigate what this thing, 
the property investment account of these railways, really is. Whether 
or not it does represent money actually expended or represents a 
eae inflation of the actual investment at the expense of the 
public. 
3 Now, what is this ‘‘property investment account” of the railroads ? 
-Afew examples, out of many, will suffice, and these examples are taken 
from the record. 
_ In a succession of reports the Interstate Commerce Commission 
has cited the statements of property investment account made 
before it by the railroad companies during its ‘investigations. Thus, 
‘i case No. 4914, relating to the transportation of anthracite coal, 
‘decided July 30, 1915, the commission refers to examinations made 
‘during previous hearings: 
__ The results of these examinations made during the hearings (5 Per Cent Case 31, 
‘Interstate Commerce Commission, 351) show that the statement of the Reading 
“Railway property costs contained items aggregating $38,000,000, which represented 
operating deficits, bonus stock issued, arbitrary write-ups of railroad accounts, cost of 
‘Securities which apparently had no value but were charged off to road accounts, and 
similar items which had been included in the book accounts of property costs, all of 


which inflated the cost of road and equipment as shown in carriers’ books, but did not 
actually represent expenditures for road and equipment. 


The Pennsylvania Railroad had included in its ‘‘road account”’ 
cost of coal-producing lands, $1,642,149, on which no income had 
been received for several years, and bonus stock, $1,565,527; the 
Lackawanna had charged for bonus stock $426,355, discounts and 
Commission on securities, $795,329; the Central Railway of New 
Jersey had arbitrarily written up cost of road, $2,757,643. The 
Interstate Commerce Commission says: 


- The property costs as in 1913, here presented, total $2,023,076,827, of which $1,023, 
076,827 is representative of revised property accounts as deduced by carriers’ books, 
and $1,000,000,000 of it represents unrevised property accounts. Even as to those 
two carriers—the Lehigh Valley and Delaware & Hudson—which claimed to have 
/extended the revison back to construction period books, the records were not exist- 
ent to enable them to get complete costs of property. ' 


| The report goes on to say that the investment figures submitted in 
the several carriers’ statements contained cost of considerable ~ 
‘property that is ‘‘not devoted to public use”’; that investments had 


Deen ‘“‘made by the carriers in unproductive betterments.” It adds: 
| Now, to follow the theory of a stipulated annual return on all railway property: 
The Erie Railroad has not revised its property accounts prior to the last receivership 


-and reorganization of the Erie properties, in the year 1895. We have in another part 
of this report referred to the overcapitalization of the Erie lines. It seems pertinent 
to here point out that, based on the showing contained in the carriers’ exhibits for the 
year 1913, the Erie’s net operating income would have to be augmented to the extent: 
of 42.80 per cent in order to make it sufficient to produce 6 per cent return on the 
meety investment claimed, and the year 1913 was one of the prosperous years. 
if ; e New York, Susquehanna & Western would require 162.07 per cent greater income 


y 
1) 
4 







: 


" 


740 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. : 


to reach the 6 per cent result in 1913. It is apparent that rates which would 
pipe Oe the 6 per cent result for the Susquehanna & Western and the Ontario & 
estern would be absolutely extortionate. 


On the “property investment account” of the Ontario & Western 
the commission says: 


The evidence shows that $33,000,000 of the $58,000,000 stock which this carrier has 
outstanding represents the issue of securities in excess of the cost of its property, so 
that the 2 per cent annual dividend paid for the past 10 years was not indicative of 
earnings on investment. 


Of the $58,000,000 outstanding, $33,000,000 was fictitious. 
The commission has something to say about the investments made 
by the coal-carrying roads: 

Giving consideration to these matters and to the investments made by these carriers 
in the stocks and bonds of the coal companies, and the unsecured loans and advances 
they have extended to the coal companies, it is apparent that the capital borrowed by 
these carriers is not only the capital required for their transportation needs, but also 
the capital required to mine and market 80 per cent of the 70,000,000 tons of anthracite 
coal produced annually. 


Railroads that ought’ never to have been built were added to 
the property investment account of the coal-carrying companies. 
{Reading:] 

It is apparent that the Wyoming region was already adequately served by railway 
lines before the extension of the last two lines, the Ontario & Western, and the Susque-— 
hanna & Western, into that region subsequent to 1890. * * * Under existing 
conditions the anthracite tonnage is charged with the burden of earning an income on 
the investment in a large portion of two railway lines which were not required and 
which surely would not have been constructed had proper conditions existed in the 
marketing of the commodity. 


A beautiful example of the benefits of competition. 
In case No. 9953, proposed increases in New England, decided 
April 16, 1918, the Interstate Commerce Commission says: | 


It is impossible to deal with, or even superficially consider, the income needs and 
rights of the New Haven Railroad without becoming involved in the labyrinthine maze 
of its financial past. Its accounts are confused and confusing. (The New England 
Investigation, 27 I. ©. C., 560, 590.) It is impossible to ascertain, within millions, the 
amount fo its railroad assets or of its real liabilities. It has so-called ‘‘contingent la- 
bilities” or guarantees of over $80,000,000, about $37,000,000 of which are, as to a part 
of their accruing carrying cost, already a direct burden upon the New Haven. How 
great the ultimate burden on the New Haven stockholders from these indirect liabili- 
ties will prove to be, no one can safely prophesy. The amount and cost of its railroad” 
property as distinguished from its nonrailroad property can not be stated. 


After citing from the financial investigation of the New Haven Rail 
road (31 I. C. C., 32, 34) in order to show that the corporate structure 
and financial history of this railroad ‘‘shows that it now is and for 
some has been everything that a railroad ought not to be,” the 


commission concludes: b 


It is nearly accurate to say that the New Haven as an investment enterprise has” 
mow about $200,000,000 invested in outside properties yielding a return of less than 
2 Pa cent perannum. ~Manifestly, a large part of this ‘‘investment” must be charged 
off as loss. ; Ay 

The representatives of the New Haven would have us ignore, or pass very lightly 
over, the return shown upon its property used for carrier purposes. They lay em= 
phasis upon the fact that its stockholders for four years have had no dividends; that 
the corporation is in grave danger ofareceivership. They ask us, in substance, toma 
good to the investors all, or a large part, of the losses incurred in the reckless and law- 
jess mismanagement above outlined by imposing additional rates upon the pat 
of the road. This we can not do. Money thrown away, dishonestly or with wanton 
recklessness, or foolishly lost in nonrailroad enterprises, is not money put to pubhe 
use upon which the rate payers are bound in law and in conscience to make a retura” 


| 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 741 


With this repeated denial of liability of the public to make a return 
upon the property investment account by the duly authorized 
authorities, is it any wonder that they now appeal to the legislative 
body of the United States to give them the right to demand that 
return of the rate-fixing body and to say that the rate-fixing body, 
the Interstate Commerce Commission, must fix rates that will give 
a 6 per cent return upon the property investment account 2 

In the first report of the Interstate Commerce Commission con- 
cerning the “5 Per Cent case,’’ it says (p. 364): 

The property investment of the 35 railway systems in official classification territory, 
as shown by their exhibits, aggregated about $3,787,000,000 on June 30, 1898. * * * 
The record does not disclose the actual investment in the property of those roads in 
1900 and we have already explained why their property Investment accounts, par- 
ticularly prior to 1907, are unreliable. With this factor in doubt it follows that we 
have no conclusive means of determining whether the net operating return of 5.28 
per cent on the book value for that year was or was not a reasonable return upon the 
realinvestment. The same infirmity affects the statements covering the entire period 
1900 down to the present time. 


And the proponents by that plan would have ignored the question 
as to whether or not they are receiving a reasonable’return upon their 
real investment, and, in order to support the credit of these corpora- 
tions, would have imposed upon the public the obligation of paying 
a@ return upon that which the Interstate Commerce Commission con- 
sistently refused to recognize as the basis of any right which they 
‘possessed. 

Commissioner Clements, in his dissenting opinion in the ‘5 Per 
Cent case,” 5860, decided December 16, 1914, said: 

The financial results of the carriers’ operation, appearing and so much stressed in 

this case, are figured with important relation to the carriers’ so-called ‘‘book value,” 


or account of both actual and alleged investment, which accounts have long and 
generally been recognized as largely untrustworthy. 


Wherever ‘“‘book value” is used here, it is synonomous with 
“property investment account,” which is the account of both the 
actual and the alleged investment. [Continuing reading:] 

These financial results are of course affected directly and materially by the bonds 
and other obligations, however, and for whatever purpose issued. There is and has 
‘been no adequate control of the issuance of stocks and bonds, and they have been 
put out largely by those holding the theory that there exists no relationship between 
the securities of a carrier and the reasonableness of its rates. Now, we see these 
securities calling for increased rates to make them good. j 
__ And that is just as true to-day as it was in 1914 when Commissioner 
Clements made the pronouncement. My: 

7 In the majority report of the Interstate Commerce Commission 
‘on the same date these words appear: ) 

The property investment accounts as now standing on the books of the carriers 
‘an not be accepted as accurately representing the fair value of their property devoted 
40 serving the public. 

_ And yet any of the other plans proposed require that you shall 
define fair valuation by the measure of the property investment 
account, and confer upon these corporations a right which has 
Always been denied them, an interest never granted, and which has - 
deen recognized throughout all the era of railroad construction as a 
ight belonging to the public. 






742 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Denison. You do not include in your statement in reference 
to all of the bills before the committee one of the plans proposed 
do you? 

Me Prums. There are three plans proposed that are not ye 
ripened into bills. You have already heard the supporters of th 
chamber of commerce plan, and I understand that the supporter: 
of the Warfield plan are to follow up. Then, the railway executives 
plan is yet to be heard. Now, all of these plans contemplate th¢ 
recognition of the property investment, account as the measure 0: 
value. 

Mr. Denison. These are the plans you had in mind when you sai¢ 
that all of the plans proposed that? 

Mr. Piums. All of the plans proposed except ours. 

Mr. Denison. There is one bill before the committee, is there not 
that you do not understand as doing that? 

Mr. Piums. The Fsch bill is a bill for amending the Interstaté 
Commerce Commission, and is not a bill which even purports t¢ 
determine these questions. 

Mr. Sims. You mean that it is a bill amending the imterstate 
commerce law. 

Mr. Piums. Certainly, the interstate commerce law. 

Mr. Monraaur. Do you propose to meet those criticisms by the 
elimination of any increased value by reason of a general increase if 
the value of surrounding property or of the value of contiguous 
property, or in the value of similar property in adjoining or contiguous 
territory ? | 

Mr. Piums. No, sir; that is exactly what we do not propose to do 

Mr. Montaaus. Do you propose to increase values by virtue 
unearned increment ? 

Mr. Piums. No, sir; we leave that question open for judicia 
determination, without’ any direction from Congress at all. 

Mr. Montacus. I do not mean any direction from Congress, but | 
am referring to your bill. I understood you to say the other daj 
that you eliminated as an item of valuation all unearned increment 

Mr. Piums. No, sir; let me repeat that again. 

Mr. Montacusr. I am glad to hear you say it, because you wer 
certainly positive and emphatic in your assertion the other day. 

Mr. Piums. I am positive and emphatic in my statement that that 
is my conception of the law, but it is not a provision in this bill. 

Mr. Montacue. What bill? . 

Mr. Piums. The bill which I have presented. You can not finc 
in the bill which I have submitted a single word that can be torturec 
or construed into a legislative direction as to how the courts shal 
ascertain value. 1 

Mr. Monracue. I mean this, that in considering your plan, I askec 
you the other day if you did not eliminate unearned increment as al 
item in the valuation, and you answered affirmatively “ S| 

Mr. Pius. I said that that was my construction of the law. 

Mr. Monraaus. I asked you if you did not also eliminate as ar 
item of valuation reinvested excess profits ? Lat 

Mr. Prums. And again I said that that was my construction of tht 
law, but it is not a provision of this bill. | 

Mr. Montacur. What law were you construing ? 





& RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1748 

' Mr. Piums. I mean the written law of the United States as it 
exists to-day in statutes, in the Constitution, and in judicial pro- 
nouncement. 

_ Mr. Montacvue. I thought that the purpose of your bill was to 
meet these two evils 
__ Mr. Piums (interposing). The purpose of my bill is to present to 
the courts rights actually as they exist to-day, so that we may before 
the courts present our contention without being precluded by a legis- 
lative grant which recognizes those rights. 

_ Mr. Montacue. You think that this plan of yours would give you 
the opportunity to cut down, we will say, the $19,000,000,000 valua- 
tion by deductions arising from the two items we have just been 
‘speaking of, and you would leave that for judicial consideration ? 

Mr. Piums. Yes, sir; to judicial consideration. 

Mr. MontaGur. You believe that the courts should construe it? 

Mr. Prums. We think that the courts should construe and deter- 
‘mine that, and that there should be no new grants made that would 
prevent that construction. In that way we leave the railroads just as 
‘ree to oppose our construction before the courts and to succeed, if 
‘they can do so, as we are. They are not concluded by anything con- 
tained in our bill. | 
_ Mr. Montracur. Under your plan, if you did not succeed in this 
Teduction by virtue of those two items, then, the question of profits 
‘under your bill would be very largely modified ? 

Mr. Prums. It would be modified to the extent that we failed to 
‘Sustain our contention. 

Mr. Montacur. You think that an accurate valuation is about 
ten or twelve billion dollars? 

Mr. Prumps. I have no doubt of that. 7 

Mr. Montacur. Would that difference arise largely trom those two 
items of valuation which you have mentioned ? 

Mr. Prums. It will arise from three items: First, the issuance of 
‘securities which do not represent extensions; second 
Mr. Montacuke (interposing). Unearned increment? 

‘Mr. Pirums. That would make four. Then, there is the element 
Tepresented by the putting into the properties of moneys which the 
public have paid for service and which do not represent construction 
‘paid for by the issuance of securities. Then, there is the capitalization 
of grants, gifts, and donations, and the applying to improvements or 
the reinvestment of excess profits. 

| Mr. Montacur. The reinvestment of excess profits ? 

Mr. Piums. Yes, sir. 

| Mr. Sms. And you are also excluding the duplication of capital 
issues ? 7 

} Mr. Prums. Yes, sir; and [ do not think there is any question 
fabout duplication, because I believe the railroads themselves con- 
cede that they can not claim double value or double rights because 
of the double issuance of securities. 

_ Mr. Sweer. The proposition in this matter, then, is that it is 
purely a fact for the courts to determine as to the value of the prop- 
ia the compensation to be paid ? 

_ Mr. Prums. Absolutely, and whenever a legislative body attempts 
i any way to circumscribe that function which is delegated to the 
courts it exceeds its powers. 
















744 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Sweer. Under the Constitution ? 

Mr. Ptums. Under the Constitution, and what we designate sha 
‘be taken for public use are those rights and interests which the cor 
porations hold under their charters and which have accrued to ther 
thereunder, or under the laws under which they operate. Now, | 
we have included in that definition all of the rights which we are t 
acquire, anything which they can claim as a right within the lay 
should be granted; but, as | interpret the decisions of our Suprem 
Court, from the Dartmouth College case down to the present tim: 
no corporation can possess against the public interest any right 
praalees property interest, or interest of any kind that the publi 

ave not granted to it. 

Mr. SweetT. Would you go a little further and say that Congres 
has no power under the Constitution to legislate so as to in any wai 
modify that rule ¢ 

Mr. Ptums. Congress has no power to deprive the owners of thos 
vested interests of one scintilla of the value of that which has bee: 
vested; but as the legislative body determines the public policy 
it may make additional grants, which, when vested, are protecte; 
by the same provision of the Constitution, and which the judici: 
branch of the Government can not take away or diminish by con 
struction. 

Mr. Montacusr. Can Congress say what is vested and what is no 
vested ¢ 

Mr. Piums. It can not as a judicial question; but Congress eg 
adopt the decisions of the Supreme Court on any matter of law am 
legislate accordingly, adopting the courts’ decision as being the la} 
upon which Congress ann legislate, and when the courts have sai 
throughout all time that a corporation can not claim against th 
public anything which the public has not granted to it, Congress 1 
safe in adopting that as being the law upon which it bases its legis 
lation; but it would be unsafe and unsound if it attempted to g 
further than that and say what rights had vested and what value 
should be ascertained. | 

I had just quoted from the majority opinion of the Interstat 
Commerce Commission the following: | 

The property investment accounts as now standing on the books of the carrié 
can not be accepted as accurately representing the bare value of their property devote 
to serving the public. 

Thus the matter stands to-day. While the Interstate Commer¢ 
Commission has pointed out that the degree of inaccuracy in th 
‘‘property investment account” of the carriers has been constantl 
diminishing since 1907, when its accounting rules were revised ani 
became really effective, the record of ‘‘original costs to date,” ¢ 
supplied by the books of the transportation companies, provides cor 
vineing evidence against the wisdom and all-sufficieney of priva 
ownership and operation of the railways. It is this “‘property inves’ 
ment account” which the railroad executives and security hold 
would have expressly legalized and made the basis of guaranteel 
profits to be charged upon the public of*from 6 to 8 per cent. 

The constant tendency even in recent years to inflate the bo 
value of property investment account is well illustrated by the Inte 







RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 745 


state Commerce Commission in its report on the Anthracite Coal 
ease (25 I. C.C., p. 266 at p. 268-269), where the commission said: 

The property costs deduced from the old books of these carriers are notreliable, The 
fault is back of the books. This is well illustrated by the cost of construction on the 
Port Reading Railroad which the carriers’ expert has ascertained from its books to 
have been $3.025,000. This railroad is of recent construction, being built in 1898. 
The commission’s examiners found, by the review of the construction contracts and 
records; that the actual cost of constructing this railroad was $1,525,000 and that the 


book cost includes $1,500,000, representing a bonus payment in securities to the 
construction company. 


That again about parallels the Chicago & Alton case. [Contin- 
uing reading:] 
_ Such practices were so prevalent in railroad construction in former years that we 
must regard property costs deduced from the old books as very unreliable. 


_ And in even so recent a matter as the construction of the Pennsy]l- 
vania terminal in New York City the commission found that the costs 
of the Pennsylvania terminal to date, June 30, 1913, had been 
$114,000,000, $47,000,000 of which are charged to profit and loss and 
to income; that is, its past surplus income has already contributed 
$47,000,000 to the cost of this property. 
In the Eastern Advance Rate case (20 I. C. C., 269) the commission 
said: 

_ The president of the Pennsylvania Railroad Co. testified that since 1887 his com- 
gany bad putin the Pennsylvania lines east of Pittsburgh $262,000,000 from earnings. 
During all that time this company had also paid to the stock holders munificent 
lividends. Now to whom belongs these $262,000,000, a sum which according to the 
tatistical report of the Pennsylvania Railroad Co. to this commission for the year 


mding June 30, 1910, equals nearly two-third of the total cost of construction of the 
1,123 miles owned by that company? 


Two-thirds, or far in excess of the scandalous Chicago & Alton, 
ind all paid for by the public. 
Mr. Merrirr. Out of earnings? 
Mr, Prums. Out of earnings. Again, in the Eastern Advance 
tate case 
Mr. Merrirr (interposing). You do not call that water, do you? 
‘Mr. Pius. If securities are issued to balance it, it is water. 
Mr. Merrirr. Suppose the earnings were paid out for dividends? 
Mr. Piums. Then the rate would certainly have been reduced. 
‘hey would not have been permitted to earn that fund. Had the 
ublic known that they were a propriating to private profit twice 
he rate of profit which the dividend represented —— 
Mr. Mernirr (interposing). If they had made the necessary exten- 
ons, they would have issued new securities for them in any event? 
“Mr. Pius. They would, but the public would not have been 
jarged this amount in transportation. 
_M:. Merrirr. They would issue the securities _—— 
_Mr. Pius (interposing). The public would pay it once, but under 
tat statement, they would be paying it twice. 
Again in the Eastern Advance Rate case (20 I. C. C., 305), the 
»mmission said: : 
As previously noted, there is no testimony tending to show the cost of reproducing 
ese properties. It is plain that a physical valuation would introduce into the con- 
Asion a new element which might lead to a different conclusion. 
That is, they thought that if they only had a physical valuation 
ey would have something to go on that would be different from the 





t 
) 


' 





746 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


conclusions they could deduce from the property investment account 
and the securities then outstanding. 

Since this decision was handed down a physical valuation of the 
railways has been undertaken by the Interstate Commerce Commis- 
sion, It has served its final reports upon five railroads. The ob- 
jections to these reports have been heard and a final decision as to 
these five roads has been made. I submit herewith a tabulation of 
these five roads showing the combined investment account to be 
$177,031,508. The cost of reproduction, new, as of June 30, 1914, 
after deducting therefrom any amounts for depreciation is $89,821 ,- 
587-—a small fraction less than 50: per cent of the property invest- 
ment account. This cost of reproduction new includes all of the 
unearned increment, the land, the increases in the price of labor and 
material, and does not purport to be an account of the actual invest- 
ment, but merely what it would cost to reproduce these properties 
new as of June 30, 1914. These roads are the Texas Midland Railroad 
Co., the Atlanta, Birmingham & Atlantic Railway Co., the Kansas 
City & Southern, the E. J. & K., and the Winston-Salem southbound. 

These roads are taken at random from different sections of the 
country, Texas, Alabama, Illinois, Kansas City and to the Gulf, and 
the result of this preliminary examination shows almost exactly the 
state of facts shown by the disclosed investigations of the fictitious 
element in the property investment accounts. | 

These five small companies, operating in all 1,880 miles of road 
have been chosen at random from different parts of the country 
None of them has ever been selected as an instance of corrupt man- 
agement. They are so small that extraordinary mismanagement 
would be hard to conceal. They can be considered typical Americar 
railroads. Yet while the books of these five roads show an invest: 
ment in road and equipment of $177,031,508, the Interstate Com: 
merce Commission finds that only $89,821,587 would be required t& 
replace their entire holdings with new equipment and land purchasec 
at its market value in 1914. 44 

In other words, these companies under any one of the plans pro 
posed by the United States Chamber of Commerce, the railway 
executives, or the Warfield plan, would have the right to charge rate: 
which would bring them returns on nearly double the amount nee 
essary to replace all their properties, new, at the cost of land, equip 
ment, and labor in 1914. 1] 

The differences clearly indicated in the examinations made by th 
Interstate Commerce Commission into the property mvestmeD 
accounts of railways in the various rate proceedings and the repor 
on these five railroads without the cost of reproduction, new, clearl: 
‘ndicate that the combined investment accounts of these varie 
railways exceed, not only the living investment, but the cost € 
personally reproducing these companies by at least 100 per cent; an) 
that the estimates that we have heretofore given of the amount ¢ 
money actually contributed by security holders and placed im 
hands of the public in the operation of these highways can not excee) 
in the aggregate $10,000,000. ‘To allow the returns on this amoun 
demanded by the railroad interests, which they figure at 6 per cer) 

on $19,000,000,000, would be equivalent to an actual return of 1 
per cent on the actual investment. Twenty-two million citizens ov 
of patriotism contributed not only from past savings but frequenv) 









_— 
id or 
2 i 

i. 3 \ 
; 

ee 

y 

i. ¥ 
‘ 


mortgaged their future earnings to supply their country with 
$20,000,000,000 of capital in aiding to prosecute the war. On this 
sontribution they are assured a return of only 34 to 41 per cent. If 
they now see the Government of that country which\ they love 
guaranteeing 6 per cent returns on 10 billions of fictitious securities 
representing no service to the public, or 12 per cent returns on 10 
billions of money actually contributed, thereby depreciating their 
securities, for which they paid par value, by 50 per cent, can you 
axpect them to feel that their sacrifice has been warranted ? 

Beant to call your attention now to the demands made by capital 
‘or the protection of its credit. 

_ Under the provisions of the chamber of commerce plan and the 
ther plans, not only must the holders of these securities be guar- 
mteed a 6 per cent return on the property investment account, 
vhich is merely an equivalent of the par value of their securities, but 
© assure that constant flow on such return to these holders they 
lemand the establishment of contingent and reserve funds to be 
weated out of earnings equivalent to 12 per cent of. the property 
nvestment account, this to make up any deficits in the actual 
‘eturns received from operation. This they say is necessary—to 
nyite new capital to enter the public service and to create a credit 
hat will insure a ready and constant flow of capital to meet the 
‘quirements of this public service. I should like to make this 
Illustration just as the former illustration was made at our last 
ession to show the absurdity of such demands and not as a demand 
fade by the employees. I want that clearly understood, because 
_do not want to be misrepresented in saying that labor presents 
his demand to Congress. 

It is just as essential that the investment made by labor of its 
ife, limbs, and efforts in this service should be made attractive; 
hat provisions should be made guaranteeing a continuous flow of 
rages to those who render the service, and providing a surplus or 
ontingent fund to make good the power of the company to provide 
uch wages and to attract such service in case earnings result 
1a deficit. To protect the laborer on the same basis demanded by 
he security owners would require the establishment of a reserve 
nd contingent fund to keep up wages equivalent to three times that 
emanded by capital. To place the wage earner on the same basis 
s the security holder such reserve or contingent fund should amount 
9 $3,600,000,000, with an appropriation of a billion and a half by the 
(Overnment to start the fund. 

I noticed this morning in the Washington Post an able editorial 
1 which it declared that labor was capital and capital was labor. 
{we are to treat these two interests as being equivalent to each 
‘ther, they should secure like protection and like guaranties on the 
Ame basis and they must be treated in every investment with the 
Ame security. 
ff labor can not be attracted equally with capital, service lan- 
‘uishes. The public need fails to meet its requirements. The serv- 
.€S of labor are just as essential as the service of capital, and with 
us difference, that labor can more easily leave the service than can 
‘pital. Money invested in the railway service is perpetually 
edicated to that service and can not be withdrawn. The holder of 
dcurities may sell his interests in the industry to another upon such 
ie 


a 
4 
eo m * 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 747 








748 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


terms of loss or gain as the purchaser may dictate, but\‘he can not 
withdraw without providing another investor to take his. place. 
Labor, on the contrary, if it finds the employment unattractive can 
immediately withdraw without attempting to find another to serve 
in its stead. Logically, if we are. to make the field attractive for the 
investment of labor, greater inducements must be offered than would 
be needed to attract capital. 

Gentlemen, that finishes my analysis of the bill. As a question 
of privilege, I was handed the other day by Congressman Webster a 
duplicate copy of the letter sent him by the Brotherhood of Railway 
Carmen of America. The copy that I held in my hand is not dated, 
and [ should like to ask, if I might, when these letters were received? 

Mr. Wesster. They have been coming to me, Mr. Plumb, from 
about March down to and including last week. They have not borne 
any date. They have just been put together in a file. Many of 
them have not been preserved. | have not presented to the com- 
mittee more than half of the letters that I have received. I regarded 
the letters of such a character as not entitled to an answer. They 
have continued to come and I have thrown them into the waste 
basket. I presented to the committee all that I had. I presented 
them just as they came to me. 

Mr. Prums. Might I ask if you received a letter from Mr. Bard 
in connection with this communication under date of August 1? 

Mr. Wesster. I have not.. I received a resolution yesterday from 
a union of which Mr. Bard is an officer, indorsing the Plumb plan, 
but I have received no communication from him with reference to 
the letters. 

age PrumB. None of these letters in any way refers to the Plumb 
plan? 

Mr. WesstEr. Not by name. 

Mr. Piums. I had never seen this communication before and | 
had never heard of it. It was a surprise to me when it was sub- 
mitted, because I knew of no such movement. I did not notice 
that the letter lacked date, and I did not read it carefully. 

Mr. Wesster. If you will look at the large number of letters that: 
‘ fens filed with the committee, you will see that none of them is 

ated. 

Mr. Prums. None of them referred to the Plumb plan? 

Mr. Wesster. Not by name. \ 

Mr. Prums. If I might, I should like to introduce a telegram 
received from Mr. Bard, showing it to Congressman Webster first—- 
I do not care to introduce it without his consent. 

The CHarrMAN. Very well. 

Mr. Prums. Then I should like to make a statement of the facts 
contained therein. 

Mr. Raysurn. Who is Mr. Bard ? ’ qT 

Mr. Pius. Mr Bard is the secretary of the labor organizations out: 
ah Spokane who seems to have been responsible for sending these 
etters. 

Mr. WEBSTER (after examining telegram). I have not the slightest 
objection to the telegram being incorporated in the record. | 

Mr. Prums. Then, Mr. Chairman, I should like to offer this tele- 
gram. 

The CHarrMan. Very well. 







RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 749 


Mr, Prums. The telegram is as follows [reading]: 


LENN B. Piums, 
— Munsey Building, Washington, D. C. 
Press dispatches this morning 


Mr. Sims (interposing). What is the date of the telegram 2 
Mr. Prump. Oh, yes. This is dated August 9, 12 p. m. 
Mr. Sms. From where? 

Mr. Pump. Spokane, Wash. [Continues reading:] 


Press dispatches this morning indicate severe criticism Plumb plan account alleged 
ropaganda mailed for Spokane to Senators, Congressmen of the State Washington. 
bis will advise that carmen and clerk’s letters were mailed long before your plan 
id been considered by railroad crafts of this vicinity. Congressman Webster’s trade. 
oks like political camouflage to confuse the issue. The Plumb plan and not the 
‘tion of a few members of organized labor is now under consideration. Contradict 
mnection these letters with your plan. Ask Mr. Webster to read letter he received: 
mm this section dated August 1 concerning matter. 





Harry A. Barp, 
Secretary Railway Section. 
‘Mr. Wesster. Mr. Chairman, at the time I referred to these threat-. 
ung letters the Plumb plan had not been commented upon by you, 
a Pima, its author. I had said, the day before you appeared 
fore this committee, that I did not intend to submit to coercive 
ireats telling me what labor organizations intended to do to me 
dividually in the event that I did not submit to their demands. 
‘then I made that statement this gentleman in the front row (indi- 
iting), whom I have since been told is Mr. Wills, asked the question 
om the audience, ‘‘Has anybody attempted to subject you to any 
ch threats?” The day followirg that I was ill and did not appear 
the committee. The next day I did appear, and in order to sub- 
antiate my statement that an effort had been made by certain mem- 
Ts of certain organizations which Mr. Stone and Mr. Morrison and 
\u Tepresent—by coercive threats to influence my action. I have 
yer asserted any connection between those letters and the Plumb, 
in. | 
Me Piums. It is unfortunate that they were connected with the 





umb plan if there was no connection. 

Mr. Wesstrer. They were unfortunate in the effort made to intimi- 
te Members of Congress. 

|Mr. Prums. I do not believe that there has been any attempt at 
| midation or coercion or threat made by anybody to compel sup- 
It of the Plumb plan. If so, I do not know it. If there had been 
h methods used heretofore it has not been a part of our plan and 
as been done without our knowledge. 

fir. Wepsrer. The fact remains, however, that all of the letters 
elved by me were written by members of organizations which you 
‘resent and in whose behalf you speak before this committee, 
i nely, the railway carmen and the railway clerks. 

tr, Prums. As to the diplomacy of the phraseology employed in 
se letters there may be little doubt, but as to the right of the 
zen to set forth his wish and his political beliefs to any representa- 
\2 that he has sent to represent him in either branch of Congress, 
te can be no doubt, under our Constitution. 

)ft. WepstEr. May I interrupt you? 

Ir. Prums. Certainly. 











q 


fi 


750 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. : 


Mr. Wesster. I am not challenging the right of any voter, 
whether he is a member of a labor organization or not, to express 
himself at the polls as he is pleased to express himself; but I do deny 
the right of any individual or any organization to appear before an 
official who is engaged in the discharge of a public duty and to tell 
him what they propose to do to him in the event that he does not 
accede to their demands. That is a plain threat. 

Mr. Prue. If he were a judge, occupying a judicial position, the 
Constitution prevents any attempt to influence his decision on matters 
affecting the application of the law to private rights, but if he is a 
legislative member the Constitution protects the right of ever 
individual to tell him what he wants done and to tell him that he will 
not vote for him if he does not do it. 

Mr. Wzssrer. I do not recognize that there is any distinction in 
principle between an attempt to affect the decision of court in a 
matter judicially pending before that tribunal and an attempt by 
the same methods to coerce the opinion and to prevent the untram- 
meled exercise of official duty by a member of a legislative body. If 
it is iniquitous to bring to bear upon a court such influence for the 
purpose of affecting its decision in the construction and application 
of laws it ought to be more reprehensible to aL by resort to 
those means to influence those who make the very laws which the 
court is called upon to interpret and to apply. If there is any dis- 
tinction the distinction should be more strongly emphasized against 
improper influence in making laws than in the case of their interpreta- 
tion or application. I imagine that the reason it is resorted to in the 
one case and not in the other is because a prison sentence awaits In 
the latter case while in the former it may be done with impunity. 

Mr. Piums. In the other it may be done as a constitutional right 
ouaranteed to every citizen. 

Mr. Wesster. I deny the right of any citizen or any organization 
of citizens under the Constitution of the United States or the consti- 
tution of any State to attempt by threats to coerce the official acto 
of any man charged with the responsibility of executing a publi¢ 
trust. | 

Mr. Piums. Then it is openly drawn and the issue is made. t 

The CuatrMan. Have you concluded, Mr. Plumb ? | 

Mr. Prump. I have concluded, except this, at the close of Mr 
Garretson’s statement I should like to present a written statement 
which I said I would have ready at the conclusion of my statement, 

The CuarrMANn. I think Judge Sims wants to ask you some ques- 
tions as to the plan. __ ti 

Mr. Sims. No; I will refrain. 1 

The Cuarrman. Mr. Garretson, we will first hear Mr. Haney, who 
has to leave, but Mr. Haney’s statement will be put after yours, s¢ 
that the presentation of the Plumb plan will be consecutive. t 

Mr. Wesster. Mr. Chairman, may I ask permission to make a& 
part of the record the communication which I assume is referred ta 
by Mr. Bard, addressed to me bearing date August 1, 1919, referred 
to in the telegram made a part of the record by Mr. Plumb? M5 

The CHAIRMAN... Yes, sir; certainly. 4 

Mr. Wesster. In this connection, Mr. Chairman, may I call the 
attention of the committee and of the public to these facts im con- 
nection with the question which has been presented as to the con- 


tl 
ah 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. LOL 


nection between the threatening letters which I made a part of the 
hearings and the Plumb plan. The Plumb plan of Government 
ownership of railroads was placed before the public in concrete form 
as early as February, 1919. That this is true I cite pages 997 et seq., 
part 9 of the hearings before the Committee on Interstate Commerce 
of the United States Senate, February 7, 10, 11, and 12,1919. That 
is the only concrete form of Government ownership with which I am 
familiar or to which my attention has been directed. 

I did not become a Member of Congress until March 4, 1919, 
Hach and every one of the letters filed by me with the committee has 
een received since I became a Member of Congress. Most of them 
ire addressed to me as a Member of Congress. All of them are from 
nembers of two railway brotherhoods, namely the Brotherhood of 
Railway Carmen and the Brotherhood of Railway Clerks, of which 
ganizations Mr. Plumb then was and now is the general counsel. 
fach of those letters refers specifically to the Government ownership 
md control of railroads and lends its indorsement. Each of those 
ganizations is now sponsor of the plan before this committee. The 
‘ommittee and the public can make their own deductions and draw 
heir own conclusions. 

The CuairMan. Do you want to read the letter, Mr. Webster ? 
_Mr. Wesster. The letter to which I have referred from Mr. Bard 
3 as follows: 


AFFILIATED Rattway Crarts, SPOKANE, WASH. 


| ee is much other printed date or memoranda which I will not 
gad, 


) August 1, 1919. 
lon. J. Srantey WEssTER, 
| Washington, D. C. 


Dear Sir: The railroad section of the central labor council of this city has unani- 
ouely, indorsed the Plumb plan of Government ownership and operation of the 
ilroads. 
| We believe that such a plan of handling the railroads would be fair to all and that in 
ort space of years transportation would be available to the people at cost. 
It is earnestly hoped that you may be able to give this plan your support when it is 
‘esented to Congress. If this does not meet with your approval would you be so 
od as to advise the undersigned just what sort of a plan you believe is the proper 
‘cedure for the railroads. 
_ Yours, respectfully, 








Harry A. Barn, Secretary. 


This letter bears the seal of the Affiliated Railway Crafts, 

May I be permitted to add that this letter reached me in yesterday 
unday’s) mail, and that this has been the first meeting of the com- 
Ittee since the letter came to my desk. 


\(ATEMENT OF MR. A. B. GARRETSON, EX-PRESIDENT OF 
; ORDER OF RAILWAY CONDUCTORS, CEDAR RAPIDS, IOWA. 


,The Cuarrman. Mr. Garretson, the committee would be glad to 
‘ar you now. Give your name and address, and whom you 
resent. 

Mr. Garretson. For the purposes of the record, A. B. Garretson, 
dar Rapids, Iowa, formerly president of the Order of Railway 
ductors, appearing on behalf of the Brotherhood of Locomotive 


a 152894—19—-vor, 1——48 


752 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Engineers, the Brotherhood of Locomotive Firemen and Enginemen 
the Order of Railway Conductors, the Brotherhood of Railway 
Trainmen, the International Association of Machinists, the Interna: 
tional Brotherhood of Blacksmiths and Helpers, the Internationa. 
Brotherhood of Boilermakers, Iron Shipbuilders and Helpers ot 
Amercia, the Amalgamated Sheet Metal Workers, Internationa 
Alliance, International Brotherhood of Electrical Workers, Brother. 
hood of Railroad Car Men of America, Brotherhood of Railway 
‘ Clerks, Freight Handlers and Station Employees, Switchmen’; 
Union of North America, Order of Railroad Telegraphers, anc 
United Brotherhood of Maintenance of Way Employees, and Rail. 
way Shop Laborers; ten of those organizations being affiliated with 
the American Federation of Labor, and what is known as the fou: 
railroad brotherhoods not affiliated therewith. 

The CHArRMAN. Do you desire to make a statement without inter: 
ruption by imterrogatories ? 

Mr. GarrETSON. Mr. Chairman, I depart from the ordinary method 
in that. JI should be very glad, indeed, whenever a matter is pre- 
sented upon which members of the committee desire to question 
that, instead of making notes thereof, they will propound the ques: 
tion at the time it is fresh in their minds, and the question will prob: 
ably be germane to the subject and it will probably all be corelated 
in that way more closely than if inquiries follow the conclusions, 
and it won’t interfere with my line of thought in any degree whatever, 

The CHarrMan. If you wish it that way, we will accommodate you 

Mr. GarReETsON. I shall be very glad to have it that way. 

It is very possible that my angle of approach to this question is 
somewhat different to that of any man who has appeared: on behal 
of the Plumb plan, or the Plumb plan bill. The years which I have 
engaged with the labor union pursuits are more than most men have 
engaged in such pursuits, and owing to the fact that I was chosen by 
labor interests as a member of a Federal commission appointed t¢ 
investigate the causes underlying industrial unrest, it is very possible 
that the experience growing out of the service on that commissior 
widened the horizon within which I viewed many of the questions 
that prior to that time I had possibly approached only from the angk 
of labor interests, because no man could enjoy the comprehensivt 
view of the entire labor situation in this country, including the rela: 
tion of employer and employee, to the extent that it was considere¢ 
by that commission without having what might be termed pre 
conceived vie: « changed to a very considerable degree and modifie¢ 
by the general . °dition which he found to exist, more especially i 
the opinions held prior to that time had been formed solely on ex 
ated with one branch of labor, and that a rather segregated one 
rom other pursuits—that is, the railway service. 

Growing out of it, I think I conceived a wider view of the relatior 
of the laboring man to the public than I had at any time before that 
entertained. 

The march of events within the past year or two years has been s¢ 
rapid that there has been a kaleidoscopic change in the aspect of many 
questions. I would have said two years ago that the adoption of 
plan whereby nationalization of railways—and right there let me 
draw your attention to this. In the use of the phrase ‘‘nationaliza- 
tion of railways”’ or ‘‘socialization of railways” or ‘‘democratizatior 


>. 
* 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 758 


of railways” they are almost used synonomously, possibly with some 
different shade of meaning, but with the general intent possibly of 
all three terms the same, and they are often used interchangeably 
with such reservation as the personal opinion of the person using them 
‘may attach thereto. 
_ But I would have said that the nationalization of railways was a 
basic and primal question, but with the march of events referred to, 
it has only become one of many factors which enter into a still 
reater question—to use a much abused phrase ‘‘the high cost of 
ving”—because transportation is only one of the great factors 
entering into the whole problem of distribution, and cost of living is 
largely dependent upon the cost of distribution. Therefore, to me, 
the question of correcting the higher cost of those things which all 
men must purchase—and you will bear in mind there is no man in 
the Republic who is free from this burden of high cost of living in 
greater or lesser degree—the element of our population which pro- 
duces breadstuffs does not suffer for its breadstufts in the same degree 
that those who have to purchase it do. But for all’ of the other 
products which enter into daily life, the producer of breadstuffs is 
just as much subject to the inexorable law of high cost—inexorable as 
& now exists—as is any other citizen. The man who betters. his 
wage and who probably thereby adds a certain amount to this high 
Yost of living, presumably, has the reaction upon himself of suffering 
Tom the very betterment which he was able to secure for himself, 
onsequently there is no man who escapes the hardships that come 
Tom what most men believe is an unreasonable price for the com- 
nodities which families must have. | 

Tt has been held as the function of a government that it shall 
onserve and further the interests of those governed to the greatest 
xtent, and it is only in the carrying out of the idea of the protection 
f the rights of the individual that government exists. Primarily 
overnment exists only for the benefit of the governed and not for 
he benefit of the governing. The governing are only an incident 
0 the object to be attained. The mechanics necessary to secure the 
esired result. 

Then arises the question, what are the proper functions of that 
overnment? Is it to conserve and further the interests of every 
‘Qe of the citizens, or is it to allow a large portion of that citizenship 
» be exploited by another group? If the proper function of govern- 
jtent is to protect each and every one of those interests which are 
(8, to further the happiness and’ the prosperity of each and every 
an, then it becomes a legitimate function of government to see 
jlat every man secures that which he requires at a price that is 
}ithin his means to procure, and that no portion of the community 
jall be allowed to exploit and get undue profit at the expense of 
| her members thereof. 


; 








454 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


by philosophic reasoning, it has been done by the exercise of force, 
but within the history of mankind force has seldom been resorted 
to until allreasonable means have been exhausted for attaining the 
object desired. 

- Congress exists in its capacity of mouthpiece or the channel of 
expression of the great body of the people. It is the machine neces- 
sary to transmute into law that which is propeftly desired by the body 
of the citizenship. If Congress acts in accord with the will of that 
population, or that portion of it which they represent, in accord with 
the constitution of the country, then it becomes a fair conclusion 
that the Government is functioning properly. 

But as long as men labor under the charges with which they are 
now burdened for the necessaries of life, it will be indeed difficult 
to convince the men so laboring that all means have been exhausted 
until measures have been at least tried for the reduction of those 
burdens under which men do so labor. 

And I am one of those who believes that the public has the right, 
or any individual member of it has the right, to insist and demand 
intelligent, earnest, and fairly immediate action looking to the allevia- 
tion of those things. 

The whole thing that is involved in the question of the high cost of 
living is this, that every man has a right to expect that those things 
which he of necessity must have should come to him at a reasonable 
price for the cost of production, plus the actual cost of transportation 
to where the consumer is located. From my standpoint, there is 
neither logic nor right in a profit on transportation. Transportation 
is literally and rightfully a function of government, and it can only 
be carried forward by the nationalization of the means of transporta- 
tion, and the placing of that transportation at the service of the 
people at actual cost. | 

The CuarrMan. You did not believe that prior to 1912? 

Mr. Garretson. Mr. Chairman, a wise man changes his opinion, a 
fool never. | 

The CuarrMAN. I do not blame you for doing that, but as I recol- 
lect your testimony before the Senate committee, you said that you 
advocated private ownership up to 1912. 

Mr. GARRETSON. Up to 1910, Mr. Chairman. I cited a date when 
I stated a certain thing. 

The CHarrMANn. Well, in 1912 you made an address in New Yor 
City before the American Economic Association. 

Mr. Garretson. That was it. 

The CuarrMan. And then stated you changed your view. 

Mr. Garretson. Yes. Up to that time—this is in the explanatory 
sense—up to 1910 I was an absolute believer in private ownership of 
all property, and it is worthy of insertion here, possibly, what produced 
the change in opinion, because it is a change which must come to 
most thinking men if they follow the same line of investigation whieh 
I have followed. Of necessity my position has brought me into 
very close contact with the Interstate Commerce Commission on 
very many occasions, and consecutively for a long number of years, 
being an ardent believer in regulation, when I traced regulation to 
the state where, under existing conditions, it wrote a deficit into a 
railway account by that regulation, then I was confronted with this 
problem: Who should assume responsibility for the deficit? Jf 
Government regulation of rates caused the deficit, was not the 


” 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 755 


Government responsible for the deficit? And if Government rate 
regulation resulted in a deficit on one line and they accepted 
responsibility therefor, if that rate regulation produced a surplus 
on another line, by the same line of reasoning was the Government. 
not entitled to the excess profits under that rate which they had 
. anit for the purpose of reimbursing them for the deficit else- 
where ? 

A difficult problem was presented to me, as to what was the lesser 
of two evils—not the greatest good, but merely which is the lesser 
of two evils while you are in a transitory stage. Then I accepted 
Government ownership as the least evil by which that state of affairs 
ean be corrected, because any man with practical knowledge of the 
operation of railways in this country, and with a knowledge of the 
system of rate basing, knows that a regulated rate applied on any 
two railways on this continent can never produce the same results. 

_ To a man that lacks practical knowledge the mere citation of two 
lines of railway between two given points—for common points is 
the very essence of rate making; all rates are based between common 
oints. For instance, from New York to Chicago, the Pennsylvania. 
lveay, with its 800 miles between New York and Chicago, is 
allowed to charge a certain rate per 100 pounds, Between New 
York and Chicago what can the Erie Railway, with nearly 200 miles 
‘More mileage do on the same rate? It has to transport the freight 
the same distance and provide 200 miles more trackage, with its 
consequent fixed charge and maintenance and operation charge, 
including the mileage rate paid to all trainmen, the added number 
of station agents, section men, of all characters, and it must reim- 
_burse itself from the same amount of service revenue. There can 
be no equality between two lines under the same rate under those 
conditions, and those are the conditions which exist between every 
so-called competitive line on the continent. 

When confronted with those difficulties, the practical man, with 
knowledge thereof, must look further afield for a solution than 
Government regulation. It is an utter impossibility for the Gov- 
ernment to go into the question of the adjustment of rates, as between 
these various properties, when you take into consideration there are 
nearly 3,000 railway corporations on the continent. Gabriel would 
make the last entry, after he laid down his horn, in the effort to 
readjust these rates as between so many properties. It would be a 

business impossibility to do it. , Therefore there only comes one 
solution, and that is whereby the Government, taking over all 
properties, falls heir to all the weaknesses and all the strengths that 
exist in a situation of this character. To use a phrase that a certain 
class of society indulges in: Throw it all into a jackpot and then 
it adjusts itself, because while the doctrine of common points remains 
the profits and losses adjust themselves to each other, no matter 
how wide the ramifications of the systems affected, and no matter 
‘what the mileage or topographical conditions may be. 
__ I have heard of another solution—I have dealt with this problem 
"30 years—but I have always been against it in the wage fixing on 
that road, because all train and engine service and wage at the 
‘Present time is founded on the mileage basis, precisely as tickets 
are sold on that basis and as freight is moved on the same basis for 
{ Short distances, not between common points. 
; oo 








, 
AY. 


756 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


_ The-very foundation of the whole railway structure is the mile, 
and in an effort to evade the difficulties with which they were con- 
fronted in the early days of transformation from the monthly system 
to the mileage system, the longer lines of railway always introduced 
this question of making rates as between common points, regardless 
of distance. It furnishes the only practical plan by which a solution 
of that question may be had, and it is one of the many factors which 
_ justify the nationalization of the lines; it inures to the benefit, not 
only of the great public, but it inures to the benefit of the men who 
serve and the men who are served. 

Mr. Denison. Is not your theory based upon the premise that the 
earnings on the capital invested in one road should be the same as 
the earnings on the capital invested in another? | ) 

Mr. GARRETSON. Let me draw your attention to another condi- 
tion, and I will state it from the two railways I just illustrated, with 
respect to distances. The Erie Railroad, with a capitalization one- 
third greater than the Pennsylvania—in fact, it is a little more than 
that—how can that road earn on its capitalization, handicapped by 
the other peculiarities—but if they were even as to mileage, how 
could it earn as much return on its capitalization, except by the 
movement of a greater volume of traffic ite the other road enjoyed? 
In fact, the conditions are just reversed, and the Pennsylvania hauls 
a far greater volume of traffic than the Erie Railroad. The Erie Rail- 
road is an excellent earning property, but it is a beggar’s proposition 
as a dividend-paying property. ‘There is the problem of unequal 
capitalization. ; 

Mr. Denison. But, assuming that the capitalization of the rail- 
roads should be properly adjusted, according to valuations, could not 
there be a rate structure so fixed, as you indicate in this bill, allowing 
one road to earn more than the other : 

Mr. Garretson. There you go right back to the question of the 
3,000 corporations. There is something less than 3,000 and largely im 
excess of 2,000. It would take the relation of each one of these to all 
the others to determine what would be an equitable rate for that road, 
a multiplicity of rates in which the shipper would go to the road 
having the lowest rate, and the one that you intended to serve would 
absolutely injured thereby. There is where the difficulty lis. 

You must bear in mind that I am not presenting a theory, Mr. 
Congressman, but I am presenting facts; and there is no interest 
which will attempt to deny that statement of facts. It is an existing 
condition that everybody knows of. He who runs may read that. 

Mr. Mernrirr. I understood you to say, Mr. Garretson, that your 
view was that transportation should be furnished at cost? 

Mr. Garretson. Absolutely so. | 

Mr. Merritt. That, I take it, must be advantageous to the public, 
and, of course, under the arrangement that you suggest you think 
the cost would be lower than under any other arrangement? 

Mr. Garretson. I am absolutely of that opinion that it would, be- 
cause the element of profit is eliminated. : 

Mr. Merrirr. What the public is interested in is getting the lowest 
price for its transportation. Is not that right? : 

Mr. Garretson. The public is interested in getting its transporta- 
tion at the lowest possible price ; . 

Mr. Merritt. That is it. 








RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 757 


Mr. GaRRETSON (continuing). Consistent with reasonable service. 

Mr. Merrirr.’I agree. We are as one on that. 

Mr. Garretson. Yes. 

Mr. Merritt. Now, in substituting one system for the other, you 
san demonstrate, of course, that your system will produce transpor- 
bation at the lowest cost consistent with reasonable service. 

Mr. Garretson. As to demonstration, Mr. Congressman, this is 
rue: Demonstration can only be made from a series of facts which 
nave been developed. No conjectural plan can be absolutely dem- 
strated, except by evidence which tends to show that it would 
work out the result that is claimed for it. The difference between 
mowledge and belief is that if you have knowledge you are able to 
lemonstrate that fact; if you have belief, you are not able to furnish 
sonclusive proof thereof; and no new thing can be absolutely proven 
»y rule and line. 

Mr. Merrirrv. If it should appear that Government ownership, so 
ar as it had been tried in other parts of the world, has not produced 
is low rates of freight and as satisfactory service as has been produced 
n this country under private ownership, do you not think that would 
e an important factor ? 

Mr. Garretson. That would be one factor; yes; but you would 
lave to take into consideration the conditions under which that 
ugher rate had been obtained. For instance, if you will take the 
Jontinental system, that has been operated for profit to the Govern- 
tent; and if you will take the Australasian system, that has not been 
perated for profit to the Government. ‘There is a difference between 
wo systems of governmental operation. } 

The Cuairman. How about the Intercolonial of Canada? 

Mr. Garretson. The Intercolonial of Canada has been run for a 
reat Many years as an undesirable political asset. 

The CuarrMaNn. With a deficit ? 

Mr. Garretson. But, notwithstanding that, within the past 
ear the Canadian Government has taken over and has in its posses- 
on a large majority of Canadian mileage to-day. 

The CuarrMan. That is due to the work of a commission, of which 
rt. Aeworth, of England, was the head , and Mr, Smith, president of the 
ew York Central, was a member. 

_Mr. Garretson. Yes; he was. 

The Cuarrman. They recommended to the Canadian Parliament 
‘iat they take over all of these Canadian lines because of the tre- 
,endous amount that the Canadian Government had invested in 
‘em and the fact that they were not paying. 

. GarRETSON. There you have exactly the point—they were not 
tying in the sense of a private investment, but a large portion of the . 
\curities of some of them were guaranteed by the Canadian Govern- 
ent. Regardless of what the impelling purpose might have been, 
-@ fact remained that the Intercolonial for years—— 

‘The Cuarrman. Fifty years. 

Mr, Garretson. Bear in mind that for 25 of those years I have 
)€n reasonably familiar with the methods of its operation, which 
2re purely political—with a minister of railways; and I have also 
| @m reasonably familiar with the operation of the other properties, 
d the result that was obtained therefrom, when you go down and 


‘ 


|nsider the majority of the lines taken over, there was no more 







, 


a 


758 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


chance for those roads to be successful and dividend payers than 
there was for our western extension roads to be for the first 10 years 
of their existence, because they penetrated a country very sparsely 
settled and so limited in its products that it was necessary to settle 
the country and secure a certain density of population before a 
volume of business could be produced there that would yield a 
revenue that left any appreciable margin beyond operating expenses. 

And under the Government system of operation, if it is adminis- 
tered exactly on a par, we will say, with their postal system, or with 
ours, then under the direct Government administration, if it yields 
its operating expense and a reasonable margin beyond that, it will 
be in far better position than if, in addition to that, it had to make 
an effort to pay dividends upon the capital said to be invested therein. 

The CHarrMAN. I beg your pardon, Mr. Merritt. 

Mr: Merritt. I had concluded, Mr. Chairman. 

Mr. Denison. Now, Mr. Garretson, we start out with a proposition 
that the Government has no capital. It takes capital to own a 
railroad. Now, the only way the Government can get the capital 
to own a railroad is by borrowing it or taking it from the people, 
without borrowing it, through taxation. Is that true? 

Mr. GARRETSON. Yes, sir. 

Mr. Dentson. Which way do you think the Government ought 
to get it? 

Mr. Garretson. Take the premise that you laid down, Mr. Denison, 
and if the Government has not the capital for these things, the 
Government is in exactly the position where the original railway 
promoters were. Bear in mind that I lived in and grew up in the 
railway promotion country, and the average man who promoted what 
are known to-day as our feansoontinen tal HE did not have a dollar, 
and never did put a dollar in them. Those men did just what we 
say the Government should do. They should issue bonds and sell 
them to others. Ordinarily, they traded them to the contractor 
for building a certain amount of road. 

Mr. Denison. Of course I do not know anything about those oe 
of speculation. Iam speaking of an abstract principle now, and the 
Government has no capital. 

Mr. GARRETSON. The Government has got what many other finan- 
cial institutions possess in large degree; that is some capital, and the 
Government, unlimited credit. 

: nee Denison. Your theory is that the Government should issue 
onds ? 

Mr. Garretson. It should. 

Mr. Denison. In other words, the Government should borrow the 
money to own the roads? 

Mr. GARRETSON. Yes; and give its promissory notes therefor. _ 

Mr. Denison. The Government should pay something for that 
money, should it not? 

Mr. Garretson. I beg your pardon. 

Mr. Denison. Should not the Government pay something for that 
money ? | 

Mr. Garretson. It should pay for that money precisely what 1! 
pays for other money that it needs. : 

Mr. Denison. And would you call that interest, that the Govern 
ment has to pay on the investment profits ? 











7 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 759 


’ Mr. Garretson. I would call that a fixed charge. 


Mr. Drentson. Would it be profit? 
Mr. Garretson. It would not. 
Mr. Denison. You distinguish between an interest charge and a 


profit charge ? 


Mr. Garretson. I would. 
_ Mr. Denison. There can be no profit on the bonds, then? 

Mr. Garretson. The profit on the bonds is a fixed rate, the return 
of the money loaned. Now, I might be at variance with this system 
of interest, but that does not change the fact that that is the usage of 


the present day that if you borrow funds you pay interest for the 


use of the funds. There are only two forms of security which the 
world has largely followed, the old syncretic mortgage form, which is 
as old as the institutions of man, whereby a ‘‘use”’ was at once delivered 
of the thing mortgaged in heu of interest. That was before interest 
was established. In the later days, a man borrowing gave a mortgage 


‘and retained possession and use of the thing mortgaged, and he 


pays interest for the use of the money for which the property, which 
e keeps and uses, stands as security. That being the case, the 
Government does exactly what the individuals do between each other ; 
it gives its obligation for the amount borrowed and agrees to pay a 
certain amount of interest for the use thereof. There 1 would simply 


follow ordinary usage. 


Mr. Denison. If individuals could furnish capital to run_ the 
railroads for the same rate of interest that the Government could, do 
you think that would be satisfactory? . 

Mr. GarRetson. It would not. 

Mr. Dentson. Why ? 


Mr. Garretson. Because that leaves the control where it is, and 


we want the control to go with ownership and possession. 


=, —— 





Mr. Denison. Now, do you? 

Mr. GarreTson. I do. 

Mr. Denison. This bill does not provide for Government control, 
does it? 

Mr. Garretson. It requires that the Government have supreme 


‘control of it, own it, and then it exercises that control by delegating 


the operation thereof to another corporation, but not for profit. 

Mr. Dentson. Now, don’t you think, if the Government is going to 
own the roads and furnish all the capital, the Government ought to 
run them ? 

Mr. Garretson. I do not. 

Mr. Dentson. Why ? 

Mr. Garretson. For the very simple reason that I believe it can 
be more efficiently done under the method presented in the Plumb 
bill, You must bear in mind that some men have sympathy with 
the attainment of these things, and some men have not. I have 
spent a business lifetime contending for the right of every man to 
have a voice in the conditions under which he should serve and the 


! wage which he will receive. 


Mr. Denison. I agree with that. 


| Mr. Garretson. And I hold a second belief—but I will not ask 


you whether you agree with this or not—that he not only has the 


' tight to a voice in the two things that I have named, but he has a 
‘Tight to a voice in the disposition of the profits from the enterprise 


x 


LA | 
eas | 


Rad 
i 


760 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


commensurate in degree to the amount of energy, time, and effort 
that he puts into the accumulation of that result. 

Mr. Denison. And the ability? 

Mr. Garretson. And ability. Let me call your attention to this 
fact: The organization that I represent has contracts with nearly 300 
railways covering wages and service of conductors. Hach and every 
one of those contracts recites the word that you have named as one 
of the conditions of promotion. That is how thoroughly we recognize 
that. 

Mr. Denison. I was wondering if all the bank clerks, for instance, 
in the country wanted the same plan applied to the banks, what you 
would think about that? . 

Mr. Garretson. Now, do not mistake my answer in this, Congress- 
man. 

Mr. Denison. I will try not to. 

Mr. Garrerson. The Plumb bill, in its entirety, provides only for 
one industry. You have heard Mr. Plumb describe the limitations 
where that bill would properly apply in his concept of it. 

Mr. Denison. Yes. 

Mr. Garretson. I will give this as my own personal opinion, 
and I bind no other living human to it, and, because of the different 
railroad interests that I represent here, I desire to commit no man to a 
thing to which he has not authorized me to commit him; but per- 
sonally I believe this: That there is not an industry on the face of the 
earth in which the men who serve it are not entitled to be heard in 
regard to its conduct, and if the principle were more widely followed, 
further and greater benefits in all directions would accrue. Isay that 
too, as a banker. : 

Mr. Montracue. Would you say that also in respect of ownership ? 

Mr. Garretson. I beg your pardon. 

Mr. Monraaue. You say they are entitled to be heard with regard 
to the conduct of the industry. Would you say that in respect of 
ownership as well? | 

Mr. GAarreETSON. I had not carried my beliefs in regard to owner- 
ship in any degree into the financial realm. I am only dealing with 
the problem of the man who works with his hands directly, and the 
things that I stated in regard to it are usually limited to that class of 
man. If there is a class of men on the face of the earth that are 
entitled to more consideration than they receive, it is the bank clerks 
of the country. 

f eh MontaGuE. They do not receive as much as the railroad men, 
o they ? 

Mr. Garretson. They do not receive as much as anybody. There 
is no irony in that. I say it from the standpoint of a man who sits 
on a bank directory, and I raised so much trouble on that directory 
over the question of wages for the bank clerks that there are days 
when they want to throw me out. | 

Mr. Cooprrr. May I ask a question, Mr. Chairman ? 

The CHarrman. Yes; Mr. Cooper. 

Mr. Coorer. A few moments ago you said that the Canadian 
railways had been controlled by politics to some extent. 

Mr. GARRETSON Yes, sir. 

Mr. Coorrr. I want to ask you this question, because I believe in 
your intelligence on this great question: Do you believe it is possible 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 761 


for the Government to operate the railroads without politics entering 
into it? 

_ Mr. Garretson. Not directly, but only through such a corporation, 
or something similar to that, as we propose. 

Mr. Coopgr. Do you know of any Government institution that we 
have to-day under our form of government that operates without 
politics entering into it? 

Mr. Garretson. The only one I know of is the Interstate Com- 
merce Commission. I believe it is as near being absolutely free from 
politics as a human institution can be. 

Mr. Dentson. Do you think it would be better for the Government 
to organize a large corporation and let that corporation run the Post 
Office Department ? 

Mr. Garrerson. I will say this to you: That a corporation formed 
along the lines embodied in the Plumb plan, in my opinion, would 
udd largely to both the economy and efficiency. Isay this in no sense 
7 a criticism of the Post Office Department, as it has existed for 50 
years, because I am not taking one period or another ; what I mean 
ay that is that concealed behind that is no criticism of the present 
nanagement of the Post Office Department. I may have some, but 

am not voicing it in that opinion. 

Mr. Sims. Before you get away from the question of capitalization 
id the borrowing of money I want to call your attention to these 
wo points: That the stocks of corporations are subject to taxation, 
is is also the property mortgaged for securing bonds, both ad valorem 
md income, direct and indirect. Is not that true? 

Mr. Garretson. That is true in regard, I think, to Federal taxa- 
jon largely, but in some States I think there is an exemption with 
‘espect to stocks. 3 
_Mr. Sims. That is by State legislation 2 

Mr. Garrerson. Yes, sir. Your statement is correct with regard 
0 Federal taxation. 

Mr. Sims. But the State has power to tax, if it so elects? 

Mr. Garretson. Undoubtedly. 

Mr. Sims. I gathered this as being a question in Mr. Denison’s mind, 
nd that is why I call your attention to it. Now, the Government 
an exempt the bonds it sells for railroad purposes from all taxation 
y any taxing power on earth? 

Mr. Garrerson. It can. 

Mr. Sims. It can refrain from taxing itself and prevent anybody 
lse from doing so? 

Mr. Garretson. Yes. 

Mr. Sivs. Can it not also prevent any taxation, by any taxing 
Ower on earth, on the property after it is acquired ? 

Mr. Garretson. Now, you will bear in mind that I hire a lawyer 

Yanswer that kind of a question, as a rule, but I have had a certain 
mount of law injected hypodermically in me by the courts. That 

when I would not swallow it, they gave it to me in that way. Iam 
nder the impression that Government property, in its present 

iatus, is absolutely nontaxable in any way. 

Mr. Sis. The Federal Government being a supreme sovereignty 
an only be taxed by its own consent ? 

‘Mr. Garrerson. It is the fountain of power. 
he 


f 
} 


i 


& 
762 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Surs. Yes. Therefore, the Government can, to that extent 
give an advantage to these bonds—I mean a market advantage—that 
no other power could give, except a State, which would give it in s¢ 
far as municipalities and State made corporations go. 

Mr. Garrerson. I would accept that with just this amendment 
“Market or investment value.” mt 

Mr. Sms. Market or investment value; that is what I had referenee 
to. If the bonds are put on the market, when you come to market 
the bonds the Government sells them for what it can get, the State: 
sell their bonds for what they can get, and the railroads sell them for 
what they can get. 

Mr. Garretson. The investment value of Government bonds rests 
very largely in their freedom from taxation. 

Mr. Sus. To-day we see the first issue of Liberty bonds, whicl 
bore a rate of interest of only 34 per cent, nontaxable : 

Mr. Garretson. Exempt from all taxation. 

Mr. Sms. Yes. They are bringing in the market par or prac 
tically par, while bonds of less limit, in time, but with less tas 
exemption, bearing a rate of 4} per cent interest, are abt a discount 
bonds of the same Government, showing that the exemption from 
taxation, so far as investment securities are concerned, is so highly 
desirable that the full amount of what the bonds will amount t 
during their life, including interest, 1s less desirable than a bonc 
exempted from taxation. Taxation may be at any time increased bj 
the taxing power. Is not that so? 

Mr. GarRETson. It is; subject to such limitation as State consti 
tutions may impose. 

Mr. Sms. But, with regard to the Federal power 

Mr. Garretson. Oh, you are talking about the Federal power? 

Mr. Sms. Yes. 

Mr. Garrerson. I am of the opinion it can be increased at an) 
time where there is no constitutional limit thereto. 

Mr. Sms. Take a 6 per cent bond, if there should be such a thing 
of a railroad company placed upon the market. It is subject t 
State taxation, Federal taxation, municipal taxation, and taxatior 
along the line of surtaxation, income taxation, increasing with thi 
volume of income, and a railroad bond of the most solvent company 
being liable to all this form of taxation, both as to principal and in 

come, a graded income tax, an excess rofits tax, and a surtax, ii 
placed in such position that no man will give as much for it as bh 
will for a low interest-bearing bond that can not be reached in thi 
way. 
Mr. GARRETSON. It will always be at a full disadvatnage whereve' 
held in amounts that produce income, under the provisions of th 
income tax. It will not operate against it in the same degree wher 
held in very small amounts. f 

Mr. Sms. Then it would be a great economical advantage to al 
investor in railroad property to have the ability to buy bonds an¢ 
give them in exchange to the owner of stocks, subject to such taxa 
tion, those bonds being absolutely free from such liability to taxatio 
and therefore result in great economical saving to the United Stat 
or to the users of the railroads, by having both the property, th: 
would otherwise be mortgaged, and the tax or security of debt issue 
for it, free from taxation. Is not that true ? 








RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1768 


_ Mr. Garretson. There is no doubt but what a large number of 
security holders, who are in no sense interested in the control of the 
property through the holding of any form of securities, either 
stocks or bonds, will welcome a lower rate of interest which the 
‘Government bond would pay, with its additional stability and its 
freedom from taxation. ) 

Mr. Smus. Yes; its freedom from taxation. 

Mr. Garretson. I say that from the standpoint of a man who, 
in the past 10 years, has bought more than $5,000,000 worth of bonds 
in the open market, as investments for the organization of which 
he was the head. | 

_Mr. Sims. Now, isn’t that the very thing that confronts us at this 
time—or at least, I want to hear your view on whether or not it 
does confront us. 

Mr. Montacugr. Are you leaving the question of bonds now ? 

Mr. Sims. No; but bearing on that. In the last month for which 
we have official reports our exports were about $900,000,000 and our 
imports a little less than $300,000,000—a clear balance of trade in 
favor of the United States in one month of $600,000,000. One of 
the highest banking authorities in this country states that no such 
condition can continue and be paid for by the transfer of gold; that 
our products must either cease to go to foreign countries or we have 
got to buy their products or securities in those foreign countries or, 
im other words, sell on a credit, and the difference in exchange between 
the United States and foreign countries is so great that a good security 
‘at the same rate of interest and for the same length of time would 
ofier a very large bonus to the American investor in favor of buying 
foreign securities over domestic securities. Is that true? 

Mr. Garretson. I have seen such representations made. 

Here is what is true in regard to a world economic condition: If 
the balance of trade remained in favor of this country to the extent, 
or approximately to the extent, shown in the figures for that month, 
it would only be an arithmetic proposition to figure how long it would 
be until we had accumulated the wealth of the world. That is all 
there is to that. | 

‘Mr. Sivs. Bankrupt the world and, in turn, bankrupt ourselves ? 

Mr. Garretson. That simply grows out of this condition, that 
with all of our war activities, our producing machinery was never 
clogged, and the consequences were that on the cessation of hostilities 
We were ready to resume the character of world trader that we had 
before. I am using that expression in the sense of a new world. 
Por raw products south of the Isthmus is afactor. For manufactured 
Fpancts it is not in any great degree. But we are a warehouse of 
both raw material and manufactured products, and we were almost 
the only people in the world who were ready, on short notice, to 
fesume commercial relations everywhere, everywhere that it was 
Possible to do so. 

_ England is not a producer of raw materials, except through her 
Yolonies, and consequently there must be a transfer of raw material 
before she can take up the turning of the raw material mto the 
hed product for the markets. Whenever that time elapses, then 

le becomes our competitor, and she largely reduces that balance of 





sade. 
* 


764 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Now, I do not pose as a financial or economical expert, and, con- 
sequently, whether or not the statement that the only way that that 
balance can be maintained as between other countries and our own 
is by an acceptance of their securities, is sound economics, I would not 
be able to say; but in any event it will depend largely on the value 
of the securities whether it is sound economics or not. 

Mr. Sms. At this time, as given by the highest source of informa- 
tion, the exchange rate between the United States and Germany is 
at a discount of 74 per cent on the German, unit of value—— 

Mr. GARRETSON. The mark ? 7 

Mr. Sims. Yes; the mark. It is 39 per cent in Italy, 30 per cent 
in France—this is all in favor of the United States—10 per cent in 
England, par in Spain, and Japan is the only nation on earth to whom 
we have to pay a premium on exchange in order to transfer our credit 
to that country. 

Mr. GARRETSON. You need not go so far across the water, Judge. 
I drew one check in payment for a bunch of Victory bonds, which is 
the title given the Canadian bond issues, on which the exchange in 
ray favor amounted to some $250, just between Toronto and Cedar 

apids. 

Mr. Sims. It seems to me inevitable that for a period of years— 
nobody can tell how long—that any kind of taxable security in this 
country, without much reference to how much interest it bears, is 
going to be a a disadvantage in the public market as against non- 
taxable securities, and as against any just as good securities offered in 
any foreign countries like England and France ? 

Mr. GARRETSON. Yes, sir. 

Mr. Sms. As a rate of interest in excess of that we pay, and at an 
exchange discount that will make much profit for many years, and 
therefore I do not see how it is even possible for the railroads to 
finance themselves with private capital in the competitive market 
of the world. 

Mr. Garretson. There is no doubt that in a market of that charac~ 
ter, the Government security or Government loan will take precedence 
of all others, and at a far more economical rate for the purchaser. 
That is foregone. 

Mr. Sims. Now, with respect to politics. Can anything on earth 
be kept out of politics that can be taxed or be regulated by law ? 

. GARRETSON. There is a question there, but there is a distine- 
tion between 

Mr. Monracus (interposing). What do you mean by politics ? 

Mr. Garretson. By my use of the word ‘‘politics” in that con- 
nection I mean the securing of positions, the administering or non- 
administering of discipline, the retention in service of provenly 
inefficient men because of political influences 

Mr. Montacur. You mean other influences than merit ? 

Mr. GARRETSON. I mean other influences that should obtain i 
retaining in the service men of proven merit and ability. 

Mr. Montacur. But suppose they are not in the service and they 
want to be put in the service ? 

Mr. GARRETSON. There you come against a factor that is diffieul 
to explain. What is known as seniority in the railroad. service—an 
this applies more especially to trainmen and engine service—is fa 
more existent on the railways than civil service, which is another 
form of it, isunder governmental application. 








RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP, 765 


_— Mr. Montacur. Is that a good system or not? 

_ Mr. Garrerson. It is a good system in this: It prévides that 
| every man stands in the line of promotion according to age In service 
and ability to assume increased responsibility. ia am quoting the 
: language of the contracts that the organizations have with the railway 
“company. The railway company can not hire a man for an advanced 
position as long as they have competent men that they can promote 
. to those positions. 

.” Mr. Stus. I used the word “politics” in the sense of trying to 
prevent or bring about legislation, State, municipal, or National. I 
Teferred to that more than I did to the question of patronage. 

» Mr. Garretson. The thing I have in mind is what you have 
described as patronage, but the form of it that you describe is just as 
‘pernicious, although it is always in larger phases. The phase of it 
that I refer to is essentially petty in its nature. 

Mr. Montacur. If the Government owns property, then there is 
nobody lobbying to increase the earnings of that property, lobbying 
about taxation or anything of that kind, and if the Government pays 
the employees there will be nobody around lobbying to have wages 
increased 

Mr. GARRETSON. That is it exactly. 

Mr. Monracue. You think, then, that nobody ever comes to 
‘Washington to have their salary or wages increased ? 
| - GARRETSON. With a corporation that stands between, I figure 
that that makes all these things impossible, because it has absolute 
\2ontrol of those conditions. 
| Mr. Monracur. But isn’t it a trait of human nature, and isn’t it 
3vident, in your organizations and other organizations, with respect 
(50 political office? It is an infirmity of human nature that men 
vlesire to increase their advantages and secure higher places in the 
world, and they employ influence to elevate themselves ? 
|| Mr. Garretson. As: the spokesman for my own organization, I 
Want to prevent the members of it that can exercise political pull from 
)’Xercising it. 
| Mr. Monracun. But can you do it in any other way except by 
emoving the cause and temptation ? 
| Mr. Garretson. I do not know whether you can remove the temp- 













suman nature. The devil bequeathed most humans certain tempta- 
ions. They say God create humans, but I would say the devil 


Mr. Monracur. As I gave the quotation from Edmund Burke 
yhe other day, he said a great many of our distempers were not due 
yo much to imperfections of government as to infirmities of human 
\ ature. 

| Mr. Garrerson. Surely; and Bacon himself was as fine an illus- 
|fation of the truth of his statement as the world has produced 
| Mr. Montacur. Burke, not Bacon. I was quoting from Burke. 

) Mr. Garretson. But Burke was not beyond reproach. 

: Mr. Monracur. Oh, no; none of us is. 

| Mr. Cooper. You said just a moment ago that you wanted to 
pfevent any member of your organization from using his political 
pdluence. That has not been the attitude of yourself and the rest 
» your organization for the past two or three years back, has it? 


t 
Vi 











766 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. | 


Mr. Garretson. Absolutely it has. 

Mr. Cooper. How about the campaign of 1916? 

Mr. Garretson. The campaign of 1916? . 

Mr. Coorer. Yes; when the railroad people, almost in general, all 
over the country, went out against Mr. Hughes and came out for 
Mr. Wilson. | 

Mr. Garretson. Certainly they did. 

Mr. Cooper. That was on account of the Adamson eight-houg 
law, and I am with you on that. , 

Mr. Garretson. I am essentially guilty in that myself, with all of 
. my Republican affiliations. But I want to draw your attention to 
this fact: That was purely a citizenship act, and not an employee 
act, and there is nothing that we abhor more than any curtailing of 
the political rights of the citizens. 

Mr. Cooper. I was with you on the Adamson bill. 

Mr. Garretson. Mr. Chairman, may I use a minute for what you 
might consider a question of personal privilege ? 

The CrarrMan. Certainly, Mr. Garretson. 

Mr. Garretson. Representative Cooper has referred to the passage 
of the Adamson Act. I can say something here to-day that I could 
not say during all the days when I held office in the labor union, as 
the head of one of the big brotherhoods. The brotherhoods and my- 
self by name were pilloried from the Atlantic to the Pacific by in- 
nuendo, aspersion, cartoon, and editorial, as compelling the President 
and Congress to do certain things. I want to answer one statement 
in this record, because this is very possibly the last time that I will 
appear in the capacity in which I now appear, for I am just a private 
citizen now, and I am not an authority at any rate, but merely a 
willing one 

The CuarrmMan. I understood that you were a professor emeritus. 

Mr. Garretson. I am professor emeritus, but with none of the 
rights, powers, nor advantages—— . 

The CHarrMANn. Only the honors ? 

Mr. Garretson. Only such as I possess as a citizen. 

But the point I want to make is that the four brotherhoods, in 
being forced into Congress regarding the passage of the eight-hour 
act, were unwilling participants. Only the influence, the power, 
and the personal prestige of the President of the United States ever 
got us there. We came there on his demand that we should come 
there for adjudication of the question that we desired to settle by 
our own methods. But, out of regard for the interest that the 
President had shown, and respect for the position which he held, 
and our respect for the office of Chief Magistrate, we accepted his 
request to transfer the matter in controversy to the Halls of Congress. 
No living Senator or Representative ever heard a demand from one 
putea tt of the four brotherhoods as to what they should do. 

ow, before the Interstate Commerce Committee of the Senate, the 
day before the Adamson bill was passed, a request was made on the 
four, to know whether or not they would defer the hour of the strike. 
That request had been made by the President of the United States 
two days prior to that time. 

The three associates of mine stated to the committee in open 
hearing that they did not possess power to do the thing requested, 
but that I would answer for the four. I answered that I had the power, - 





RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 767 


but that I refused to defer. I told them why, and after I told them 
no further request was made for deferring nor were there any methods 
of coercion used on any Member, and there is no Member of the 
present Congress who was a Member of that Congress who will 
challenge that statement. There are men here who were Members 
of that Congress and present at that time. I challenge any one of 
them to question the correctness of the statement I have made, 

I wanted just this chance, Mr. Chairman, to make that a matter of 
record with regard to the talk about holding a stop-watch on Congress. 

The Cuarrman. I was not present in Washington when that was 
Bees My recollection is that there were no hearings before the 

ouse Committee on Interstate and Foreign Commerce on the 
Adamson bill. 

__ Mr. Garretson. There were no formal hearings. My communica- 
tions with that committee were all through the floor leader. Mr. Wills 
makes the point that there was a joint hearing, but, if so, I am not 
aware of the fact. 

Mr. Monracur. Mr. Wills is mistaken about that. I was on the 
committee at the time. Perhaps Mr. Wills came to that conclusion 
because a good many members of the committee went over there, 
but I did not sit with the Senate committee. 

Mr. Garretson. There were a number of Members of the House 
present during the entire hearing, but if there was a member of this 
committee that sat with the Senate committee I was not aware of that 
fact. I never appeared directly before the House committee. I did 
meet the chairman once or twice, and I conferred a half dozen times ; 
possibly with Mr. Kitchin, who was the floor leader at that time, 
was he not, Mr. Chairman ? 

The Cuarrman. Yes. 

Mr. Cooprr. May I say that during the debate on the Adamson 
bill on the floor of the House I made almost the same identical state- 
ment that you made her a minute ago, and I have resented at all 
times the saying that the railroad en thers had come to Congress with 
a gun in one hand and a stop-watch in the other. 

Mr. Sims. I was a member of the committee at that time, and the 
ranking member, next to Mr. Adamson, and no labor man ever asked 
me a question, or anybody else, but I considered the measure on its 
own value, strike or no strike, and I have no apologies to make, as a 
member of the committee, for having exercised my right of voting 
without fear or favor. My information and knowledge led me to 
believe it was right, and my conscience told me to do right if the 
heavens fell, and I went ahead and did it. 

__ Mr. Garretson. You can readily understand, Mr. Chairman, that 
_the man who has been pilloried in the newspapers controlled by the 
financial interests of this country for 30 years is not sensitive person- 

y. He becomes a pachyderm naturally; his skin thickens as he 
‘goes on, : 

_ Mr. Sms. Six weeks before the passage of the Adamson bill in 
eo I advocated it. 

__ Mr, Garretson. Consequently, I have no personal end to serve in 
‘this, but I do want to preserve a record in some direction that this 
ttatement was made; that there never was an effort to coerce any 
™man; that I met no Congressman or Senator, except in instances 
where I was sent for by that Senator or Congressman, and those 
instances were many, 


152894—19—vo1 1——49 


768 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Sms. When I said I advocated this six weeks before, I meant 
the establishment of an eight-hour day, because the bill then had 
not been formed. 

Mr, GarreTtson. The bill had not had birth. 

Mr. Sanvers of Indiana. I want to revert to the question of 
whether the Plumb plan would take the railroads out of politics. 
Now, five of these directors are appointed by the President of the 
United States ? | 

Mr, GARRETSON. Yes, sir. | 

Mr. Sanpers of Indiana. And of course they will have a voice in 
matters in which the employees will have vital interest. Three of 
them will be of one political party and two of another, and the 
President has the right to remove any of the five for inability. 

Mr. Garretson. Well, for cause. We will use the ordinary phrase. 

Mr. Sanvers of Indiana. I think that Mr. Plumb suggested that 
the words ‘‘for cause’? would be better inserted here. 

Mr. GARRETSON. That is the accepted term; yes. 

Mr. Sanvers of Indiana. Suppose there should be an organized 
effort to have the President remove some of those five directors? 
Would you call that politics ? 

Mr. GarreTson. I should say no; not in the ordinary sense. Will 

you let me illustrate that, so that you may get my idea? 
Mr. Sanpers of Indiana. Yes. 

Mr. GarRetson. An organized movement may readily take place 
in favor of or against any individual, without having any political 
character whatever. For instance, I am going to Be, just such a 
movement, in one sense, as you refer to. When the former Director 
General of Railroads announced his intention to retire from that posi- 
tion, you will readily understand that, as organizations vitally mter- 
ested, the four brotherhoods had a decided preference as to who 
should be his successor. We made certain representations to the 
President in regard to our desires in the matter. I will say to you 
that we did not choose Mr. Hines. That does not carry with it 
that we would oppose any other definitely. We simply championed 
the cause of a man that we believed, from his record in connection 
with railroad service, was most desirable. He was not appointed. 
Bear in mind that the four brotherhoods were committed to that 
absolutely. We were authorized to speak for our entire member- 
ship of all shades of political opinion. It was nothing political 
whatever, because, regardless of political affiliation, our desire was 
to have a tertain individual appointed. 

Now, as I have had to say that much, Mr. Chairman, I want to 
say this much more: That had we received or secured the appoint 
ment of the individual whom we desired to fill the position, 1 doubt 
strongly if we would have secured a man who would have gone 8s 
far in his efforts to successfully operate these railways as has Mr 
Hines. I have nothing but the kindliest sentiments for Mr. Hines 
and a very high regard for his ability; and I count myself a fair judge 
of ability—I mean in others. 

Mr. SANvERs of Indiana. I noticed at the last meeting of the 
Federation of Labor that they demanded of the President the remoy 
of Mr. Burleson ? | 

Mr. GARRETSON. Yes. 

Mr. SAnvERs of Indiana. Do you call that political action ? 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 769 


__ Mr. Garrerson. I do not. That, from my standpoint. is the 
demand of a body of citizens regardless of their political faith. If 
that body had been composed of ‘Republicans, that would have been 
apolitical action. I mean if it was gathered under the auspices of 
-some Republican purpose. Bear in mind there is nothing concealed 
behind that. It would have been exactly as true if the bunch had 
been all Democrats and had demanded the removal of a public 
officer wholesale, but in this case it partakes of all the character of 
the old town meeting. 

_Mr. Sanvers of Indiana. You do not think, then, of some plan to 
do away with that sort of appeal ? 

Mr. Garretson. [ do not think anything on earth would, Mr. 

Congressman. 
, Mr. Sanpers of Indiana. I do not either. I wanted to get your 
idea. 

Mr. Garretson. Now, do not get the impression from me that the 
passage of the Plumb bill, or the nationalization of the railways, or 
any other agency is going to be more than one factor in stilling 
unrest, nor will it change human nature nor furnish any solution 
of a store of other things that can never be eliminated but can only 
be minimized. I am not a dreamer of dreams. It may be that 
under the verse that the ‘‘old men shall see visions” I may be a vision 
seer, but I am not dreaming any dreams; I am not young enough. . 

Mr. Sanpers of Indiana. Of course that is all very remote in 

point of time. 

The CyarrMan. You may proceed, Mr. Garretson. 

Mr. Garretson. There was a significant expression made by a 
member of the committee the other day in question to Mr. Plumb, 
and if he had written a chapter he could not more correctly describe 
My own dealings in regard to a Government functioning properly. 
In the question he stated, ‘Then your conclusion is that the Govern- 
ment must either do business or quit business.’’ That is exactly 
my own conclusion in regard to Government functions. A govern- 
ment should either perform the duties that devolve upon it, recog- 
nizing what its obligations are and whether or not those obligations 
are in accord with the purpose of the founders of the Government, 
that every individual should be protected in his rights, whatever 
‘they may be, and if the Government fails to measure up to that 
standard, then that has failed in functioning and should quit business 
In the sense that it should be superseded by mechanical agencies 
that will carry out the will of the people in accord with the Consti- 
tution as it is framed. 

No man can afford to overlook the present world tendencies. 
48 a favorite preachment, you know, of some of our prominent men, 
that now that the World War is over that we are withdrawing within | 
our own borders, that our interest in world problems should be sev- 
‘ered, and that we should again become, in world affairs, a second 
example of the hermit kingdom; that world concerns are not our 
Concerns; that we are a people apart—about the old Mosaic law, if 
neg will, that we are the chosen people. But that does not banish the 
tact that we are the conglomerate residue of all peoples. Among us 
are the tendencies that have animated all other races in the period 
before, during, and following this deadly conflict and if any man 





770 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


nourishes the belief that the American will never rise in protest 
against the injustice that he believes is being done to him, he had 
better hire sombody to wake him up. All the elements that have 
caused the conditions that exist in Russia; that have dismembered 
German society; broken apart Austrian Provinces; reduced England 
a long ways toward industrial chaos, and demonstrated the ability 
of the labor movement of England to largely dictate its own terms, 
are here in the type of the insistence for better conditions for which 
they hope. If he believes that those elements are not existing on 
this side of the water, if his inaction just contmues long enough the 
error will be realized. JI am not a university graduate. The educa- 
tion that I have received has been by application to books and men, 
and for every minute that I have devoted to books I have devoted 
hours to men, and I know them fairly well. I have been in touch 
with the substratum of American life for a business lifetime, and if 
a man thinks for a moment that the social unrest that underlies a 
seemingly smooth surface can not easily disrupt that surface, if the 
condition once grows upon the American people, that there is no 
effort being made to deliver them from the things of which they com- 
plain, inaction is the sure thing that will bring that element to the 
surface. 

The intervention of a body of water between us and the Old World 
does not mean the severance of the bond that unites millions of our 
citizens to a country where our families had origin. They are m 
close touch, they of the later arrivals, with incidents as they take 
place in those regions, and the older element, the true American 
element that is fully assimilated is a partner in that discontent, and 
unless that discontent is alleviated, largely by the limiting of what 
men believe is an unreasonable profit on the necessaries of life, it is 
bound to find its channel of expression, and that channel of expres- 
sion, the opening of it, is the last thing that any good citizen desires 
to see. 

The sporadic occurrences over the country in the way of illegal 
strikes—those are the straws that show how the wind blows. That 
is all they are. They are nothing but the rumblings, but I say to 
you that out of the union-labor movement of this country nine- 
tenths of the energy of their leaders is now given to sitting on the lid. 
Those men do not want to overturn government, but they do demand 
that government shall function in accordance with what they 
believe are not only its powers and its rights, but the duties and its 
obligations. 

It is within the power of Congress to largely allay this, but it can 
not be done by inaction. The curse of our national temperament is, 
we are the most energetic people on earth and the most indolent. 
“We never do to-day what we can put off until to-morrow, unless 
emergency forces us, and then we break all the world’s records. 

Reverting to the passage of the Adamson law—the Adamson Act—- 
you heard a score or a hundred of the Members of the two Houses 
demanding time to view it in an orderly way, and there is no finer 
example of the indolence of the national temperament than the 
legislative record in regard to industrial trouble as it exists. The 
first great railway strike was in 1877, and I think the State of Penn- 
sylvania paid something like fifteen or twenty million dollars damages 
for property destroyed during that strike; other States greater or 





- 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. TUL 


lesser amounts. Did Congress raise a finger to perfect legislation to 
meet such conditions? Not on your life. 

The Cuairman. Was any legislation presented immediately after 
that strike ? 

_ Mr. Garretson,. Legislation by the people has always~- been 
presented by labor unions, Mr. Chairman. Labor unions were a 
negligible quantity then. That strike was not by labor unions; it 
was sporadic and individual. 

The Cuarrman. That might account for the’ lack of action of 
Congress. There was no organization to give expression to the new 
idea or to the new thought ? 

Mr. Garretson, There was no organization strong enough to 
exercise any influence. You have been in Congress long enough to 
remember, Mr, Chairman, that when these brotherhoods first came 
into Congress with the germs of the safety-appliance act: 

The CuarrMANn. Yes; I have had some experience; I know the 
opposition to them. 

Mr. Garretson. You know we were ridiculed; no attention was 
paid; we were virtually ostracized for a number of years. We fought 
to recognition, legislatively as well as industrially; consequently 
prior to that period the organizations had never turned to the legisla- 
tive remedy. Before they had always appealed to brute force, like 
8 dog that appeals to his teeth. Then is when we accepted another 
avenue of approach to many questions and started on a scheme of 
legislative activity that, from that day to this, has been continued, 
_ In 1893 came the great Debs strike. Following that no legislation 
took place, because at that time, as far as the four brotherhoods were 
concerned, they had not acquired sufficient legislative influence to be 
able to impress anything upon Congress. Congress is like any other 
duly elected body; it listens to that which it believes can exert 
certain influences, and that is not: said in any sense of criticism, Mr. 
Chairman, it is said as a statement of fact. 

Right there, on that statement of fact, I want the attention of 
some gentlemen of this committee to one phase concerning statement _ 
of facts. For 31 years I have dealt across the table with the highest 
operating officers of the railway companies. What I am trying to 

draw here is the line of demarcation, if such thing exists, between a 
‘statement of position or fact and a threat. The manager across the 
table would say to me, “I won’t do it.” That was a statement of - 
his position. When he made a proposition to me, if I said to him, 
“J will not accept it,’ that was a threat. The difference between a 
threat and a statement of position is altogether as to who makes it. 
_T fought through it, and I know it. I have lived it, and I have not 
-heardit. Ihave been charged with making a threat about a thousand 
times when I did nothing but make my position clear. If I said to 
the manager of a railway company or its president, ‘Unless you 
accede to the demands which we have presented by 10 o’clock 
to-morrow morning I will be compelled to withdraw every man from 
/your service,’ that was vicious threatening coercion, and yet, if I 
had let it go until 10 o’clock the next night, and called the men out 
of the service without giving the notice, that would have been a 
Vicious betrayal of orderly business procedure. In other words, the 
‘Inan who stands as the representative of the labor organization is 
damned if he does and damned if he doesn’t. I learned that rather 





Fad gor RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


early, and that is why I have called attention to this, when I attempt 
to state a position by a statement of fact there is no threat veiled 
behind it, because my way of making a threat is straight out: “Do 
it or take the consequences.’’ I may differentiate just that much 
on the language that was used. It has been asserted that this plan 
is conjectural. That is true. But if the position is taken that 
everything that is conjectural must be rejected because its solution 
can not be geometrically demonstrated, all progress in the world 
would stop. 

recite the greatest conjecture which the political world ever 
was confronted with was the conjecture as to whether a Govern- 
ment, by, of, and for the people, as founded in 1776, could exist. 
Old World prophecies said that it was an impossibility. Why? 
Because it was conjectural. It had had no forerunner, no evangelist 
preceded it. Christ had John the Baptist, but the American Re- 
public had no forerunner. If it had been rejected because it was 
conjectural the Union Jack would still have floated from every 
pinnacle in this country. What is true in regard to that condition 
has been true in regard to every step that has ever been taken forward 
in human progress. I am old enough to remember the predictions 
that cotton could never be raised in the South without slave labor, 
and the man does not live to-day that would advocate from his 
economic sense that it could be done under as favorable conditions 
with slaves as with free labor. That was conjectural, because they 
had never tried to raise cotton in the South without slave labor. 
But would any man go back to that condition? Not one. But if, 
because of its conjectural nature, the old condition had been con- 
tinued, we would still to-day be continuing in that former pathway. 

The Cuarrman. Of course, that would also apply to the other half 
dozen plans that have been presented; they are conjectural, too? 

Mr. Garretson. Every one, and when you go further, one step 
further, and characterize it as revolutionary, the Plumb plan does 
not possess half the revolutionary element that the other plans all 
do. Now, Mr. Chairman, when I say “all the other plans,’ I am 
not including what I heard read from here as the Esch Bull, because 
I know nothing of it. I have not read it, but I am referring to the 
Warfield plan, the railway executives’ plan, and to the Chamber of 
Commerce plan. They contain elements that are an _ absolute 
reversal of the entire policy of this country in dealing with its rail- 
ways. This plan does not present a reversal of the policy of the 
Government, but it does present an untried plan, which we believe 
contains all the elements that go to make railway operations more 
economic, more efficient, and of greater benefit to the people at large 
in every direction, while every other one of the plans is founde 
upon the vulture principle of tearing the vitals of the people finan- 
cially. The whole question underlying the supervision of railways 
was originally founded on the principle of protecting the public from 
rapacity and extortion. You know that as well as I. That was 
the basic principle underlying them, and the idea of protecting amy 
element that entered into the ownership, or investment in the owner- 
ship of those properties, was the thing most remote from the minds 
of the people who drew, presented, advocated, and procured the 
passage of the original enactments. 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1773 


Bear in mind I have been rather intimately connected with the 


“history of all that legislation, growing out of the fact that from prac- 


tically the time of its inception I have had a personal representative 


here in Washington in touch with all enactments of that or like 


' character ete railways, so I am reasonably conversant with 


the old impulses that underlie those things. 

The first enactments, of course, were the original Granger laws, as 
they were termed, in the States of Iowa, Michigan, and Wisconsin. 
Those were the first principles in the way of railway legislation. 
Every foot of the distance from then till now for the better protection 
of the people, for the curbing of that sentiment that is best described 
in an utterance of a former very prominent railway capitalist, ‘‘the 

ublic be damned’’ attitude, has characterized every interest that 
ominated American railways until they found that the attitude was 


 supercostly, then, and then only, they assumed the attitude of defer- 


ence, and to-day it is impossible to find one of the groups dominating 
the railways or his paid spokesman, who will not say, ‘‘ We believe in 
regulation—we do, because we know we have to have it.” It is like 
the church doctrine of free moral agency. The church holds that 
every man is a free moral agent to accept salvation or to reject it. 
It is very true if he does not accept it he will be damned. That is 
how free the moral agency is. That is exactly the attitude of the 


_ railways toward regulation by the Government. They know that if 


they do not accept it they will be overwhelmed by public sentiment 


_ and therefore they accept it; and you have got to give them the credit 








for one thing: There is a large number of the men engaged in the 


business that when they say it will look as if they like it. 
Mr. Weszster. Before we get too far away from the distinction 


_ between the statement of a fact and the making of a threat—I think 


you made that distinction—-and you said that a threat implied, using 
your own language,‘‘Do it or take the consequences.” Now, defini- 


_ tions and distinctions are always made plain by application to con- 


crete cases. Will you classify this language for me as to whether this 
is the statement of a fact or a threat—thatis,a ‘‘Do it or take the 
consequences’’ ? 

Mr. GarretTson. Let me just draw your attention to one thing, 
Congressman—that is, the coupling of fact and position. 

Mr. WEBSTER (reading): 


Therefore, he who obstructs the Government in this policy of control of ownership 
becomes our direct enemy and shall so be posted, and a record of his action shall be 


_ kept for future reference, and it shall be our pledged policy to remove him from 


whatever political line of trust the public has given into his keeping. 
We believe it to be our duty to our God, our country, and to man ‘‘that labor should 


’ have an equality of opportunity.”’ 


And he who denies to labor the right of a living wage is as great an enemy as the 


_ alien, the pro-German, and the anarchist. 


And we so strongly affirm this position that he who strives to object or demean labor 


' or in any political way detract from the quality of labor, shall be posted throughout 
' the length and breadth of our fair land as an undesirable. ‘‘He has denied the nght 


of labor to equality.’’ 
Is that a statement of fact or is that a ‘‘Do it or take the conse- 


~ quences” ? 


Mr. Garretson. I should say it was a combination of statement of 


' Position and to take the consequences. 


174 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. WesstTeEr. In other words, to be plain—and I hope we will not 
have to remake the dictionary in order to make the Plumb plan 
work—is that a statement of fact or a threat, according to your 
description and definition ? 

Mr. Garretson. According to my definition, it is a statement of. 

osition. I am using the word ‘‘position” instead of fact, because’ 
in my explanation to Mr. Cooper it was a statement of position, in my 
opinion, and a threat. First there is a statement of their beliefs in 
regard to this—— 

Mr. WerssTER. Just let me interrupt you. You said a moment 
ago tha . threat involved ‘‘Do it or take the consequences.” Now, 
are not tiiose your exact words ? 

Mr. GarreTson. Yes; I said my way was to do that. | 

Mr. WesstrrR. Now, then, in order to do it, you have to tell them 
what you want them to do? 

Mr. GARRETSON. Surely. 

Mr. WesstTER. Then, after that has been told, when it is coupled 
with this language, what character does it take on? 

Mr. Garretson. Both. 

Mr. Wesster. No, this language: ‘‘Therefore he who obstructs 
the Government in this policy of control or ownership ’”’?—— 

Mr. Garretson. That is a statement of fact. 

Mr. WessTER. ‘‘Becomes our direct enemy and shall be so posted, 
and a record of his acton shall be kept for future reference, and it shall 
be our pledged policy to remove him from whatever political line of 
trust the public has given into his keeping.” 

Is that a statement of position or a threat, according to your 
understanding ? 

Mr. Garrertson. It is both. 

Mr. WessteR. Define what part of it states a position and what 
part of it makes a threat. 

Mr. GAaRRETSON. First, it is a statement to you of their desire, as 
your constituents, that you should do certain things. Second, it is a 
statement of their belief that a man who does certain things is equal 
to a German, and so forth; I can not quote the entire statement; 
the third is a recital of a fact, that if the course of obstructions is 
followed, that they will attempt to defeat any man who does it for 
office, and there is no question but what in one sense constitutes a 
threat as to their future action. 

Mr. Wesster. Do you construe as constituting a threat merely to 
remove one from one’s office, this language: ‘‘He shall be posted 
throughout the length and breadth of our fair land as an unde- 
sirable,’ bearing in mind that this letter was addressed to me as a 
Member of Congress from a district where the Representative of that 
district is elected by the qualified voters of that district? Why is it 
necessary to post me as an undesirable throughout the length and 
breadth of the land for political purposes ? 

Mr. Garretson. Well, I will tell you very frankly, Mr. Webster, I 
judge that some fellow that is quite handy with a pen fell in love with 
that phrase and wrote it in there. 

Mr. Wesster. But does that coincide with the fact that this is a 
printed propaganda letter, of which I have received perhaps 300 
copies, in the identical words of this one, and that the stationery 
bearing the words ‘‘ Brotherhood of Railway Clerks, Spokane Lodge, 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 175 


No. 34,” was used bearing the union label of the printer who put the 
letter in form? 
_ Mr. Garretson. Why, such things are done. I have, I think 
aol in the last 30 years, at one time or another, probably 
received 10,000 communications of very similar character, only the 
‘a that came to me were very probably much more vitriolic than 

at. 

Mr. Wesster. Yes; this is very mild. 

Mr. Garretson. Sure, that is what you might call “in broken 
doses.” I will not claim it is what Mr. Winslow would call a love 
letter, but then you will bear in mind, in the correspondence addressed 
‘to me, they would be much less careful of their phraseology than 
‘they would to you, where it would reach a public tribunal, in telling 
‘me, in cases where I have not measured up to their desire in some 
Tadical direction, what they were going to do to me at the next election. 
‘There was one time in my career when I did not digest my meals 
well unless I got a certain number of them every new moon. That, 
‘IT think, is in greater or less degree, Mr. Congressman, the experience 
‘of every man who performs dsleeated duties. 
_ Frankly let me tell you my position in regard to it, and I believe 
Tcan tell it in language that you can understand. 
_ Mr. Wessrer. All right, we would like to get at it. 
| Mr. Garrerson. I will say to you that the clause in regard to 
isting him is, in my opinion, foolish. I just relegate it to that. 
‘that 1s absurd, because that could have no political slenificance 
‘anless you were running for an office where the electors covered 
‘this whole fair land, but as Congressman that would have no weight 
beyond the district in which you were elected. 
| Mr. Wersrer. You know that Congressmen happen to be human 
eings who have some regard for the esteem in which they are held 
oy their fellows ? 
| Mr. Garretson. Oh, you get used to even that. I have been 
‘s0sted by the newspapers of this country from one end to the other 
4s anything from an anarchist to the most corrupt creature that 
over bartered away human rights. 
* Mr. Wezster. Did you indorse that sort of thing when it was done? 
Mr. Garretson. No; I did not indorse it; I did not issue any 
, 
| 





‘ndorsement. 
Mr. Wesster. Do you indorse this letter that I just read to you? 
Mr. Garrerson. I would not indorse it with that language or 
‘vith that one proviso. 
Mr. Wesster. It is that language which I am speaking about, 
nd that language only. 
Mr. Garrerson. What I would have said to you would have 





een something like this, and I would have considered myself within 
ay rights, ‘‘My dear Congressman”’ 
Mr. Wesster (interposing). No; I do not want you to tell me 
that you would write. 
Mr. Garretson. I will tell you then what I would have said 
/0 you. 
| Mr. Wezster. I want you to tell me what your conception of 
‘tis document is and how we are to classify it under your distinction 
etween a statement of a fact or a position upon the one hand, and 
€ making of a threat on the other, when you said » threat, accord- 












776 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


ing to your notion, was ‘‘Do it or take the consequences.” Please 
classify it—which is it? 7 

Mr. Garretson. That letter distinctly says to you ‘‘Do what we 
ask or take the consequences,” and in that it is a threat. 

Mr. Wesster. Then, according to your own definition, it is a 
threat ? 

Mr. Garretson. I am perfectly willingeto admit it. Now, I am 

oing further, and in my opinion, barring the one objectionable 
phrase that I have said that I would relegate to the junk heap 

Mr. Wesster. What was that one you would relegate ? 

Mr. Garretson. In regard to posting you across this fair land. 

Mr. WessterR. Yes; all right. 

Mr. Garretson. And from that I would consider, if I were one 
of your consituents, that I was clearly within my rights if I addressec 
to you a communication embodying the sense of all that 1s said 
there, except that one phrase, but saying it in the language that 1: 
accepted in business or parliamentary circles. 

Mr. Werster. All right, let us read this and leave out the portior 
that you have censored: 

Therefore he who obstructs the Government in this policy of control or ownership 
becomes our direct enemy, and a record of his action shall be kept for future referenc: 
and it shall be our pledged policy to remove him from whatever political line of trus 
the public has given into his keeping. 

We believe it to be our duty to our God, our country and to man, ‘‘That labo 
should have an equality of opportunity.” 

And we so strongly affirm this position that he who strives to object or demean labo 
or in a ea way detract from the quality of labor, has denied the right of labo 
to equality. 





except the posting. 





| RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 777 

» Mr. Wesster. Let us see whether it would or not. It is easy to 
make statements. Let us see. Does that letter imply the idea that 

because I have gone counter, and am going counter, to the policy 
of the chamber of commerce that I am to be declared their direct 

-enemy, that I shall be posted ? 

\ Mr. Garrertson. Oh, no; I eliminate that. 

Mr. Wessrer. But your last statement was that your letter 

. Bpied everything that this one did ? 

) r. GARRETSON. No; except the posting; I made that exception; 

I excepted that far. | 

Mr, Wesster. All right. Let us now so confine it. Does that 
letter imply that a man who takes that position is worse than an 
alien, a pro-German, or an anarchist? Does it imply that he shall 
‘be denominated an undesirable and branded as one who has denied 
some interest the right of equality ? 

. GARRETSON. Everyone of those things is implied in the phrase 
“un-American”’ to a man in your position. 
| Mr. Wessrer. Do you think that? 
_ Mr. Garretson. I know, and I will submit what I have dictated 
to the scrutiny of any member of your committee and stand by the 
wording of it. 
'. Mr. Wessrer. Now, some question was suggested here this morn- 
‘ing as to whether these letters have any relation to the Plumb plan, 
and it was denied that they had any such relation. This letter that 
L have before me is addressed to me as “Congressman J. Stanley 
Webster.” 

~Mr. Garretson. Yes. 

Mr. Wersrer. And I became a Congressman the 4th of March this 
year. ‘The Plumb plan had been laid before the country in concrete 
form prior to that time, had it not ? 

Mr. Garretson. It had. 
|. Mr. Wesrsrer. It had been sponsored by the Brotherhood of 
‘Railway Carmen and the Brotherhood of Railway Clerks prior 
to that, had it not? 

Mr. Garretson. It had: 

Mr. Wrzster. And every one of these letters which I have made a 
dart of the record have been written by men who purport to be 
‘nembers of those two organizations ? 

Mr. Garretson. And they probably are. 

Mr. Wessrer. And they expressly refer to Government ownership 
of railroads 2 

_ Mr. Garrerson. Ownership and control. 

_ Mr. Wepsrer. If these letters do not refer to the Plumb plan, 
/ell me what other plan they might have had reference to? 

| Mr. Garretson. The question is superfluous when you take into 
Honsideration the fact that the principal railways of this countr 
jiave been under Government control and operation since the 28t 
faye! December, 1917. 

' Mr. Wesster. Js that the kind of operation and control that they 
‘ndorse and want me to support? 

| . Garretson. They want you to support Government control 
;md operation, without naming how they want it done. It probably 
jad some connection with their knowledge of the Plumb plan, but it 
|vas bred by the former Government control and operation and the 
| sults that came therefrom. 














. 


7178 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr.” Wesster. Mr. Garretson, is it not fair to assume that if the 
members of these two brotherhoods sponsored and indorsed the 
Plumb plan that they knew what it contained? 

Mr. Garretson. I will say this to you, from personal knowledge: 
At the time that the plan was presented here there was not a copy 
of it outside of the city of Washington. That was February 7 to 11. 
I have forgotten the entire period, but | think a period from February 
7 to 11. 

Mr. Sanpers of Indiana. The 7th to the 12th? 

Mr. Garrerson. Yes. Bearing in mind I only appeared a part of 
a day that confused me as to what those dates were. I want to 
call your attention to this, Mr. Congressman. The copies were not 
printed for distribution to the membership of the organizations for 2 
period of at least—until at least the first week of July. Bear in mind 
this detail, 1 have had to consult others, because while I gave the 
approval for the printing on behalf of my own organization, | was 
uncertain as to the date of distribution, because that was clerical 
work that was performed on my account. 

Mr. Wepster. Mr. Garreston, if the men of these organizations 
had not been advised of the provisions of the Plumb plan until July 
of this year, what weight is to be given to their approval of that plan 
given in February ? | 

Mr. Garretson. Because they had got excerpts from it, in sofaras 
it was published in the daily press—they undoubtedly had circulars 
from their own executive offices advising them that he had appeared 
through attorney in advocation of the plan, they had preconceived 
desire to see the railways continue under Government control unde! 
some form, but it is more than likely that at the time the form lette1 
was prepared they knew little of the details of the Plumb plan, and 
what they were conveying was more largely the expression of theit 
desire for Government continuance of control in some form than fot 
any specific remedy. That is my own belief. 

Mr. Wepstrer. T want to ask you this question, Mr. Garretson 
Assuming that we have an elective judiciary so that every qualified 
voter has a right to express a voice as to who shall be the judge of 8 
given court—— 

-Mr. Garrerson (interposing). You have such in most of the States 
that is, for the State judiciary. 

Mr. Wersrer. It is within the right of anybody; any labor orgaDi 
zation, to endeavor to remove a judge from office if he does not con 
duct himself in such a way as to meet with their approval, is it not 

Mr. Garrerson. If they can get the necessary amount of support 

Mr. Wrpster. I say it is within their privilege to do 1t? 

Z| Mr. Garrerson. It is within their privilege to do it or attempt « 

O it. 

: Mr. Wessrer. Then, taking this letter which you seem to 10 
orse 

Mr. Garrerson. The principle of it, yes; with the exception named 

Mr. Wxrster. Do you think that it would be permissible for you 
even as a member of the bar, to present that to a judge with referene 
to a case then pending before him? | 

Mr. Garrerson. If I was acquainted with the statutes made ant 
provided in most of the States I would not present it in that case. 

Mr. WeBsTER. Why ? 3 

Mr. GARRETSON. I have no desire to be a martyr. 





RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP, 77 9 


_ Mr. Wesster. You have no desire to subject yourself 
_ Mr. Garrerson (interposing). To indictment or fine. 
' Mr. Wesster. Incident to violation of law ? 

Mr. GarRETSON. It is. 

_ Mr. Wesster. So that it would be a fear of physical punishment 
‘that would deter you from making the threat and not because it 
‘was iniquitous and reprehensible to do so ? 

__ Mr. Garrertson. It would be because a statute had limited my 
feet to do so, and as I am a law-abiding citizen I try to abide by the 
law. 
| Mr. Wexster. One of the rights of a man is to violate the law and 
go to jail, is it not? 
| Mr. Garretson. It is one of his rights to do that. T have exercised 
that right myself. 
' Mr. Wesster. Of going to jail ? 

Mr. Garretson. Going to jail. 

Mr. Wezsrer. I am beginning now to understand your point of 
view. 
| Mr. Garrerson. I do not blame you. Lots of people, Mr. Con- 
3ressman, have had to pay immense sums of money to get an under- 
standing of my point of view. 
| Mr. Wessrer. I still want to get from you the reason that you 
would indorse or condone the sending of a letter of this sort to a mem- 
yer of a law-making body but would not yourself incur the hazard of 
sending it to an elective judicial officer. Is it because that in the one 
vase you can do it with impunity and in the other you do it under a 
venalty ? 

_Mr. Garretson. It is deeper than that, sir: the cause is deeper 
vhy I would do one and not do the other. 

Mr. Wesster. Is that one of the reasons? : 
Mr. Garretson. That reason could not exist at all as far as the 
ongressman is concerned, to a member of a law-making body, to use 

he term you did. 

. WeBster. Mr. Garretson, do you not know that the reason it 
s unlawful and subjects one to punishment for contempt to under- 
ake by threats to coerce the judicial action of a judicial tribunal, is 
ecause that sort of thing has been found by experience to be detri- 
aental to the fair and decent administration of justice? Is not that 
he fundamental reason for the law? 
Mr. Garretson. The fundamental reason was to prevent tamper- 
ag with the judge precisely as the law prevents tampering with a 
ary. 

Mr. Wessrerr. Then assuming that I, as a Member of Congress, am 
ngaged in the task of making a law for that judge to construe and 
pply, is it not equally as un-American, equally iniquitous, equally 
onducive to corruption in my instance as it is in the case of a court ? 
Mr. Garrerson. It is not. 
| Mr. Wesster. Why not? In other words, please tell me the dis- 
/Retion you make between the right to threaten a court and the right 
> threaten a Member of Congress. 

Mr. Garretson. I want you to make this allowance ahead of time. 
' Lhave got to discuss a question with you I have got to discuss it 
‘Amy own way, you know, and I do not want you to think there is an 
‘Tensive desire or intent. But your logic is utterly faulty in arriving 
\t that conclusion from my standpoint. 














XN 
7 





780 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


When the law’is passed, good, bad, or indifferent, it is the duty of 
every citizen to observe it. Before the law is passed, you, as a Con- 
gressman, are the delegated agent of that man, and he has the right, 
and more, it is his duty to say to you that if you give your support 
to the enactment of the law that he believes is pernicious, that he 
must of necessity withdraw from you the support that he has hitherto 
given, and if he even goes so far as to say that by such a course in 
his opinion you will demonstrate your unfitness to be again intrusted 
with delegated power from the constituency, he would couple it up, 
possibly, with the statement that if you were an aspirant for office 
in the future he would likewise consider it his duty to oppose you 
therefor, and I believe that he would be absolutely right, and the 
“Sovereignty that doth hedge about a judge”’ lacks a whole lot of 
hedging a Congressman. 

Mr. Wesster. Because the sovereignty in the one case carries the 
force of the State back of it and in the other case it does not? 

Mr. Garretson. That is all. You are the spokesman of the men 
and the judge is the spokesman of the law. 

Mr. Wester. Let us carry your application, now, to its logical 
conclusion. ~ 

Mr. GarretTson. That is it. 

Mr. Wrpster. You say that a law, when once made, good, bad, 
or indifferent, is binding upon every citizen. 

Mr. Garretson. It is. 

Mr. Wesster. And it is his duty to obey it. 

Mr. Garrerson. It is. : 

Mr. Wesster. Is it not then highly important that the action of 
those who are to make laws should not be influenced by coercive 
threats ? 

_ Mr. Garretson. It does not matter what the form of expression 
may be, that can not affect the man’s rights who you are representing 
to communicate to you not only his desire, but his purpose, if his 
desire is either not complied with or complied with. You would 
recognize his right to say to you, “If you will support this you will 
for the future have my enthusiastic support,” and then you would say, 
‘There is a mighty discerning citizen.’’ | 

Mr. Wesster. Following your policy, now, that this was a proper 
procedure, that this is the proper kind of thing to be done when it 
relates to the making of laws, and that a man who sends out such @ 
letter as this is within his rights, suppose another organization would 
write me a letter and tell me that the railroad brotherhoods are sayin 
that, ‘If you do not indorse the Plumb plan they are going to bran 
you in a Class with the pro-Germans, the aliens, and the anarchists, 
and they are going to post you throaghout the length and breadth of 
the land as an undesirable, and they are going to label you as one who 
denied the right of labor to equality. We have an organization bac 
here that is interested in that measure, and if you do give away 10 
the demand of the brotherhoods we will kill you.” 

Mr. GARRETSON. Yes? 

Mr. WessterR. Would you indorse that? | 

Mr. GARRETSON. I would not indorse that for the reason that that 
is the assertion of a purpose to commit an illegal act, a crime. | 

Mr. Wxsster. Is it not an illegal act to post a man throughout the 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 781 








ength and breadth of the land as no better than an alien, a pro- 
german, or an anarchist? Is not an honorable man’s reputation 
vorth more to him than his life ? 
. Mr. Garretson. I would hope that it was. 
. Mr. Wesster. Will you answer me that, is not an honorable man’s 
eputation worth more to him than his life? 

Mtr. GarReETsON. If it is not, it is an infernally poor reputation. 
, Mr. Wesster. That is what I say, Then, if you indorse blasting 
us reputation, do you indorse taking his life ? 

Mr. Garretson. Why, now, if you will just remember the one—— 

Mr. WessTer (interposing). No; answer me the question. Never 
nind what Iremember. Do you indorse that kind of a threat? 
| Mr. Garrerson. I do not indorse that phase in the letter, and I 
iave told you so 30 times. 
_ Mr. Wezster. Do you indorse that kind of a threat? 

Mr. Garretson. I do not indorse the posting. 

Mr. Wesster. But do you indorse branding me and classing me as 
m alien, an undesirable, an anarchist, and a pro-German ? 
| Mr. Garretson. If I said you were un-American, I would say all 
hose things. 

. WessTER. Then you do say now, assuming that a man’s 
eputation has as much value as, or more value than, life, that you 
aed indorse the sending of a letter telling me that if I-did not do a 
We repute thing as a Member of this Congress that they would blast 
| 











ay reputation ? 
| . GarrETSON. No; I distinctly disavowed it, because the killing 
sacrime. Itis a crime to kill anybody, and it is just as much crime 
o kill a Congressman as it is to kill anybody else. I absolutely 
ielieve that, too. 
| Mr. Wesster. Now, Mr. Garretson, crime is what the State 
ecognizes and defines and to which it attaches a penalty ? 
Mr. GarRETSoN. That is it. 
om Wesster. All things immoral and wrong are not crimes, are 
ey ? 
Mr. Garrerson, They are not legal crimes; they are merely moral 
rimes. 
Mr. Wessrer. There are not any crimes except legal crimes, are 
ere? 
| Mr. Garretson. That depends on which interpretation is made by 
4e dictionary you accept for the word “crime.” 
Mr. Wessrer. Crime is an act that is defined by the law and the 
,oing of which carries with it a punishment. 
| Mr. Garretson. Sure. 
| Mr. Wester. [hen it must be legal ? 
| Mr. Garretson. Well, there is a spiritual state, though, as well as 










jogal, 

ar. WessterR. We do not speak of spiritual crimes 2 
| Mr. Garrerson.~The church describes a number. 
| Mr. Wessrer. We are talking about it then in the legal aspect. 
‘Mr. Garrerson. The legal aspect only. 
_Mr. Wesster. Do you indorse, whether it is according to your 
Idgment criminal or not criminal in the technical sense 
| Mr. Garretson. Do I indorse what? : 

Mr. Wessrer. I am just going to state to you. Take an organ- 
iation, such as I have supposed, writing to a Member of Congress 





782 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


a letter telling him if he does not pursue a particular course of 
action or official conduct they pauld take his life—leave out the 
criminal aspect of it now entirely. 

Mr. Garretson. I have never—well, in a personal sense I am by 
birth a Quaker and I do not believe in killing. 

Mr. Wessrer. I do not know of anybody that particularly 
enjoys it. | 

My. Garretson. I have seen men that did. I lived on the frontier 
15 years. I saw men that enjoyed it if they could do it safely. 

Mr. Wessrer. Has that anything to do with your present view ? 

Mr. Garretson. I do not know whether it has or not. I think [ 
had the view before I knew the men, but here to talk about indorsing 
any body of men sending word to another that they will kill him 
seems to me far fetched. I have never been able to establish for 
myself such a reputation for personal courage such as would class me 
among the killers. 

Mr. Wesster. You said just a moment ago that you thought a 
man, an honorable man, valued his good name more highly than he 
did his life? 

Mr. GARRETSON. Yes. 

Mr. Wessrer. And you approve a plan which seeks to deprive a 
man of his good name, yet you say you will not indorse a plan that 
would deprive him of the less valuable thing, his life ? 

Mr. Garrerson. I do not recognize the right of any human t¢ 
deprive me of my good name. I care more for the respect of Garret- 
son than I do for hell assembled. I am the arbiter of when my good 
name is gone. As long as my conscience is clear and my respect for 
myself unimpaired my reputation is good. 

Mr. Wensrer. The distinction that I have always borne in min¢ 
between character and reputation is this: That a man’s character is 
what he actually is. : 

Mr. GARRETSON. Yes. 

Mr. Wesster. And a man’s reputation is what the people think 
he is. A man may be a very good man and have a very bad repu- 
tation % 7 

Mr. GARRETSON. Yes. 

Mr. Wesster. He may be a very bad man and have a very goot 
reputation. Now, the esteem in which Mr. Garretson holds Mr 
Garretson, because of his peculiar knowledge of the workings of Mr 
Garretson’s heart, is his character, but the esteem in which the peopl 
who have not that inner knowledge is your reputation. No man ol 
earth can take your character away from you, but it is an easy matte: 
to take a man’s reputation away from him. 

Mr. GARRETSON. The united press of this country, Mr. Congress 
man, has attempted for 30 years to make me Just the things you wer 
called there and I have got a pretty fair reputation yet and I hay 
got an infernally good character. 

Mr. Barkiey. You do not mean you have» an infernal goot 
character ? . 

Mr. Garrerson. That is merely a matter of emphasis, 1 had t 
say to the President of the United States once that when I got reall 
interested I would swear, and had to apologize to him beforehaa 
for doing so. 

(Whereupon, at 5 o’clock p. m., the committee adjourned unt 
Tuesday, August 12, 1919, at 10 o’clock a. m.) 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 783 


CoMMITTEE ON INTERSTATE AND ForEIGN COMMERCE, 

: Hovust or REPRESENTATIVES, 

| Tuesday, August 12, 1919. 
The committee met at 10 o’clock a. m., Hon. John J. Esch (chair- 

Man) presiding. 


STATEMENT OF MR. A. B. GARRETSON—Resumed. 


The CuarRMAN. You may proceed, Mr. Garretson. 
Mr. Garrertson. Mr. Chairman, in following up the idea as to the 
‘revolutionary character of the various plans that have been proposed, 
. yesterday I touched upon the revolutionary character of the Plumb 
plan. The fact is the revolutionary feature in all the other plans lies 
im the reversal of the policy of the Government from the protection 
of the public from the rapacity and extortion which had existed to the 
protection of the investor, and nothing could be more revolutionary 
than that. 
_ Here you have an interest advocating its rights not only to have a 
‘Juaranty upon that which it has invested but upon that which has 
een given to it or which it has acquired, either legally or illegally, 
and saddling upon not only the present generation but upon posterity 
1 return which will become a vested right if legislative action con- 
irms that request. 
It is true in regard to the investment in railways that if the Gov- 
‘omnment has an obligation to guarantee returns to the investor of any 
haracter, at the same time, followed to its extreme limit, every farmer 
las a right to come in and demand that the Government shall fix 
mices for his entire output; a thing that has never been done except 
n regard to one commodity, and that under a war emergency; and 
juarantees indefinitely that that shall be the price if it will yield a 
rofit, and if it will not yield a profit on the investment that the price 
aust be increased until it will yield a profit; and everything interven- 
og between this, probably the greatest investment field in the world, 
‘he American railways, and the outlying farmer on arid soil is entitled 
| 0 exactly the same thing. 

Talk about revolutionary features, there is nothing in the history 
f governmental policy that would equal the obligation that the 
rovernment pal assume if it gave its approval to any feature of 
he character named. 
| One of the features that would be advantageous to all concerned 
,1 the adoption of a plan like that which we have proposed lies in the 
ict that in the regulation of the railways and in the matter of the 
xing of rates it would eliminate entirely the strife that has always 
;Xisted as between the regulating power and those regulated. 

_ It would bring the control of the railways and the controlling body 
| presenting the public into absolute accord, in a friendly endeavor, 
jth a common purpose, to bring conditions about where they will 
perate only for that which they ought to operate—the public good. 

Now, there is no interest here represented or that will be repre- 
*nted, whether in front or behind the bar, that should not have just 
ae object in view, and that is the greatest good to the public. In 
‘hatever capacity we appear, we are members of that public; all 
- US, in One sense, in a dual character. I am here in one capacity, 
‘at at the same time I can not free myself from the condition of 


152894—19—vot 1 50 




























784 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


being a member of the public. You, as legislators, are in exactly 
the same position, and the proponents of other plans are just as 
much members of the public as we are. 
_ No plan drawn by any one interest can, in its entirety as to detail, 
meet that interest without being tempered to a certain degree, and 
modified in accordance with the honest views of those who represen 
other interests, because I do not believe it is within the power of 
any man to free himself in a sufficient degree from the trammels of 
reconceived opinion or of self-interest, to cover the whole field, 
fade that field is wide. 

Consequently, any method which will maintain the principle 
that is involved, that will nationalize the industry, is, from my own 
personal standpoint, subject to any reasonable modifications that 
will minimize the evil features from any man’s standpoint that are| 
therein, because I have never yet seen a perfect man, and if the 
combined effort of all interests could at least minimize those evils, I 
should be glad to see it accomplished. 

The difficulty in operation under the present system has been 
that there was no certainty. Government control of railroads had 
never had in this country anything approaching a trial as to either 
its economy or its efficiency. Inaugurated under conditions where 
the private system had utterly and absolutely broken down—no: 
practical man can deny it—it was taken up hy the Government 
under conditions that were bound to demonstrate failure in both of 
those factors to a very large degree. Efficiency could only be 
obtained in any degree by enormous expenditures. That is one of 
the factors which explains the present deficit that confronts us. 

Moreover, the public would do well to remember this: Exactly 
the same operating force created the deficit that prior to the taking 
over by the Government had created a surplus. 

There could be no working out of either efficiency or economy 
until certainty that the roads would not be returned or certainty 
that they would be returned had been established. 

When a Mohammedan prays he turns his face toward Mecca, 
When a railroad official prays he turns his face toward Wall Street, 
and until a condition was established that would have turned theit 
faces toward Washington when they prayed, there would be no 
efficiency. 

Every element of passive resistance was enlisted to demonstrate t0 
the country that Government control would not be an economical 01 
an efficient success. 

Those officials are human just like the men who work under then 
They were created out of exactly the same clay, and the best of them 
started in the ranks of the men. They are impelled by exactl} 
similar motives. As long as they believe that their future lay wit 
the financial interests where they had formerly lain, just so long they 
would serve faithfully those interests, but if it were once demorr 
strated that their future lay here, they would servé the Government 
just as faithfully as they have served their present masters. 

Some significance might attach to this fact: The members of the 
director general’s staff were supposed to totally sever all relations with 
the corporations which they faa formerly served as presidents anc 
vice presidents. Have you stopped to think that every man who has 
gone out of the staff of the director general has immediately returnec 
to the former position which he held with that corporation. Tha’ 


en | e. 
fb: 
é 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 785 
i a good, fair illustration of divided allegiance, and to the man who 
oinks, the creation of the present deficit is nothing in God’s world 
ut a fine demonstration, costly though it be, of the fact that Govern- 
ent operation can not and must not succeed. 
“In an economic sense, nothing confronts this country of more 
‘mportance than the growing capital account of the railways. Con- 
‘ast capitalization per mile of these railways 40 years ago with their 
wpitalization to-day. Then contrast the capitalization here with 
‘mtinental or English capitalization, and you will find that there is 
constantly growing capital account which must be ‘met by a con- 
antly increasing freight rate or passenger rate, and what is going to 
|@ the condition three generations ahead 2 
The Plumb plan utterly abolishes the capital account, if it works 
ith any reasonable degree of success. The others add to it indof,- 
itely until the grandchildren of the present generation will stagger 
-ader the load. 7 
‘As I stated earlier to the man who approaches this question from 
ie angle only of the public interest, and he has no right to approach 
from any other broad standpoint, which is for the public interest, 
eliminate that burden and free men and economic processes from 
7 or to let it constantly mount until it shackles the effort of every 
tizen of the Republic. 
‘No industry touches every human in the same degree that trans- — 
drtation does. Every household in the land is a party to it and pays 
ibute to it, and the question involved is, Shall that tribute be 
‘ereased or shall it be decreased? The public pays in a variety of 
ays for the same thing. If rates are increased it pays the rate 
‘cause it is passed on down always to the final consumer. The cost 
transportation is just what Asquith said in reference to the Eng- 
h industrial act, in debating it. He said that “the blood of the 
wrkmen is a part of the price of the finished product.” 
The cost of transportation, the cost of labor, and the cost of mate- 
us, is a part of the price of the finished product to the consumer. 
verybody else passes it on, but the man who finally consumes it 
ys the total cost. He pays the cost of the article that he con- 
‘Mes, he pays the added wage, and he pays the added transporta- 
m, in the cost of his article, and he pays it also, as an individual, if 
| transports either person or goods. 
/ At one time here, there was evidently confusion between both the 
)tmess making the statement and the member of the committee 
/10 was asking the questions, in regard to the Plumb plan being in 
/y Sense a wage measure. It stands in that relation exactly as any 
rher bill does. It deals not with wages at all. It is only a question 
fOwnership. But it does what no other measure does, and that is, 
‘thnes a plan whereby if such questions arise, they will be dealt 
‘th. It furnishes the machinery in a way that of necessity the 
‘Jers pay no attention to. 
Wage demand will come under any of these plans just as long as 
ge has not mounted in proportion as the cost of living or the price 
commodities has cya Much has been said in the papers 
dis being said in regard to the excessive wages that are paid to the 
Troad men. I am going to put in concrete figures just what one 
‘ss of railroad men have gotten and you can verify the percentages, 


ae 
{23 


























| 


| 


786 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


just to determine relatively how the cost of living has mounted when 
wages have not even remotely kept pace therewith. 

In 1913 the freight conductors of this continent were paid—you 
will bear in mind that these figures can all be verified by just asking 
the question, and the other side of this controversy would not question 
the correctness of one of these figures—the freight conductors in the 
eastern territory were paid $4 a day for 100 miles, the two terms 
_ being interchangeable, in the western territory $4.18, andin the south- 

ern territory $4.10, an average of $4.10, to be exact, $4.09. That 
is not leading the average. To-day those men are universally paid 
$5.40, an increase of $1.30, 32 per cent increase on the $4.10, and 
every commodity that those men buy has increased at least 82 per 
cent. Tf we were to return to the wages of 1913, with the purchasing 
value added to the wage that it then bought, these men would receive 
an increase of 30 per cent thereby in actual value. That is the way 
wages have mounted, and every one of these figures is a matter of 
record on the books of the railroads of this country. 

The CHarrMan. That is the basic pay ? 

Mr. Garrerson. Those are the sums then paid and thesums to-day 
paid. The other classes of railway service, that is, train and 
engine men; the engineer has received just about the same increase. 
Youcan not demonstrate it as exactly on account of the wages not 
being so nearly standardized as those of the conductors. The brake- 
men, switchmen, and firemen have received a little greater percentage, 
but no approximation of 82 per cent. Therefore, you can see why 
the wage demand still comes in. I am not citing the other classes, 
because I can not give those rates from memory as I can the other: 
that I have dealt with all my life. 

Whenever action is taken that will bring wage and that which i1 
will purchase within the reasonable old relation, then unrest in regard 
to the wage will cease; but it will never cease until then. 

Here is a peculiar fact. The wage system itself is absolutel) 
Da to cure this question, because it is only one step in what 11 

as become popular to call “the vicious circle.” If the wage of ever) 
human that works was increased to-morrow to $100 per day he woulc 
lose money by that, because the $100 would not purchase what his 
present wage will, because that profit would be levied upon the addec 
cost of the commodities purchased, and as a result he would be th 
loser thereby. When that is once attempted it brings to the atten 
tion of Congress the fact that this condition can never be remedicc 
until private interests are put on the same basis and the same treat 
ment is given to profits that is given now to usury. If a man loan 
you money, he must do it at the current rate or at the statutory rate 
and if he exceeds that he is liable to punishment; but he will tun 
around to an enterprise, and if you are the purchaser of the outpu 
of that enterprise he may charge you 1,000 per cent and be morall: 
_ and legally free. Limitation of profit 1s the only solution of th 
high cost of products. 

‘At various times there have been ardent advocates of wage fixin; 
by Government tribunal. I just want to call your attention to on 
feature of that. The fixing of wages by a Gaveriintal tribuna 
unless the price of every commodity that that wage will purchase 1 
also fixed by a like tribunal, simply constitutes serfdom for the me 
who come under that wage, just as if the prices of commodities wel 







RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 787 
fixed without fixing the price of the wage. The commercial and 
fmancial burden would be bestowed upon the producers of those 
commodities, because then it would leave the wage man free, if he 
‘had the power thus placed to get the price that he desired for his 
‘abor without in any way affecting the price of the things he had to 
ourchase. One is a natural concomitant of the other, and one can 
aot consistently be done unless the other is done. Please do not 
zather from this that I am a believer in fixing the wage by a Govern- 
nent tribunal, because I am not, but if that is done it can only be 
sonsistently done both ways. The result would be the fixing of the 
ourchasing value of the dollar arbitrarily and regardless of the 
fuctuations. The special effort about money in all the ages has 
een to get stability therein. The fact is it is no more stable than 
twas. It is the price of money that really fluctuates instead of the 
orice of the things it buys; they remain fixed and the money goes 
ip and down. 7 

Many objections have been urged against the details of the Plumb 
plan in regard to the make-up of its controlling body. Any make-up 
wf the controlling body which will make every employee a full partner 
‘n the sense of responsibility, in the sense of efficiency, and in the 
ense of economy will bring a result that has never yet been attained. 
‘he greater responsibility that is placed upon a man the greater return 
‘ou get for it in the way of development of the man. The trouble 
eee democratic institutions is to inject the interest of the man in 
yerforming his full share of the duty that properly devolves upon 
um. If you want to awaken the interest of the man so that he will 
ssert and exercise the rights of citizenship, make him a partner in 
he enterprise, give him voice, and you develop his self-respect, you 
levelop his sense of personal dignity, and you add to his powers, 
nd thereby to his efficiency. What the public desires is economical 
fliciency, and that is what the public is entitled to. I believe that 
© plan has so far been devised that will even approach this plan in 
_eveloping that instinct in man to the degree that the public may 
vail itself of the service. 

When the industrial commission was in session, among other 
hings, the investigation developed the existence of the evil of seasonal 
Yr casual employment. Millions of men in this country follow 
ursuits that they can only follow for a limited portion of the year, 
0-called seasonal pursuits. The difficulty with the problem of un- 
eecpent is to connect the man with the job. If there are a thous- 
[nd men a thousand miles from where there is a dearth of men, it is 
{he impossibility of economically getting the men to where the work 
|} that confronts any agency that attempts to deal with the problem, 
nd yet that problem must be dealt with. There are places on the 
|ontinent where employers testified that they arrange to have three 
ten for every job, one man coming, one going, and one at work. 
ou are somewhat familiar with that condition, Congressmen. Think 
‘fit, the entire labor turnover every week. That was the testimony 
{the employers themselves. A surplus of labor had been accumu- 
ited there for the purpose of dominating the wage situation. A 
1ousand miles from there there was work for those men. That is 
aly one instance. There are thousands of precisely similar instances. 
nder the present system of railway ownership it is impossible to 
/ansport those men from one place to another under conditions that 



















788 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


furnish the solution of the difficulty; under Government ownership 
it may be done, because, unless that question of unemployment 1s 
overcome, thousands of those men and their families become subjects, 
for a portion of the year at least, of public support. The public 
owning the railroads could transport those men to where employ- 
ment could be found at a rate that would go far toward solving the 
question of casual or seasonal employment. It can not be done under 
private ownership. 

The commission appointed a subcommittee consisting of the only 
two railroad men on the commission, Mr. F, A. Delano, who was 
formerly the president of the Wabash, and myself. Mr. Delano was 
intensely interested in a personal sense in the solution of the problem, 
but we ran against the provisions of the Hepburn Act and the condi- 
tions upon which it was founded and were compelled to throw up oul 
hands and admit that under the present railroad conditions it was 
impossible to solve that one phase of the question. 7 

There is one point that I desire to impress upon the committee. 
The importance—and the importance of it is equal regardless of what 
plan may be adopted or whether the roads are simply turned back, 
without any plan—the importance of valuation. It does nol 
matter whether the Plumb plan is adopted, the Executive's plan, the 
chamber of commerce plan, the Warfield plan, or simply a surrendet 
of the roads, the problem of valuation stands out with equal promin. 
ence under any one of those courses. No determination that 1s ar 
intelligent determination of rates can be made until valuation i 
established, because until value is ascertained, honestly and properly 
it can not be determined what amount of retura is needed. If th 
roads are to be taken over by the Government, the amount that is t¢ 
be paid can not be determined until value has been ascertained, 
even the pernicious system of guaranteeing was to be established ant 
adopted, any such guaranty could not take place until the valuatiot 
was first established upon what amount guaranty should be given 
In all the plans that are under consideration, in any solution of the 
problem that may arise, the prominence of valuation stands out 
equal relief under any one of them. The statement made here by Mr 
Plumb in regard to the conditions that exist in railroad organization 
cited from Government authorities, altogether demonstrates tht 
absolute necessity of valuation before any definite conclusion can hé 
reached either in regard to payment or rates. 

Since the representative of the wholesale grocers was on the sta 
and left it, I have wondered if he realized how fully and completely i: 
own line of argument demonstrated the desirability of the plan tha 
we are presenting. Here, you find two parasitic interests—I am no 
using that word in its offensive sense—only that they are not, eithe 
of them, producers and they are engrafted on prices between thi 
producer and the consumer, their profits are. Here are two parasitl 
interests quarreling over spoils and a division of profits. That is al 
there is in that claim. The wholesale grocers’ interest suffers becaus 
the packers are invading their field with certain advantages tha 
the grocers do not possess; in other words, special privilege, but th 
remedy advocated is that there must not be private ownership of th 
spectal forms of transportation. Every argument that is put U 
against the ownership of those private facilities by private interest 
applies equally in regard to the ownership of the roads by priva 





RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 789 


_imterests and the acquiring and operation by the Government itself 
through any agency which may be devised for the purpose. The 
_ cases are parallel as to the principles involved as between pure private 
“ownership and pure Government ownership. 
Mr. Cuarrman. I will now yield to questions. 
Mr. Sims. Mr. Chairman, I want to ask Mr. Garretson a few ques- 
_ tions along the line of amortization. 

Mr. Garretson, is it not substantially true in every detail that all 
_ the capitalization that has ever been issued, bonds and stocks, with 
the exception of refunding issues, stands still as a charge upon the 
railroads of the country? 
| _ Mr. Garretson. I think there is no question of it. If there has 
been any retirement, except, as you say, by refunding, I am not 
, aware of it.. 

Mr. Sims. That has been the policy adopted voluntarily and not 
the result of public regulation of privately owned corporations 2 

Mr. Garretson. I think it has. 
_ Mr. Sms. Therefore capitalization has necessarily been pyramided 
and increased always from the beginning to the present ? 

Mr. Garretson. It has. 

Mr. Sims. With no amortization 2 

Mr. Garretson. If there has ever been any amortization plan 
put into effect by any railway it has escaped my notice. 
| Mr. Sims. You have studied the other plans that have been 
presented, and in speaking of plans I in no instance have reference 
to the bill introduced by the chairman of the committee 


Se ten a 


a. 








Mr. Garretson (interposing). I have not myself. I have excluded 

it; I did in the record yesterday. 

Mr. Sims. It would be unjust to refer to it as a plan in comparison 
| with the other propositions which they do call plans. Does any of 
the plans that have been presented to this committee provide for 
either current or future compulsory amortization of capital charges ? 
_ Mr. Garrertson. So far as I know, they do not. 1 want to say 
this in explanation. I have only had them read to me. That is 
“on account of eye trouble, and have made no personal scan of them. 
T have heard them discussed, and if there is such a feature in them 
it has escaped my notice. 

Mr. Sms. If*there should never be any compulsory amortization, 
the capital obligations must be increased ? 

Mr. Garretson. It would be absolutely necessary under any one 
of the plans, in my opinion, that have been proposed, with the sole 

exception of ours. | 
| Mr. Sims. Personally, I have been studying for years about how 
} to bring about compulsory amortization, either through the private 
companies or through Government aid and assistance, and in my 
own study, with almost no help from those capable of rendering help, 
I reached the conclusion, before the Plumb plan was presented— 
| Several years before—that it was going to be absolutely necessary to 
‘amortize through the life of the issue of capital in the future so as 
to prevent the further increase of capitalization dependent upon rates 
| for a fair return. I had reached that stage where I was individually 
of the opinion that we had reached the point where it was not only 
‘desirable but absolutely necessary that the Government of the United 
States should absorb the outstanding capitalization or the burden of 
‘it to the extent of the fixed property of the railroads. 





790 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. GarRETSON. Judge Sims, it is only necessary to draw attention 
to this fact. Take the guaranteeing feature. You constitute thereby 
a new ‘‘vicious circle,’’ to use the phrase going the rounds now, and 
every time that capitalization is increased it brings a new need for 
rate increase to meet that charge. | 

If the economic theory advanced yesterday is correct, that if rates 
go beyond a certain point they create a deficit by the fact that they 
stop the flow of commerce—im other words, become prohibitive in 
certain lines—then the ‘‘vicious circle’? must suddenly take the place 
of that, and as the deficit grows rates must be increased and the rate 
increase must come from two causes or the Government has to resort 
to direct taxation to secure the money to meet the deficit. 

Mr. Sims. I had reached the point where I believed it was abso- 
lutely necessary in the public interest, as well as for the credit of the 
railroad companies, that the capitalization should be amortized to the 
extent that it was represented in the real estate or any other fixed 
property interests of the railroad companies, either by forcing the 
railroad companies to do so or by the Government stepping in and 
doing so. Which is best for the public? I have already reached the 
conclusion that the Government can do it economically so much better 
than the railroad companies could possibly do it, so as to make it m 
the interest of the public that the Government should amortize this 
character of property of the railroads. My theory was this, that no 
tax should ever be collected upon a purely public utility to provide 
this guaranty by law. Now, I can see no possibility whereby the 
railroads can amortize this property by reissuing securities containing 
a sinking-fund provision without substantially increasing their rates, 
because of the fact that the railroads themselves, even when com- 
bined, have no power on earth to exempt their issues from taxation 
or their properties from taxation. Therefore they could not do that 
if cheaply and as economically as the Government could do it for 
them. . 

My theory, without going into detail, was to acquire the fixed 
property of the railroads and issue 4 per cent nanbeeeets bonds, and 
invite them to give in exchange their property, or to exchange the 
bonds for money, the money to be given in exchange for the property. 
Three per cent of that would go to the Government for the payment 
of interest upon the obligations assumed, and 1 perscent would con- 
stitute the amortization sinking fund. That would represent the 
4 per cent. Then 75 per cent of the burden of the railroads would 
be taken off of the railroad service earnings. That is about the extent 
of the difference between what it would cost the railroads to secure 
capital and what it would cost the Government to secure it. Then, 
just as soon as any portion of that capital represented by the bonds 
of the Government was paid off from the amortization fund, the 
piapariy to that extent would be amortized. In a reasonable time, 

y amortization, the fixed property would absolutely belong to the 
Government, and then the Government would not have to pay any- 
thing, not even maintenance charges upon that property. Now, | 
never did reach the conclusion, to begin with, that it was necessary 
that the Government in owning this fixed property should provide 
for a single operating company, because, st the Government 
might make a lease to the present corporations in charge of the opera- 
tions of these properties, and by a contract, at least, it. could provide 
for basic fundamental regulations; but the railroads, as a matter of 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 791 
course, would have to charge a rate that would enable them to 
amortize the equipment, which should take place during the reason- 
able lifetime of the equipment, and which would not be a very great 
._ charge upon the traffic. Now, if in the past, from the beginning, an 
-amortization charge had been compulsorily laid upon the railroads, 
_this pyramid of capital, beginning with $100,000, perhaps at the 
-bottom, and now having a top represented by $20,000,000,000, 
_ would not exist. How long will it be able to stand without toppling 
_over from its own weight? How long can it stand unless some com- 
_pulsory requirement is made compelling such amortization? That 

is the Sims plan in a nutshell, without going into the details of its 
operation. That was the plan that I arrived at so far as I have gone 
‘im my investigations. Now, as a citizen of the United States and 
_a Representative of one district, I will say that if the Plumb plan, 
‘in all of its purposes and details, is better for the whole public than 
-my plan, then my plan should be discarded. If the Plumb plan is 
better than any plan offered by these other gentlemen, and offered 
honestly and sincerely, then their plans should go the same way; 
‘but if any of the other plans in the interest of the whole public are 
better than the Plumb ive then the Plumb plan should go into the 
yok heap. That is absolutely my position, and I have no other. 
Now, if you are willing to do so, and do not consider it as antagonistic 
to the Plumb plan, I want you to state to the committee what you 
think is the basic and essential difference in the public interest in the 
operation of the Plumb plan and the operation of the plan for leasing 
| the railroads to the existing corporations, with lease regulations that 
are compulsory in their general requirements. 
' Mr. GarreTson. So far as your plan, as you outlined it there and 
| as I caught it, is concerned, as far as you go you are in absolute accord 
. with the terms of the Plumb plan, but it adds certain details for appli- 
cation that you have not added. It goes further than you do in pro- 
viding for one operating corporation, while your plan, if I understand 
it correctly, provides for a system of divided operation by the corpore- 
tions now in control. Now, has this occurred to you? When the 
| amortization under your plan is complete, then the debt has been paid 
off, and where does the title lie? 

Mr. Sims. In the the Government, to the property amortized. 

Mr. Garretson. I do not know whether it has occurred to you or 

ynot, but what would be the result, in a practical sense, of taking the 
| Federal Postal System and breaking it up into 2,000 (I will take a low 
}number) operating districts, not coordinated under a single control? 
Mr. Sims. I do not think it would be a single control, so far as the 
‘system as a whole is concerned, but in its local application I think it 
/have an advantage. 
_ Mr. Garretson. Locally there might be some benefit, but trans- 
| portation is not a local problem. It isa world problem. Every rail- 
\Way, every mile, and every branch, bears a distinct relation to every 
,other part of the railroad system of the United States, just as every 
Mail route is a part of a systematic and efficient whole. The railroads 
should be operated with a central direction, with a view, not only to 
meet the local needs, but the wide transportation needs of the 
‘country. The fact is that you are going to have to guard yourself 
‘pretty close, Judge, because when you have swallowed the hide you 
will come to the tail. You are getting so far along as to come 
‘adngerously near Government ownership. 











: 
2 














eect egnter os 


—ooOOOoOoorr sr eee 


792 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Srus.%The man who swallows the hide must necessarily take 
care of the tail, but would the tail govern ? | 

Mr. GarreTsoN. It does often wag the dog, It really appears to 
me that the answer lies in that postal illustration, because postal 
efficiency depends on the fact that it is handled as a complete unit 
from the remotest mail route in Alaska to the extreme South, and its 
ramifications go even farther than that, into foreign countries, In the 
railroad transportation problem—and I say to you that a wider 
term should be used than railroad transportation—the conditions are 
the same, and in the plan that we propose every element of transpor- 
tation that is economical and efficient should be welded in with it. 
Water transportation and all other means must of necessity become a 
part of such a whole, if the service that the public is entitled to is to be 
rendered both efficiently and economically. 

Mr. Sims. Could not the Government, as the proprietor of three- 
fourths of the fixed property, and having the basic property upon 
which the equipment would rest, and having that unity of owner- 
ship, by a leasing contract to several opeating companies, carry out 
a general system of regulating transportation, both in the manner 
and quality of the transportation service rendered and in the rates 
charged, in cooperation with its other investments in the harbors 
and rivers of the country, which it provides for by public taxation 
absolutely with no return to anybody—could it under those condi- 
tions meet the situation? I want. to ask your view upon that. 

Mr. GarREeTSON. Have you forgotten this? It has not yet been 
touched upon. Have you forgotten that in leasing to these various 
private corporations their desire for a lease is founded upon the 
desire to make a profit? That profit is levied upon the public. 
Under the Plumb plan the profit, if you describe the bonus as a 
profit, or the bonus that is provided in the accumulation every 
year, that profit comes under the rate adjustments that may absorb 
it. In fact, it will even probably absorb the prospect, and if 
that prospect did not materialize, it might thereby create a slight 
deficit. But our plan eliminates profit upon transportation, and it 
gives the resident of the South his foodstuffs grown in the North at 
a reasonable cost of production plus the actual cost of trans ortation 
to the point of consumption; and it gives the farmer of the North 
the citrus fruits of the South and other products that he requires at a 
reasonable cost of production at the point where produced plus the 
actual cost of transportation to the point where it is desired to be 
consumed or utilized. That is the difference between your plan 
and the Plumb plan, if I understand your idea, because-I think you 
must certainly assume, as I do, that these private corporations 
pet be actuated by a desire for profits, or they would not take a 
ease. | 

Mr. Sims. And no other. 

Mr. Garretson. And no other. Further, when the Government 
wants to lease to these corporations, the leasing relation between the 
Government and the corporations is exactly the same as that be 
tween one corporation and another corporation. In other words, 
the Government relinquishes the right to dominate the operation a 
the property. Your plan would furnish no means whereby a ¢ar 
shortage could be met by a pooling of the entire equipment of the 
country. You will find it just where it has been, where self-interest 








‘RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 793 


and the desire to be in a position to meet their future competitive 


needs would not make possible the utilization of the entire wheelago 
of the country to meet the necessity in any one part of the country. 
. The same amount of equipment under Government operation at the 


“present time has been able to meet that need to a degree that it 
never was met by private management. All of those factors neces- 


| sarily must enter into it, because the whole problem of duplication 





he NE eee ee EE lee ee 
9 ee, es oe orcaecao 


exists, with its consequent wastefulness in expenditures. Now, I am 
denominating as wasteful that which is not needed. I do not mean 
it in the sense of extravagance, but if two cars are bought for service 


_ where only one may be profitably utilized, that purchase is wasteful. 


Mr. Stms. You think.that in the interest of economy it is just as 


necessary to have unification in the ownership of equipment as of 
_ the other property ? 


Mr. Garretson. Absolutely; and you can not get full value out 
of it in use unless it can be controlled as one interest. 

Mr. Sims. Of course you have practical knowledge of the use of 
equipment that I do not have. 

Mr. Garretson. You could readily understand, even without prac- 
tical knowledge of operation, that if you simply set up a central 
bureau that can find out every empty car in New York State and send 
it to California without consulting anybody, it would be a better 


condition than if a local person in California, without authority in 
New York, should make the appeal for it. He might get it, or he 


might not. That is all there is to it. 

Mr. Sims. Of course, you have expert knowledge of the operation 
of the equipment, and certainly ought to be a better adviser on that 
than I am, because I have not that practical knowledge. 

_ Mr. Garretson. That certainly would be my judgment on that 
point. 

Mr. Sims. Legislation, as you know, runs. along the line of com- 
promise. 

Mr. GARRETSON. Yes, sir. 

Mr. Sims. There are some people-in this country who are fanati- 
cally in favor of Government ownership, while there are others whom 
I regard as fanatically opposed to it. Between those two contend- 


ing elements I think that in these days of stress, when the railroads 


are crying out to know what they can do to be saved, a plan that 


} would take three-fourths of the burden off of them would be a good 
| Suggestion. Under that plan they might be able by charging rates 


Ee 





not exceeding what they have been charging, or perhaps, diminished 
rates, to acquire equipment and amortize it during the life of the 
equipment. ‘Then, there are a great many people who believe that 


' there will be some political benefit or party benefit or party advan- 


tage in having so many thousands of employees of the railroads 
directly under Government control, as they call it, who would vote 


for one party or another just as that party or another might seem to 
} be bidding for their votes. In order to remove that and give the 
greatest play to competition possible, and they can certainly better 


compete where the service has a less burden to bear, I suggested 


) this plan, and I think there is nothing in it that is hurtful from the 
railroad operations standpoint if somebody should relieve them from 
some of their burden. I do not think it would be hurtful if it does 


not interfere with their efficiency and individual initiative. There- 


794 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


fore, I took what you might call one step at a time. Then, after 
taking that step, it might appear unwise to go any further. 

Mr. GARRETSON. Come in; the water is fine. 

Mr. Sms. It might appear after actual experience—that is the only 
true guide on the subject—that we should go no further. If that 
should be a success, if the rates were reduced, and competitive 
service was increased, or if all of the good and glory that should 
come from private ownership should remain, with all the substantial 
good of Government ownership combined with it, I believe, regard- 
less of the fanatics, that something might be done along that line. 

But, whenever I think about absolutely owning the railroads and 
giving them to the corporations as we do in the matter of Govern- 
ment aid to the ordinary highways, $200,000,000, for which has just 
been appropriated—that is, to be absolutely given away, with no 
return whatever corresponding to the Government benefits, then I 
want to ask why should any man balk at Government amortization, 
or the carrying of three-fourths of the capital burden of the railroads 
free from taxes, and at the lowest possible rate of interest? That 
might not strike the economic conception of some college-bred man, 
but I am unable to act upon their theories, because I have not their 
viewpoint, just as I have not your practical knowledge, but I know 
that I have one purpose, and that is to do what is best for the whole 
country, whether anybody makes money out of it, or not. I would 
like to see if it can be done—that is, transportation performed at the 
actual cost of performing it. Of course, the interests a fixed charge, 
and will be until such time as there is no interest to pay on the Gov- 
ernment’s obligations. 

Mr. Garretson. Until amortization has become effectual. 

Mr. Sms. Yes. Now, there is another thing. My own view is 
that it is absolutely impossible for normal conditions to be resumed 
so long as abnormal burdens are to be borne and paid for out of 
taxation. If private values should suddenly drop to the prewar 
level, then every bond that has been issued by the Government and 
every other Government would become a double burden upon the 
future production of the country, and as long as we have got to pay 
$4,000,000,000 a year out of taxes, somebody has got to be per- 
mitted to sell his products somewhat in proportion to the amount 
that has got to be raised by taxation. I do not look for any lower 
wages, and I do not see how it is possible for the railroads to finance 
themselves. Mr. Hill once said, and I heard him say it before the 
committee 10 or 12 years ago, that the railroads in the next 10 years 
needed to spend $1,000,000,000 a year. Now, comparing the cost 
of labor and material at the present time with their cost at that time, 
and the cost of capital then with its cost to-day, the same amount 
of actual physical improvement of the railroads would cost two and 
a half billion dollars of new capital or new money every year. How 
will we ever get it in private competition with all of the other interests 
seeking capital on the basis of war condition opportunities for return? 

Mr. GarreTson. Judge, I am much obliged to you for appearing 
on our behalf. | 

Mr. Sms. I am not appearing on ‘our behalf,” unless by “our” 
you mean the people of the whole United States. 

Mr. Sanpers of Indiana. Mr. Garretson, the real big question i 
the railroad problem is the fact that we have what is commonly 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 795 


_known as strong roads and weak roads, accompanied by another eco 
nomic fact that we have to have uniform rates. If the Government 
simply owned the real estate, tracks, and fixed property, and ‘we had 
private ownership of all the other assets of the Hive corporations, 
that problem would still be with us, would it not? 

Mr. Garretson. Absolutely; destination and topography would 
still exist with common points as bases for rates. 
_ Mr. Sanpers of Indiana. The operating expenses of some roads 
would be greater for the performance of the same amount of service? 
Mr. Garretson. Eternally. 

Mr. Sanpers of Indiana. We would have that eternal problem 
under the plan suggested by Mr. Sims, unless he went ahead, accord- 
es fo your opinion, and swallowed the tail. 
. Mr. Garretson. And swallowed the tail—that is true. 
| Mr. Sanpers of Indiana. In your opinion, would you say that the 
‘rates fixed should be fixed by one body, or by one body as to a part 
of the rates and by 48 other regulatory bodies, under any plan ? 
_ Mr. Garretson. Now, let me see if I understand you. By that 
/question you mean, do I believe really in the elimination of State 
control ? 
_ Mr. Sanpers of Indiana. Yes. 

Mr. Garrerson. Absolutely, yes. 

Mr. Sanvers of Indiana. Under any plan? 
. Mr. Garrerson. Under any plan I am absolutely opposed to dual 
control of railroads by the States and by the Federal Government. 
This condition arises, and I am going to cite actual facts with which, 
epebiy: some members of the committee are conversant: I know 
that the manager of a line of railroad under the statute made and pro- 
: vided in the State of Arkansas must do a certain thing or subject him- 
self to fine and imprisonment, while in the State of Oklahoma if he 
does that thing he subjects himself to fine and imprisonment; and 
yet on one division of that road he crosses the border 11 times, I 
think, in 100 miles. Now, there is a condition and not a theory. 
There you have got from a wrong standard a requirement that creates 
an impasse. Illustrations are usually made from extremes, and that 
is why I cite that as what can come under dual control as between 
two States. Consequently my experience has led me to believe this, 
that the State should not be permitted to exercise any other control 
than a recommendatory power by its commission to the central con- 
trolling body in regard to local matters, because there the State 
3hould have a voice. That voice, however, should not be mandatory 
but recommendatory, and the power to make it effective should be 
lodged in the central control. You will notice that I am not a strong 
State rights man. 
_ Mr. Sanpers of Indiana. Of course, if these additional duties 
,Were placed upon the Interstate Commerce Commission, it might be 
found that that commission as now composed would find it impossible 
‘or lack of time to consider all of the cases. What would you think, 
‘trespective of what plan is adopted, of something in the nature of 
‘tegional commissions to which a certain jurisdiction should be given, 
}with, perhaps, a provision for a review of certain of their findings ? 

Mr. Garretson. With the functions now exercised by the Inter- 
3tate Commerce Commission, it not only utilizes its individual mem- 
bers to go out and hold hearings, but it utilizes inspectors for that 

















| 


— 


796 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


purpose, the inspector, I believe, reporting to the member of the 
commission having jurisdiction over the subject on which the hear- 
ings are held. As you know, they divide, and each commissioner has’ 
charge of a separate department. Then the commissioner brings the 
report of the inspector, with his approval or disapproval, to the atten- 
tion of the entire body when the body acts. a 

It might be necessary to add to the number of the commission, 
so that they, as individuals, would under certain conditions be able 
to create regional bodies, precisely as we provide in this bill for 
district operating boards under the board of directors, and the same 
idea which you have described as regional could be applied to the 
Interstate Commerce Commission in giving them the power to create 
those auxiliary bodies, or the law itself could create them, if nec- 
essary, thus meeting the added work that would accrue to the com- 
mission. But you must bear in mind, Congressman, that with the 
transportation under Government control and operated by a cor- 
poration of the kind that we provide for, the business coming to 
the Commission in many respects would be largely minimized from 
that which now exists. | * 

Mr. Sanpers of Indiana. But, of course 

Mr. GARRETSON (interposing). It would still remain immense in 
volume. I do not want to give the idea that its activities would 
cease, because they will not. 

Mr. Sanvers of Indiana. You would still have the long and short 
haul problem ? 

Mr. GARRETSON. Yes, sir; and the inter-mountain rates. 

Mr. Sms. You would not have the long and short haul unless you 
made differentials. 

Mr. Garretson. There would be enough left to furnish them with 
plenty of amusement, if not business. 

Mr. Sanpers of Indiana. I want to get your construction of this 
proposed bill: You referred to labor disputes, and, in order to get 
a clear illustration, let us consider a labor dispute involving an 
increase in wages: Is it your construction of this bill that there is 
provided a tribunal which will finally determine the amount of 
wages that will be paid ? : 

Mr. Garrerson. It creates a tribunal that determines that 
amount. . 

Mr. SanpeErs. of Indiana. With the right of appeal? 

Mr. Garretson. I will have to ask Mr. Plumb a question. I 
think it provides for an appeal to the board of directors, does it not! 

Mr. Prums. An appeal to the directors in case no decision is 
rendered by the wage board. 

Mr. GarretTson. Bear in mind, Congressman, I am compelled to 
ask that question because I do not see readily. 

Mr. SanpeErs of Indiana. That is all right. I want you to know 
fully what the bill provides because what I am aiming at is to get 
your understanding of the bill. , | 
i Mr. Garretson. Let me go to the heart of what you want to 

now. | | 

Mr. SanpeErs of Indiana. Yes. y 

Mr. GarRetTson. You will bear in mind, I am not given to sub- 
terfuge. What you want to know is whether under any conditions 
a strike might take place if the employees refused to accept the rate 
of wage granted ? 





RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 797 


_ Mr. Sanvers of Indiana. That is what I am ultimately coming to. 
| Mr. Garretson. Yes. 

‘Mr. Sanvers of Indiana. Now, there is the right of appeal in the 
vent of dissatisfaction. 

Mr. Garretson. Yes. It goes to the board of directors. 

Mr. Sanpvers of Indiana. Is it your understanding of this plan 
‘bat when that controversy goes to the board of directors and is 
here adjudicated, it is final, from which no appeal lies. 

(Mr. Garretson. The board of directors. That is the court of las?) 
sort. 

Mr. Sanpers of Indiana. Following that further, is it your under- 
tanding then that it is binding on these employees who are interested 
‘1 this corporation ? 

_ Mr. Garretson. It is if they remain in the service.]| 

| Mr. Sanvers of Indiana. Now, there will be organizations of these 
mployees just as at present? 

| Mr. Garretson. Just as at present, undoubtedly. 

Mr. Sanpers of Indiana. Suppose that organization is presenting a 
‘age controversy in the same manner as it is now being presented. 
uppose they are asking for a 20 per cent increase in their wages and | 
ae board of directors, after examining and hearing all sides of the 
ontroversy, decide in the negative and refuses to give the advance 
1 wages- -Would that organization have the right under this law, 
ot as individuals, because of course there is no question about their 
ght as individuals to cease work, but would they have the right 
nder this law to issue an order from their offices saying that, ‘‘Not- 
ithstanding the final decision of the board of directors against us, 
@ will refuse to work for the wage and refuse to continue our work | 
nless we have the 20 per cent increase’’ ? 

| Mr. Garretson. I will answer that categorically, Congressman, “| 





‘aen I want to explain what, in my opinion, the effect of the act will 
@. Under the act they have that absolute right. Their rights in 
at Sirspien-nre in nowise impaired by the act; but I want to bring | 
‘us to your attention, and you can draw on your own experience and | 
our knowledge of men to know whether or not there is any force in | 
1e reasoning. Under this act every employee becomes a partner | 
the enterprise. Yave you ever stopped to think that overy man | 
ho is serving this company is going to carefully study how his own | 
terest is affected by the action of any of his associates; that each | 
pons to be a spur on the efficiency of the other, because the man 
yhis elbow is working for him? Each takes up the employer relation, 
a degree, and you will bear in mind that that is always so in a 
eater or lesser degree toward every other employee. Men pass and 
ley are merciless judges of each other, either in the group or as indi- 
| duals. Any wage demand by any part of that body is going to be 
anned closely by their associates as to whether or not it is meritorious 
jhat wage board will be made up of equal representation from the 
| assified employees and the nonclassified employees. If a majority 
that board refuses any part of the increase, or all of it, 

large body of the employees themselves to that refusal—you realize 
| lat bocsise-those mon on the wage board come right out of the 
jnks and are associated-with-those men, and are probably denomi- 
‘uted by the organizations of which they are a part. —— 
‘Mr. Sanpers of Indiana. And they are subject to recall? ) 














798 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Garretson. Sure. They are creatures of the men below ther 
to that extent. 

Mr. Sanpers of Indiana. I want to be fair to the plan submittec 
by Mr. Plumb. He said he was not bound by that if a better play 
could be devised. 

Mr. Garretson. Yes; but you are analyzing it as presented here 

Mr. SanpveErs of Indiana. Yes. 

Mr. Garrerson. Consequently you will see that if that body ot 
pmployees went on strike, in accordance with the provisions of the 

aw governing them in an organization sense, they would find a larg: 
employee element who considered that their rights were being 
invaded, their interests injured by that action, and they would 
remain in the service and carry it on uninterruptedly. There is ar 
‘element of ownership introduced into the sndiva lin here which is 
‘going to minimize the probability of those occurrences taking place. 
‘In your lifetime, or mine, or in the lifetime of our children, we wil! 
never see strife eliminated althogether from industry because the 
human is going to be born who loves strife and will always start it. 
\I do not expect for at least a year to see common assault altogether 
done away with in the country. 
r. Sanpenrs of Indiana. But under your construction of the bil 
they would have the right to strike of they wanted to do it. 

Mr. Garretson. Let me draw your attention to this: The limi- 
tation on that right would come through the organization law. Beat 
in mind that the organization does not hesitate to curb the men. 

Mr. Sanvers of Indiana. I am talking about the entire organiza- 
tion. 

Mr. GarretTson. Yes; and I am drawing your attention to the 
safeguard that lies in the organization to which these men belong, 
which does not recognize the right to strike in the name of the 
organization until they do certain things. 

Mr. Sanvers of Indiana. I am not referring to the whole organize- 
tion. 

Mr. Garretson. So far as the individual right is concerned, it is 
in no sense limited by this bill, and it guarantees him the right to do 
collectively whatever he may do individually. 

Mr. Sanpers of Indiana. You suggested that the corporation was 
not organized for profit. Is it your opinion that in the first year it 
would earn a profit 

Mr. GARRETSON (interposing). Frankly 

Mr. Sanpers of Indiana (interposing). Let me finish my question. 
Speaking of profit as being the part that is to be divided between the 
employees and the Government. 

Mr. Garretson. You will bear in mind that the reason I do not 
describe that as profit is that it is an exact synonym for what is 
known as the bonus system used by efficiency experts. Some of 

those systems are founded upon the agreements, the old agreements, 
that have been in effect for 30 years in the four transportation brother 
hoods. They use a time bonus system. A man is paid at the rate 
I mentioned a while ago. I will illustrate from a freight conductor. 
He is paid $4.18 when he has given the company either 100 miles or 
eight hours of service. In other words, if he runs 100 miles in four 
hours, he receives a four-hour time bonus. That is based on the idea 
of efficiency. He did a day’s work in four hours and therefore he 
has got it. The bonus here is founded on exactly the same idea. 








| 4 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 799 











_ If by efficient service at the rates lawfully established for trans- 
portation.and at the wage rates Pe ae he is able to create 
surplus, he is entitled to one-half thereof as a reward for that 
efiiciency, and then immediately a rate, adjustment takes place 
which will absorb it. 

_ Mr. Sanpzrs of Indiana. I understand your definition of profit and 
you understand what I mean by profit ? 

. Mr. Garretson. Yes. 

|. Mr. Sanpers of Indiana. Do you think during the first year of 
this Plumb plan there would be a profit as thus defined ? 

| Mr. Garretson. Frankly, Congressman, I doubt if there would 
be in the first year. Now you will bear in mind my concept is founded 
altogether on practical knwledge. I am abolishing theories entirely 
from it. J am not pointing to the result that should be attained 
decause I know how long it takes a large body of men to fall into the 
groove; I mean, to get their new machine oiled and working; the 
period of adjustment. 

_ Mr. Sanpers of Indiana. If there was a deficit, that would-not 
jorove the plan did not work. 

Mr. Garretson. It would not. 

Mr. Sanpers of Indiana. In fact, we have had some deficits under 
zovernmental control, and if this plan went through and at the end 
of the first year there was a deficit of $100,000,000 that would not 
aecessarily prove the plan was—— 

f GARRETSON (interposing). It would not be proof that it was 
‘foing to be a success if a surplus was created, because with the 
imount of money that is involved, a very little thing, in itself, could 
weate either a surplus or a deficit; I mean, an unforeseen thing. 

| Mr. Sanpers of Indiana. And that period might extend over two 
or three years. 

| . GARRETSON. It might, possibly, although I am of the opinion 
,hat in the second year you would begin to find what the result was 
if the practical working out of the plan. : 

| Mr. See of Indiana. Ultimately, when the plan got to work- 
8 well, about what profit would you expect to have at the end of 
he year? 

Mr. GaARRETSON. Congressman, frankly 
. Mr. Sanpers of Indiana (interposing). In a general way. 

Mr. Garretson. I would not care to hazard a guess. I am per- 
ectly willing to accept Mr. Plumb’s estimate along those lines as 
rery likely to take place. My connection with railroad operation 
jas not led me into any line of investigation as to the future. I only 
leal with general averages of years and take the accomplished results 
stead of problematical occurrences. 

Mr. Sanpers of Indiana. Of course, if there was a deficit in view, 
jmd any controversy with reference to an increase of wages was 
\efore the board, if that controversy involved an increase or if they 
iad two controversies, one involving an increase for one set of 
mployees, and another involving an increase for the other, if there 
tas to be a deficit, it would be to the personal advantage of the 
Mmployees to have an increase in wages rather than not to have it; 
3 not that true? 


152894—19—vort 1——51 


















— 


: 5% a * 


800 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Garretson. That would be absolutely true of a series of 
deficits. It would not come into the same prominence with only 
one deficit. 

Mr. Sanpers of Indiana. The employees are only to get half of 
these profits. | 

Mr. Garretson. That is all. ; | 

Mr. Sanpers of Indiana. And any increase in wages, they get all 
of it. 

Mr. Garretson. They get all of it. 

Mr. Sanvers of Indiana. As much as it is. 

Mr. GARRETSON. Yes. 

Mr. Sanpers of Indiana. Therefore it would be to their personal 
interest, if there was to be a deficit in any year, to advance their 
wages because that would merely increase the deficit a little, and it 
would be more to their advantage than it would be not to advance 
them. 

Mr. Garretson. It would. There is no question of that fact. 1 
mean, the fact can not be questioned. Has this occurred to you, 
though, Congressman: Bear in mind that a question often brings a 

hase of the question to mind that will explain the inquiry, It has 
haan what has been regarded as an inexorable economic law that 
wages have always led prices downward and have always followed 
prices upward. ‘That is an economic law that never, as far as out 
crafts are concerned, was violated until 1907. It was attempted 
then, Iam auras of the panic of 1907. But if you have been in 
any way a student of the industrial situation, you will find that there 
has never been what might be described as universal agitation for an 
increase in wages except when prices of commodities were fluctuating; 
I mean, largely and markedly fluctuating. When prices are stable, 
wages generally are stable. Men as a class do not fight for higher 
wages unless increased burdens are placed upon them, 

Mr. Sanpers of Indiana. I am assuming the situation was such as 
to arouse a desire for an increase. 

Mr. Garretson. If prices increase, I mean, further, that condition 
would continue, or it will continue until commodity prices have 
reached a similar proportion to wage in its purchasing power that 
they maintained in the prewar period. That is a foregone conclusion. 
You will bear in mind I am not attempting to camouflage any con- 
ditions that may arise or to assert that this law will act as a cure ol 
things that it will not cure. 

Mr. Sanpers of Indiana. I do not think you are. 

Mr. Garretson. I am not. If I can not deal with this openly 
and honestly, I won’t deal with it. | 

Mr, SanveErs of Indiana. I am trying to get it clarified and I think 
ou statement helps to clarify it. You know the greatest criticism 

think, of this proposed plan is this: There is provision for a boar 
on which 10 of the 15 representatives are selected by the class ol 
people whose wage questions will be tried before ‘ert and_ the 
question in my mind was whether the checks and balances wert 
sufficient to get a just adjudication. Now, it was suggested by Mr. 
Plumb when I was interrogating him with reference to this propos 
tion, that if they created a deficit, that that would cause a forfeituxt 
of the rights under the lease given to the corporation. 

Mr. GARRETSON. Yes. 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. S01 


_ Mr. Sanvers of Indiana. And so far as I have noticed, the only 
provision for a termination of it 
_ Mr. Garretson (interposing). I think it is on the last page. 

_ Mr. Sanvers of Indiana (continuing). Is in section 5 which pro- 
vides as follows: 

_ That the lease to the corporation shall be terminated by act of Congress whenever 
it shall appear upon evidence reviewable in the Federal courts that the foregoing 
provisions to be embodied therein shall not have been well and faithfully carried out. 

Now, it occurred to me that there might be a deficit the first year, 
there might be a deficit the second year, and even the third year and 
the fourth year, or in any year, for that matter, and still the pro- 
visions of the act might not have been both well and faithfully 
carried out, and therefore it occurred to me that whenever there 
was likely to be a deficit, that the interests of the employees would 
always be to increase their wages, so far as pecuniary interest was 
soncerned. Of course they might, on account of their broadminded- 
ness, refuse to do that, but I was dealing alone with the question of 
pecuniary interest of the different classes of employees. 
Garretson. I suppose, Congressman, that I approach the 
question with impressions or beliefs that a man who had not been in 
this or similar service would not have acquired. The reason that I 
‘ear no collusion—I am not using that in an offensive sense—between 
the five men chosen by the official class and the five men chosen by 
she classified service lies in knowledge, not belief, but knowledge of 
the channels of thought as between the official mind and the employee 
mind. You take a man who is advanced from the classified ranks 
jo an official position—and naturally I have personal knowledge of 
jhousands of men who went that road—the man who has been an 
iggressive committeeman, and a mighty lot of them go to official 
dositions, immediately becomes an aggressive official. He is just 
1s intensive against the man as he was against the official; in other 
words, he thinks in official terms. That is even perfectly apparent— 
can say this now that I am out of the harness as a labor official— 
vhen a man goes to the official stand in a labor union, he thinks in 
‘ficial terms, and I know, for I have been in the rank and file and I 
lave been an official and am now again of the rank and file. The 
sonsequence is he approaches every question from a different angle 
‘o what the employee does, and that very chasm will remain under 
his system, and furnishes the safeguard against collusive action, 

ither in wages or in Other things; and you will bear in mind that the 
/verage person, perhaps, would not have analyzed it as I have 
‘malyzed it, but he recognizes its existence, subconsciously, and he 
aakes allowances for it. The average railway employee despises the 
fficial who is incapable of maintaining discipline. He may love 
im but he has no respect for him and he won’t put him in control 
Tan enterprise in which he, the employee, has a personal interest. 
“here is the element of safety in this matter. 

Mr. Sanpers of Indiana. Now, passing from a discussion of the 
“lumb bill, we are all interested, of *course, in determining the 
Toper plan to solve what we call the railroad problem. It will be 
_veral weeks before we get into that, but in the event the Plumb 
lan is not adopted, I am sure the committee would like to have any 
uggestions you have with reference to legislation in the interest of 












802 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


the men whom you represent. Is there any other legislation that 
occurs to you would be helpful ? 

Mr..Garretson. Mr. Congressman, you will bear in mind this: ] 
want to answer your question frankly and in no sense mislead you 
but having retired from the control of an organization, I am not 
cognizant of any definite legislation that railway employees might 
be considering, but I do not think that they have any definite pro 
gram at the present time to present in any other direction. Lik 
every other citizen of this Republic, you will bear in mind that the 
are most intensely interested in what constitutes the heart of thi 
whole problem, the cost of living. They are not interested in that n 
the character of railway employees but in their character as citizens 
Anything that settles that problem inures to their benefit exacth 
as 1t does to any other citizen. This is only one of the factors nh 
that, and I am only authorized to speak for the brotherhoods that. 
represent in this instance, on this one problem, but I am saying t 
you frankly and honestly that I have no knowledge of any definit 
program in any other direction that they have. Circumstance 
might lead them, if a certain conjunction of proposed legislation 
justified it, to introduce some specific measure to which they wer 
peace In a general sense, they are interested in many things 

or instance, immigration, just like all working men are intereste 
in it, but that can not be classed ; 

Mr. Sanpers of Indiana (interposing). I had reference to railroa 
legislation. 

Mr. Garretson. I do not think there are any specific measure 
under consideration of any particular nature. 

Mr. Coorrer. I would like to ask Mr. Garretson a few questions 
Mr. Garretson, you mentioned a few moments ago the wage adjust 
ment board which is contemplated under the Plumb plan. In cas 
some other bill was adopted by Congress, say, for instance, the Ese 
bill, do you think it would be advisable to have a wage adjustmen 
board appointed consisting of five members of the classified em 
pe five from the official employees, and five appointed by th 

resident. | 

Mr. Garretson. In answer to that, Mr. Cooper, I can only sa 
this: This is a continuation of the present means that have bee 
adopted while the railways were under Government control, for th 
adjustment of wage disputes, and was devised by the Railross 
rehome aie and the brotherhoods, and it was adopted from th 
old plan that was in effect between the four railroad transportatio! 
brotherhoods and the railway companies by agreement prior to tha 
time: We had, prior to the taking over of the roads by the Govern 
ment, what was known as the Commission of Hight. That did no 
determine wage questions but did determine certain other disputes 

That Board had been created by agreement between what is know! 
as the conference committee of managers for the entire country ai 
the four transportation brotherhoods, and to them was referré 
interpretation of certain agreements which had been entered int 
between the four brotherhoods and the conference committee repre 
senting all the railways of the country; that is, all the larger prop 
erties. When the Government took control of the railways, we wet 
summoned to Washington three or four days afterwards, and W 
made the proposition—that is, just the four transportation broth 





RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 803. 


whoods—to the director general himself that two boards should be 
weated, one the wage board having jurisdiction of those questions, 
ind the second a board of adjustment for settling all disputes that 
night arise upon any railroad. Those boards were created, and later 
ym three of those boards of adjustment were created, and each deals 
mith certain classes of service. No. 1 deals with the four railway 
wrotherhoods, No. 2 deals with, I think, the shop employees and 
ertain other organizations, and No. 3 deals with various other serv- 
ces. ‘This continues and perpetuates those boards. Those boards 
ire the result of the combined, best judgment of the employees and 
he managements, and they have very largely minimized trouble 
m the lines. ‘They have not been perfect. They have not abolished 
rouble but they have reduced it to a very considerable extent when 
rou take into consideration the period of unrest through which they 
tave existed. I doubt the advisability of instituting by law a com- 
mittee of that kind, if the properties are to remain in private man- 
gement, because the best results, in my opinion, can be obtained by 
‘oluntary arrangement between the private employer and employees 
etter than can be obtained by Government interference, unless the 
yovernment is prepared to take it over and assume responsibility. 
_Mr. Cooper. We have had private management, have we not, 
fr Garretson, under Government control ? 

Mr. Garretson. In one sense, yes; absolutely so. 

Mr. Cooper. And you think that these boards have rendered 
‘aluable service ? 
' Mr. Garretson. I do. 

Mr. Coorer. The point I am trying to make is, in case the Plumb 
lan is not adopted by Congress, why would it not be a good thing 
0 maintain these boards? 

Mr. Garretson. I am of the opinion—you evidently do not get 
ay whole viewpoint—I am of the opinion that the board of wages and 
vorking conditions may not be continued, but the board of adjust- 
1ent, in my opinion, would be continued; but it will be continued, 
nd of necessity, in my opinion, should be voluntarily continued. 
gar in mind I approach it from exactly the same angle that I ap- 
‘Toach arbitration. I will never give my support and adhesion to 
ompulsory arbitration. 

‘Mr. Coorrer. You do not believe that any such board ought to 
-@ created by law? 

. GARRETSON. I do not. 
Mr. Cooper. That is what I wanted to get your opinion on. 
Mr. Garretson. It is voluntary action that is binding upon the 
omscience of men and not compelled action. 
Mr. Warson. Mr. Garrison, your statement indicates you are 
‘niliar with the railroad systems of this country as well as those of 
pas Will you acknowledge that our system is greater than any 
‘ther ? 
Mr. Garrertson. I think that the greatest financial interest and the 
Teatest industrial property in the world is the American railroads. 
’ Mr. Watson. The American railroads then have done much to aid 
1 the development of our country ? 
Mr. Garrerson. That is a truism; yes, sir. ae 
Mr. Watson. And they have been developed under the past policies 
{the railroads. Why not continue those policies if we have the 
teatest railroad system in the world ? 






804 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Garretson. I was using “greatest” in the sense of extent and 
capitalization. 

Mr. Watson. I was speaking of the service to the public. 

Mr. Garretson. As to the service to the public, I think it is as 
good as is given anywhere in the world. | 

Mr. Watson. Why not continue the same policies ? 

Mr. Garretson. Because it is becoming to costly to the public 
and because, I believe, that the public is entitled to what it has never 
had, cheaper service and still better service. 

Mr. Warson. Have not the railroads been developed under indi- 
vidualism in this country ? 

Mr. Garrerson. They have been developed by individualism and 
Government grants or State grants, largely. 

Mr. Watson. They have not been developed under public control? 

Mr. Garretson. They have not until that form of government con- 
trol which gave protection to the public became necessary. ‘Then 
governmental regulation stepped in and limited the type of individ- 
ualism that was then existent in the management. 

Mr. Watson. Government regulation and Government ownership 
are two propositions. , The railroads have been under Government 
regulation more or less ? | 

Mr. Garretosn. They have been of late years; they were not in 
their inception. 

Mr. Watson. You do not believe that the railroads could be 
developed in the future under individualism ? 

Mr. Garretson. I do not. 7 

Mr. Watson. You are in favor of a revolutionary system, bringing 
everything under nationalism ? 3 

Mr. Garretson. I am in favor of a plan that is the least revolu- 
tionary of the four presented. | 

Mr. Watson. I think you stated that it was necessary to awaken 
the interest of man that he may develop and be of benefit to civiliza- 
tion. Is not this a case that is entirely contrary ? 

Mr. Garretson. The best type of nationalism is that in which 
every individual takes an active working interest in all the affairs 
of the Government, and I think you will find this, Congressman, 
that where there is the liveliest and most intense individualism on 
the part of the individuals there is where you find the most active 
participation in Government affairs and the greatest amount of 
democratism in it.. The most passive citizenry the greater autocracy 
of the ruler. 

Mr. Warson. I am not convinced that we have arrived at a stage 
in our country’s history when we must give up individualism 10 
favor of nationalism ? | 

Mr. Garretrson. There are many men in this country who are 
not convinced, also. 

Mr. Warson. I recognize that there are a great many people in 
favor of your plan and some of them may favor it seriously. I do 
not know. When we surrender individualism in a new country like 
ours, and adopt nationalism, it indicates a weakness in her people. 
There is no country that I know of that has developed under national 
ism like we have under individualism. 7 

Mr. Garretson. There is nothing that has ever been presented 
to the legislative body of this country that will accentuate indl- 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 805 
_yidualism to the extent that the bili will. That offers every induce- 
‘ment to intense individual effort to make it a success, and it holds 
out a hope to every individual in the country that he will be able 
‘to secure that which he is rightfully entitled to, transportation 
‘without cost and without tribute levied therefor for the benefit of 
.a group at the expense of the many. Railway financing as it has 
‘been carried on in the last 50 years would loot a world, and now it 
wants its right thereto confirmed and made vested by legislative 
action. The man who took my watch from me last night ought to 
‘come to me, on the same basis, and demand a bill of sale for it the 
next morning and ask to be paid for taking it away from me. 

, Mr. Warson. Do you not think that under individualism the 
workmen of this country have risen to a higher state of efficiency 
than any other workmen in the world ? 

Mr. Garretson. They have gone far beyond any other workmen 
in the world. 

| Mr. Watson. They have supplied over $1,000,000,000 and they 
are now capitalists. Have not the railroad men subscribed to more 
'Liberty and Victory bonds, according to their number, than any 
other class of workmen ? 

Mr. Garretson. They have. 

Mr. Watson. Therefore, they are capitalists ? 

Mr. Garretson. They are capitalists and they want to be more 
capitalists. They want a chance to buy bonds that will pay for the 
railroads, and they will buy vast amounts of those bonds. There 
was a statement made the other day about the railroad employees—— 

Mr. Watson (interposing). Did they not acquire the position 
they hold under a system of individualism ? 

Mr. Garretson. I beg pardon. Every dollar which paid for 
Government bonds they got through the increases given under 
Government control. It is claimed that that was one of the factors 
for which the Government is responsible. That is where the money 
to buy bonds came from. 

Mr. WesstErR. A few moments ago when dealing with the question 
of the average pay of the conductors and firemen in 1913 as against 
their average pay in 1919, in answer to the Chairman’s question you 
stated that your figures were based on basic pay. Is that right? 

_ Mr. Garrerson. I so described it. 

Mr. Wesster. That is an elusive term to me. Will you tell me 
how much the average railroad conductor and fireman received in 
his monthly pay check in 1913 and the amount he receives in 1919 ? 

. GARRETSON. The elusive term, you will bear in mind, does not 
go to the fireman, just for the conductor because I can quote the 
conductor’s rate right off the tip of my tongue... I can not quote the 
fireman’s pay. | 

Mr. Wesster. I thought you added the fireman? 

Mr. Garretson. No. 

_ Mr. Wesster. Then, confine it to that class. 

| Mr. Garretson. The conductor is a piece worker. If he runs 100 
‘miles in a month his month’s work is $4.18 or was in 1913. Every 
treight conductor employed on a trunk line west of Chicago and New | 
Orleans and Port Arthur and Canada received $4.18 for every 100 
milesofrun. There is no monthly guarantee to freight men, with the 
exception of possibly five roads, where there is a local arrangement 












806 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


to the effect that he gets so many miles per month, but he is a piece 
worker and he takes 1t as it comes. In other words, he may only run 
100 miles. In 1913 the freight conductors probably averaged, day 
per day, that is, 100 miles per day in the month, and in that event his 
monthly pay was 30 multiplied by $4.18 and that was his pay check, 
assuming that he earned no extra, and that is all problematical be- 
cause neither the railway company nor the man himself can tell any- 
thing about when he will make overtime or whether he will earn it. 
If he is on one class of train, in the vernacular, on a ‘‘red ball” or 
‘“‘oreen ball,” he will not earn any overtime, and if he is on a “‘drag”’ 
he will earn it every trip. 

Mr. Wesster. | can get at what I want if you will give me the 
- average monthly pay check. | | 

Mr. GarRetson. I will give it in 1913 as 30 days per month, which 
would be $125.40. 

Mr. WessTeER. It is your idea that the average conductor in this 
country received in 1913 that amount of money ? 

Mr. GARRETSON. The average freight conductor probably received 
between $100 and $140. 

Mr. WessterR. What is the average freight conductor of the same 
class receiving now ? 

Mr. GARRETSON. He is receiving at the average of $5.40 in place of 
the average of $4.18 and if he runs the same amount he will get 30 
times that. 

Mr. Wesster. That goes back to-the idea of the basic pay? 

Mr. Garretson. I use the basic pay because in our service, and 
this applies to all four of the brotherhoods, the basic element is the 
day’s pay, because that is a minimum day, 100 miles or less. There 
is provision in all of them, ‘‘100 miles or less, eight hours or less shall 
constitute a day.’ That is basic. Everything in the contract is 
based upon the daily rate of pay or 100 miles rate of pay, which it 
really is. Therefore, to us, that is basic, because by being that it 
can be broken by demand for special service and is founded on that 
and is paid a pro rata, one-eighth of that per hour. That one class 
of service that does not receive what is known as punitive overtime— 
time and a half. 

Mr. Wesster. We have scientific figures giving the relative pur- 
chasing power of a dollar between 1913 and 1919. I want to know 
how many dollars they had in 1913 and how many they have in 1919? 

Mr. Garretson. For exactly the same amount of work, which is 
the only way it can be properly approached, he received $125.40 for 
3,000 miles in 1913. That is a month’s work. At the present time 
the amount that he would get is $162. If he had an increase in rate 
commensurate with the admitted advance in the cost of living—82 
per cent as the minimum—he would have been entitled to an advance, 
if he got the 82 per cent increase in pay, which would equalize the 
purchasing power, I think you will admit. | 

Mr. Wesster. That depends on the facts. What I am asking you 
is, is it your statement that the average freight conductor operating 
trains in this country is now receiving $160 ? 

Mr. GARRETSON. Yes, sir. 

Mr. WezsterR. That is his average monthly pay check? 

ee GARRETSON. If he does a month’s work, 30 days, and 3,000 
miles. : 


_ RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 807 


_ Mr. Wesster. Regardless of what he does, what is the average 
aonthly pay check? ~ 

_ Mr. Garretson. Take this factor into consideration. If he runs 
wmly 1,000 miles during the month, then he only gets 10 times $5.40, 
64, that is his monthly pay. 

' Mr. Wesster. That is theoretically ? 

_ Mr. Garrerson. That is not theoretically, but is actual. 

Mr. Wesster. Do you know in fact how much the average freight 
-onductor received in 1913 in money and how much the average 
‘reight conductor is receiving in money in 1919? 

Mr. Garretson. If you will just take this into consideration: All 
{the agreements on every line almost contain a proviso that if crews 
te making less than 3,000 miles per month crews will be dropped off 
‘ntil they can make approximately 3,000 miles, because that is recog- 
ized as an average month’s work. I think that 3,600 is about the 
xtreme top and probably 2,600 the bottom limit. If his wage, in 
$ purchasing power, was keeping pace with the increase of com- 
iodities, he ought to have had about $7.64, whereas he only receives 
5.40. Therefore he has advanced 32 per cent since 1913 in the 





mount of wages he receives, but he has to pay an 82 per cent increase 
1 the price of the commodities which that wage purchases. 

Mr. eserien: I think, in the colloquy between Judge Sims and 
ourself, you made the statement that there was absolutely no limit 
pon the Federal Government’s power of taxation, did you not? 

Mr. Garretson. J said that I so understood. 

Mr. Wexsrer. As a lawyer, it is my understanding that there is a 
ery specific limitation upon the Federal Government’s power of 
ixation; that it is limited to the requirements of the Government 
ad that there is no power in the Federal Government to levy taxes 
ierely for the sake of levying them. 

Mr. Garretson. That is one legal opinion which I have got without 
aying for it. , 
| Mr. Wexsster. Do you disagree with that ? 
| Mr. Garretson. No, sir; I do not. When I am buying legal 
sinions I take them at the price set. I want to say this: That is a 
aestion that the lawyer [ hire will have to deal with. 

Mr. Wesster. It was stated by Judge Sims, and you acquiesced, 
lat if the railroad property of the country was taken over by the 
| Overnment and was removed as a subject of taxation, that the bonds 
®aring a very low return would be attractive, because they would be 
jlieved from taxation, Federal, State, and municipal. Assuming 
lat the power of taxation is limited to the requirements of the 
)Overnment, would not a similar amount of money that would have 
pen received upon the railroad property if it had been subject to 
}.Xation, have to be levied and spread over the reamining taxable 
;operty of the country ? 
| Mr. Garretson. There is no doubt of that. 

} Mr. Wezsrer. Then it is simply taking off at one place and putting 
}Lat another ? 

} Mr. Garrerson. It is better to take it off and put it on at another 
| ace than to put it on two or three places. 

| Mr. Wessrer. But we must not understand that that relicves the 
ablic of any burden ? 









wae ; 


808 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Garretrson. It will certainly relieve the public of a burden, 
if it will not relieve them wholly free from a certain amount of the 
burden. 

Mr. Wepster. You say that transportation enters vitally into 
everything that the average American consumes and uses ? 

Mr. Garretson. It does. 

Mr. Wesster. And the power of rate making has been stated by 
Mr. Plumb to be very similar to the power of taxation ? 

Mr. Garretson. It is. 

Mr. Wesster. If you levy this increased taxation upon the public 
and that identical public is the public that is getting the benefit of 
the reduction in rates, they are simply coming out the same place 
they went in, taking off at one place and levying it at another ac- 
complishes nothing. 

Mr. Garretson. Have you figured any public burdens on the 
-amount involved in other plans, in the guaranteeing ? 

Mr. WeBsTER. I am not advocating any guaranty. 

Mr. Garretrson. I would not make so heinous a charge against you. 

Mr. Weszsrer. I hope you will not. 

Mr. Garretson. I would not, but I want to draw your attention 
to the relative burdens which these plans propose. I say to you that 
the saving to the public in the matter of freight rates is greater and 
far more important than the difference in the taxes levied. A tax 
levy only falls upon those who have propeity. It utterly frees a man 
who has not property, because the tax is upon property. We have 
only one tax which is a universal levy. 

Mr. Wezster. Just one more matter, and I am through. 

It has been asserted here, Mr. Garretson, that the Plumb plan 
rests upon the fundamental principle of democracy, justice, and 
equity to all, special privileges for none. You indorse that? 

Mr. Garretson. Absolutely. 

Mr. Wesster. One of the prominent features of the Plumb plan 
is the constitution of a corporation whose board of directors shall 
consist of fifteen members; five shall be chosen by the President to act 
primarily, I assume, in the public interest; five to be chosen by the 
classified employees, to act, pas primarily, in their interest, and 
in the intermediate five are to be chosen from the managerial or offici 
employees of the roads. Let us assume that the five appointed by the 
President are 100 per cent loyal to the public, that the five appointed 
by the classified employees are 100 per cent loyal to those classes, and 
the intermediate five we will mat a fifty-fifty class, and they are 
equally loyal to the public upon the one hand and to the employees, of 
which they constitute a part, upon the other. That would mean 
seven and one-half votes on one side and seven and one-half votes on 
the other. We have in this country about one hundred and ten mil 
lion people. I understand it to be fairly accurate to say that for 
every five there is an adult or head of a family. So we would have 
22,000,000 male adults in the country. That, of course, would 
include railway employees. So, we will deduct them. That will 
leave 20,000,000 male adults in America not interested primarily i 
the operation of the railroads, and we will have in round numbers 
2,000,000 railroad employees remaining. Is it your idea of democ 
racy and equality that 2,000,000 men shall have the same representa- 
tion and the same voice as 20,000,000 ? 


a 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 809 


__Mr. Garretson. It is as near democracy as we have ever been 
able to get in the matter of representation in the legislative houses 
of Congress. 

| Mr. Wesster. This bill is proposed as an improvement, is it not? 

Mr. Garretson. This bill is proposed as a step toward it, and if 
you can bring the whole 20,000,000 of the outsiders in and form a 
true democracy as the the Greeks, who originated the term, under- 
stood, why, I think we would accept it. 

Mr. Wesster. Do you not think that when the representation 

on this board stands as eleven to one or ten to one, approximately, 
that your board is a little one-sided ? 
__Mr. Garrerson. I think it is an immense betterment over this. 
How much representation have these 22,000,000 men on the board 
of directors of. any corporation on this continent?. How much rep- 
resentation has any interest but the most selfish interest that the 
devil ever devised ? 

_ Mr. Wesster. We will not cure a system of selfishness by sub- 
stituting another system of selfishness in its stead. 
| Mr. Garretson. Every one of the 15 are members of this public. 
_ Mr. Wesster. This plan, it seems to me, just gives the balance in 
favor of the other side of selfishness. 

Mr. Garretson. Let them have their day in court; it has been a 
tong time since they had it. 

| Mr. Wesster. I do not gather what you mean by that. 

| Mr. Garretson. I mean that the master interest has ruled all of 
these things for 50, 100, or 1,000 centuries. You might let the other 
interest try it for awhile, to see if you get better railways. 

Mr. Wesster. Is that the ultimate idea of this bill, in so far as the 

oersonnel of this board of directors is concerned ? 
_ Mr. Garretson. The ultimate theory is to democratize it in as 
reat a degree as we may, and this seems to us as near a method as 
v0ssible, and if those employees who form this corporation, of the 
iwo Classes, are to be made responsible for the successful conduct of 
ihe enterprise in the public interest, they are of necessity compelled 
i0 have the dominating voice therein. That is all. 

Mr. Wezster. Mr. Garretson, what proportion of the loss from 
‘ailroad operation under the Plumb plan would fall on the men 
mgaged in operating the railroads ? 

. GARRETSON. Collectively it falls on the men. With every 
‘alling off of business, whenever the volume of business in this country 
leclines, there is no class that has been heavier hurt collectively than 
he railroad employees, because thousands of them are thrown out 
‘if employment utterly and the loss of their earnings collectively; 
hat is, to the class, is greater than the loss of the employer in the 
lecline of his revenue. 

Mr. Wezsrer. Let us follow that idea just a little further. If 
‘ou are willing, under the Plumb plan, to rest the rights of the railroad 
Mmployees in this directorate of 15 members, and that board has the 
sower to fix and determine wages—the reasonableness of wages 
nd the justness of the relationship of wages—ought not your bill, 
1 order to be consistent, to provide that the men should not strike ? 
- Mr. Garrertson. Is that the question ? 

' Mr. Wesrsrer. That is it. 















| . 


810 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Garretson. There is no element of consistency that would 
justify a man in bartering a constitutional right for a money privilege. 

e are not selling our birthright. | 

Mr. Wesster. I think if you were willing to put so vital an interest 
of your employees in the hands of this board that you would be will- 
ing, not to sell your right, but willing to have it passed upon by people 
of your own selection and of your class, bound to.you by the same ties. 

Mr. Garretson. We have not as implicit faith as you seem to have 
in the ability of the employee to get what he believes is a just wage 
from that board and we have not any intention in submitting this 
bill or any other to abandon the one weapon that labor has used im 
years gone by to get what it has. 

Mr. Wesster. Frankly, how can you ask Congress to put the vital 
interests of the public in the hands of this committee when you are 
unwilling to put your vital interests in the same hands? | 

Mr. GarreTson. We have no hesitancy in saying that if the publie 
places their vital interests in our hands for operation and handling, 
that there is going to be a big improvement in the matter of the clean- 
liness of the hands that they are placed in. 

Mr. Wesster. We would have more faith perhaps if you had more. 
We are asked to place the vital rights of the American public—every 
man, woman, and child having a part in the struggle for existence— 
in the hands of this board, for the transportation element, enters 
vitally into everything they consume and everything they use. 

We are sitting here in Congress now dealing with those important 
problems. You ask us to take the millions of this country, each and 
every one of whom is interested in this matter vitally, and to say to 
them that their interests in this matter are safe in the hands of this 
board; yet those who sponsor this plan, those who devised it, are not 
themselves willing to trust their important rights to the men that 
we are told we must trust? 

Mr. Garretrson. You are in error in one case. These men did not 
devise the plan. They adopted it and in a degree modified it after 
it was devised. They believe that they see within it the very essence 
of betterment of conditions of which they complain, that it is one of 
the big elements which enter into the settlement of that question 
which has absolutely taken society by the throat, the high cost of 
living, and they have adopted this as one of the means toward the 
rectifications of those conditions, and furthermore, because they 
believe that no steps can be taken in the interest of the American 
public greater than that outlined here. I am perfectly aware that 
it strikes at the very heart of the interests, and I realize, possibly 
more than a great many of the people I represent do, that it is for the 
betterment of mankind, and that is why I advocate it. I think Iam 
beyond the stage where the petty interest of the men I might repre- 
sent appeals to me in the same degree that the interest of the nation 
does. I may be a self-constituted representative of the public, bub 
I at least try to be a decent and honest one, and I probably have as 
good credentials to represent that public as any other man can assert 
an his own behalf who has not been chosen by the public to speak for 
them. 

Mr. WesstTeErR. I am not challenging that. 

Mr. Garretson. That is why I adopted for myself and for my 
organization this plan when in its original form it was presented. _ 


___ RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 811 


/ 
i 


was probably one of the earliest ones that saw within the germ of 
that for which I strove, and I believe that it is the most practical 
‘means that has been presented for the final attainment of that for 
which millions yearn. 

» Mr. Wesster. Will you go with me this far, that no policy of 
government reflected in legislation which is injurious to the people 
of the country, considered as a whole, can permanently be of any 
benefit or advantage to any class? 

_ Mr. Garretson. I do not quite understand that question. 

| Mr. Wessrer. Will you indorse this proposition, that no policy 
of governmental legislation which is injurious or hurtful to the people 
of the country as a whole can permanently redound to the benefit 
‘or advantage of any class ? 

._ Mr. Garretson. I absolutely go with that literally as stated. 
‘T only want to add one qualification. If it injures the proper and 
true interest 
| Mr. WexssTEr (interposing). That is what I mean. 
Mr. Garrerson. I go with every word of it. The evil acts even- 
‘tually must fall, evil acts and practices. I will say this for myself. 
Now, bear in mind, Mr. Chairman, that I am speaking for no interest 
but the one man, a personal opinion. 

I am radical enough, anarchist enough, bolshevist enough, no 
matter what name you call it, to believe that because a thing, evil 
‘practice, has flourished for 50 centuries is no reason that it should 
‘not be corrected. 

Mr. Wersster. I heartily agree with you. 

Mr. Garretson. I am at utter variance, I do not regard as honest 
an interest in the economic system which enables one man to appro- 
priate the result of the life effort of a million. The whole financial, 
social and industrial system of the world to-day is indicated by just 
one fact. In the richest city in the world, every twelfth funeral 
goes to the potter’s field. In New York every twelfth funeral goes 
to the potter’s field. That is an indictment of the economic and 
social system. 

Mr. Wezster. This one question and I am through. Throughout 
your statement before this committee I have assumed and granted 
to you that you are aboslutely sincere and absolutely honest in 
your expression of views. If I should take the view that the Plumb 
plan is unwise and hurtful and should not be adpoted in the interest 
of the people of this country as a whole, will you do me the compli- 
ment to think that I may be honest too ? 

‘Mr. Garretson. Mr. Webster, allow me to draw your attention—— 

Mr. Wezsrer. Please answer my question. . 

Mr. Garrerson. I will answer your question. I have the fault 
of answering questions. I want to tell you this. If my view of 
|men was founded on whether or not they agreed with me, if I ques- 
tioned the honesty of purpose of every man who has disagreed with 
,me, there is not a man, woman or child with whom I have ever come 
‘mto contact that I could say, ‘‘Good morning”’ to, for I have dis- 
|agreed with everybody I ever knew. My estimate of a man is not 
based on whether he holds the opinion I do, it is on my judgment 
him as a man, and if you, in making up your judgment, decide hat 
you are not in sympathy with that plan and if you differ in opinion 
|rom me, that might have no effect whatever in my estimate of 


, 















812 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


your honesty or righteousness of purpose, but I might love you as 
a citizen, give you the full meed of it, and then refuse to vote for you 
because you did not agree. 

Mr. Wesster. Certainly, that would be all right. I recognize 
your full right and privilege to do that. I have not any right to 
complain against your doing it, but you would not have any respect 
for me if I thought the Plumb plan was unsound, and yet voted for 
it 2 

Mr. Garretson. No, sir; I would not. 

Mr. Wesster. Do you believe that it is just, if that is my honest 
view, that I should be ‘‘posted throughout the length and breadth 
of our fair land” for giving expression to it? 

Mr. Garretson. So far as posting is concerned throughout this 
fair land, if I were discussing this bill in a public assemblage I would 
do my part—I say discussing it after it had failed to carry—I would 
do my part in the posting of somebody who vitriolically opposed it. 
That is all the posting amounts to. That is the position that a man 
gets into whenever he enters either public or quasipublic service. 
I will tell you, Congressman, that I love a certain amount of it which 
has been directed against myself and I love myself for some of the 
enemies I have made. It has always been a debatable question to 
my mind which is most desirable, the respect and confidence of good 
men 

Mr. WEBSTER (interposing). Or the condemnation of bad ones. 

Mr. Garretson. I think if some men had given me commendation 
[ would distrust the honesty of my own motives. 

Mr. Wessrer. I think that the commendation of good men and 
the condemnation of bad men : 

Mr. GarReTson (interposing). Are of equal value. If I were to 
make a differentiation between the two I should say that condemna- 
tion was the more valuable of the two. 

Mr. Merritt. Mr. Garretson, I was interested, during your colloquy 
with Judge Sims, in your agreement with his statement that the 
Plumb plan abolishes the capital account; is that correct ? 

Mr. GARRETSON. It is. } 

Mr. Merrirr. But the Plumb plan does not abolish the capital of 
the railroads. ; 

Mr. Garretson. It does not abolish the capital of the railroads, 
because it purchases the capital of the railroads and pays for it, the 
actual capital. 

Mr. Merritt. Then where does the capital exist ? 

Mr. Garrerson. The fact is that after it has been wiped out by 
amortization, the Government then owns the railway system with 
out having paid a dollar therefor. It has acquired it and wiped out 
the capital debt. 

Mr. Merrirr. You distinguish then between the Government and 
the people who pay the taxes. ‘ 

Mr. Garretson. The people themselves have those railroads and 
they have paid no taxes. The Government borrowed the money 02 
the credit of those people and then repaid itself. 

Mr. Merarirt. Repaid itself from whom ? 

Mr. Garrerson. It paid itself just as it is now paying freight 
rates, although it will pay them in less amount; and it would, under 
any other plan that has been presented, or under the present plan, 
pay the same or more and have no property at the end of 100 years. 








RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 813. 
; 

Mr. Merrirr. Of course, all of your argument is based on the 
ibsolute assumption that under the Plumb plan the freight rates are 
soing to be less? 

_ Mr. Garrertson. If they remained the same, the same thing would 
de true, Congressman. If that assumption was incorrect, and rates 
vemained as they are to-day, the same result would come, while 
inder any of the other plans, those freight rates must, of necessity, 
‘1Se. 

Mr. Merrirr. Not if the private owners can produce the same 
‘fficiency that the proposed plan 
ar. Beticrivcon (interposing). No; because they have eternally 
o meet the capital charge. 
| Merrirvt. Is it your assumption that the railways of this 
sountry will never be increased ? : 

' Mr. Garretson. The size of the railway system bears no relation: 
‘0 the rates for passengers or freight. 
| Mr. Merrrrr. But your extensions will call for new capital invest- 
oent. 
| Mr. Garretson. It depends on whether one plan or the other is in 
fect. Under private capitalization or under private ownership all 
‘xtensions would require new capitalization, yes, if built with funds 
/utside of revenue from operation. Under the Government plan, 
vyhere the community stood preeminent, and they were willing to 
vear the cost, it would not add to capital. Where the responsibility 
or extension was divided between the corporation operating and the 
ommunity needs, the portion that the community contributed would 
ot be capitalized; but where the extension was for operating needs, 
hen the capital would be. ‘ 

Mr. Mrerritr. Pardon me, you are mixing up two things if I have 
nderstood you. 

Mr. Garretson. No; I do not think so. 

Mr. Mrrrirr. You are mixing up capital and capitalization. 

Mr. Garrerson. Capital and capital additions, as long as the 
dditions are made, the distinction ceases. 

Mr. Merritt. You are keeping your eye on the capital account 
nd I am keeping my eye on capital. 
_ Mr. Garretson. There is a distinction in phrases without a marked. 
ifference in the thing described. 
| Mr. Merarrv. I think not. 

Mr. Garretson. The capital account of a railroad company means. 
ne thing, I will admit, different from the capital of that railway. 

Mr. Merrirr. It may or it may not. 
Mr. Garretson. The capital is actually what is put in and the 
apital account.is but the issuance of securities and other obligations. 

r. Merritt. I understand, but I am talking about the future 

‘hen none of these evil practices are going to continue, and what I 
vy is that this new capital is not going to fall like the dew from 
leaven, falling on the just and the unjust, but is coming out of some 
mmmunity and some people. 
‘Mr. Garrerson. It is coming out of them with an immediate 
turn to them in marketable values in things along the railways. 
hat is what that idea is founded on. 
Mr. Merrrrr. Now, then, you made another statement which your 
‘St remark leads up to, that all new capital under private contro! 
‘eant an increase in rates. 

















814 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. : 
Mr. Garrerson. Capitalization of existing properties, that is true; 
yes, sir. 

Mr. Merairt. Is that true ? . 

Mr. Garretson. It has been written that the only way you can 
judge the future is by the past. Apply that rule and my statements 
correct. ; a | 

Mr. Merrirr. Since the Civil War the capitalization and the capital 
both, of the railroads of this country, have increased very many times; 
is not that true ¢ | 

Mr. Garretson. If they increased with mileage that would be 
legitimate increase, If they increased without mileage then the ques- 
tion would be: Was it legitimate or illegitimate ? 

Mr. Merritt. Is it not true, however, that certainly up to the time 
of the war, and-I believe now, the rate per mile of freight in this 
country is very much less than it was after the Civil War? 

Mr, Garretson. For a very considerable period, from the time ol 
the enactment of what was known as the Granger legislation, rates in 
both freight and passenger service steadily decreased for a very con: 
siderable number of years. The reverse has been true in the imme- 
diate past. : 

Mr. Merritt. As to even now, the rates have not got up to what 
they were at the time the capitalization of these roads was only a 
fraction of what it is now. ; 

Mr. Garretrson. That is very possibly true, and if you will take 
into consideration the fact that there was no regulation at that time, 
you have the answer as to why. 

_ Mr. Merrirr. I do not think I have. 

Mr, Garretson. It was putting on all the traffic would bear. 

Mr. Merritt. One other matter and I am through, because I think 
it is very important, if we can, to clear up our notions of capital and 
capitalization. One other point, with regard to the point you made 
that increased capitalization means necessarily increased rates. Take 
a single-track road, for example, and there comes a time when the 
traffic is too great to be handled by a single line of rail. Now, I am 
talking about honest issues and I am not talking about any sins 
the past. 

Me Garretson. Assume for the moment that a railroad would he 
honestly administered; yes, go ahead. 

Mr. Merritt. Yes, assume that for a moment. Now, it is neces 
sary to add a second line of rail and make it a double track and that 
is done by an issue of stock or bonds as the case may be. 

Mr. GarRetTson. Both. 

Mr, Merritt. Or both, but not exceeding the cost of the rails and 
all the other expenses. Now, then, the result of that is that the rail- 
road can carry much greater traffic and the increased traflic from the 
new track more than pays at the old rate the charges on the track, 
In such case that new capital would not add to the rates, would it! 

Mr. Garretson. It would not. . . 

Mr. Mernritr. So I think that is a thing to bear in mind, that the 
mere fact that capital has increased is no sign that the rates are 
oppressive in themselves. fe 

Mr. GarrETSoN. Congressman, let me call your attention to one 
condition there. If the volume of traffic increased in a degree that 
the rates then in force and effect would yield the same return on thé 
augmented capital per mile—you will bear in mind we have not 












RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 815 


used that phrase before, but there is the true basis in contrasting 
earnings, and that is, capitalization per mile. 
| Mr. Merairr. I understand that. 
_ Mr. Garrerson. Because there capitalization per mile would have, 
assuming that the first track was honestly provided, virtually doubled, 
-with such variations as would grow out of differing costs of labor’ 
‘and material as between the time when the other track was con- 
_ structed; but the volume of traffic would have to be great enough to 
take care of the added charge if an increase in freight rates or in all 
“Yates was not necessary to meet the added charge, unless prior 
- earnings of that company had created a surplus that would meet it 
or had been so great that they would bear the added charges. 
__ Mr. Merrirv. The point I was trying to get into the record, and I 
do not think you will dispute it, is that in itself the mere fact that 
extra capital is required is not an evil. Every enterprise of any 
sort, mercantile, manufacturing or transportation that requires new 
pppital is only showing signs of life and not a sign of depression or 
death. | 
Mr. GarretTson. Legitimate additions of capital may be legiti- 
| mately met, and still, even assuming for the moment that they are 
legitimate and that the expenditures are legitimate, if a means can 
be devised whereby fixed charges may be abolished and the public 
| at large receives the benefit accruing from such abolition, any man, 
once convinced that it can be done, fails in his duty unless he em- 
| braces the means for so doing. Now you will note the point I make 
‘there before the statement of failure of duty, if he is once convinced 
that such is the case. 
Mr. Merrirv. I understand. 
Mr. Garretson. Then he would fail in his duty. Until he is 
‘convinced he could as honestly oppose it as J can advocate it. 
Mr. Barxtury. Mr. Garretson, in order for this plan to be a success 
) the return in freight rates to the roads or to this corporation created 
by your bill would have to be sufficient to pay the railroad men a 
wage that is satisfactory to them and at the same time create this 
sinking fund out of which the roads would be ultimately paid for by 
| the Government. 
| Mr. Garretson. It would; in other words, here is the amount: 
The fixed charge at first would be the interest on the bonds and 
the amount of the sinking fund. That is all the fixed charge would 
| consist of, and in addition to that, operating expense until such 
| time as this 1 per cent, which constitutes the sinking fund, should 
| have reduced the fixed charge by the retirement of bonds. After 
‘Tetirement had once been effected, then only operating costs would 
have to be met. 

Mr. Barxiey. But that retirement would not take place until 
100 years had elapsed. 

Mr. Garretson. The statement was made here that figuring it 
out, it amounted to, I think, 34 years. 

a Barxxey. Is that so? I was assuming that the value of the 
Toads 
Mr. Garretson. I think that statement is correct, Mr. Chairman. 
The Cuarrman. IJ think it was on the basis of 1 per cent. 

Mr. Garretson. Maybe I misunderstood the answer. I think it 
‘was true that it was on the basis of 1 per cent. 


(‘We 152894—19—vor 152 














816 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Barxuey. If the value of the roads should be found to be what 
Mr. Plumb estimated that to -be—something like $12,000,000,000— 
then, the amount set aside as a sinking fund would be 1 per cent of 
that $12,000,000,000. 

Mr. GARRETSON. Yes. 

Mr. Barxiey. I have not figured it out, but I do not just see how 
In 34 years 

Mr. Garreston. I think it was by the utilization of the half of the 
surplus that was to be paid to the Government. 

Mr. Barxiry. Yes; but eliminating the surplus. 

Mr. Garretson. Bear in mind that is purely an estimate. 

Mr. Barxiey. Eliminating any surplus that might arise, it would 
take practically a century. 7 

Mr. GARRETSON. It would take 100 years if sums were not drawn 
from operating surplus or some other source. 

Mr. Barxtey. If there should ever arise a controversy in the board 
of directors as between the railroad men and the public as to whether 
their wages should be increased or held to a certain figure where they 
existed, or if this smking fund should be depleted or alowed to lapse, 
what is your view as to the position the men themselves would take 
if that sort of an emergency should arise ? 

Mr. Garretson. It is an impossible thing in my opinion for the 
sinking fund—bear in mind that the bill makes it imperative that that 
amount shall be set aside. Now, while there is no mandate in regard 
to an increase in rates, the order only being mandatory as to a de- 
crease in rates to the Interstate Commerce Commission, it is un- 
thinkable that if a deficit should occur that would interfere with the 
operation of the road that the Interstate Commerce Commission 
would not, of its own initiative, or on 1equest, increase those rates. 
Here is what is true: That condition could not occur in any norma! 
year, because the volume of business, the tide of commerce, can not 
fall below the necessities of the people. 

Mr. Barxtiey. Is it your view that this 1-per-cent provision for @ 
sinking fund has priority over the wages of the men ? 

Mr. GARRETSON. The fact is that the interest on the bonds and the 
sinking fund appropriations take precedence over everything in the 
bill, as I understand it. 

Mr. Barxiey. So that if it should come to a point where the 10 
directors, five representing the classified employees and five repre- 
senting the official employees, admitting that they have a community 
of interest which would cause them to combine as against the other 
five, your view is that this sinking fund to provide for the amortiza- 
tion of the bonded indebtedness required to purchase the roads and 
to pay the interest on the bonds as they fall due, having priority over 
the wages, that those 10 directors would provide for the taking care 
of that sinking fund even if that required a reduction in wages m 
order to do it? 

Mr. Garrerson. There I get an angle on your question I did not 
get at first, Mr. Barkley. Wages are paid at certain intervals. 
These other appropriations only take place at the end of the fiscal 
year, whatever itmay be. The question as to priority, it does not 
seem to me, can arise, in a general sense, except as it arises on a rail- 
road that is unable to run its pay car. 





RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 817 
_ Mr. Barxzey. It might arise in this way. 

. Mr. Garretson. You get my point. 

» Mr. Barxey. Yes. 

_ Mr. Garrerson. What I mean is this: Wages are agreed on and 
are paid out atintervals, while the sums for the payment of interest 
and for the sinking fund are accumulating in the hands of the Treas- 
urer of the United States or of the Secretary of the Treasury. Con- 
sequently, that question of priority can not arise until the time 
comes for the paying of the sinking fund, and I am perfectly free to 
admit that the law regarding the payment of wages might have a 
bearing on that. I have not taken that into consideration. I want 
to ask this question, and I am going to ask it, under the average law 
docs not the payment of wages constitute a first lien on any industry ? 
_ Mr. Barxiey. Yes; I would say as a general rule the payment of 
wages constitutes a lien 

Mr. GaRReETSON (interposing). That might be the situation if they 
‘could not pay the wages on the day they were due. 

Mr. Barxiey. But I was looking forward to a possible situation 
‘where the men themselves might not be satisfied with the wage they 
were obtaining. They could not secure an additional wage without 
infringing on this sinking fund, if that were possible, or compelling 
the Interstate Commerce Commission to raise rates that would bring 
a return sufficient to set aside 1 per cent for the sinking fund an 
also pay the men the wages they were asking. 
| Mr. Garretson. I am of the opinion—— 

Mr. Barxiey (continuing). Now, in the event the Interstate Com- 
merce Commission should decide not to increase rates or to permit 
an increase in rates, so that the rates remained stationary, and that 
tate admittedly was not sufficient to provide for this sinking fund 
and give the men the wages they were asking, what then would 
happen ? 

. Garretson. No man can do more than express an opinion. 
My own would be that a large majority of that board, pontrarted 
with the legal requirements of the act, would refuse to increase wages 
when confronted with that certainty. 
' Mr. Barxkiey. Your view, then, is that the board of directors 
vould assume, or would have the right to assume, that if they should 
ubitrarily act in favor of the employees in the matter of an increase 
‘if wages, where there was no provision to take care of the increase 
y an increase of rates so as to pay the men the wages they were 
isking and take care of the fixed obligations provided in the bill— 
is I-say, they would assume that if they acted arbitrarily in the 
jnatter, it would perhaps result in a forfeiture of the lease, and that, 
‘n the long run, it would be worse for the men than to refuse the 
/nerease ? 
| Mr. Garrerson. There is a clear legal obligation imposed on the 
\»oard as the head of this corporation, and I do not hesitate to say 
jhat under those conditions they would of necessity be guided by 
}ommon business sense as well as regard for what might justly be 
jPaarded as dangerously close to a betrayal of trust. 
' Mr. Barxuey. The question of taxation has been raised. I am 
eeking to get your viewpoint on these questions I am asking so 
|hat we may by a system of transmigration of living spirits, we 


















“ 


818 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


might say, put ourselves in your attitude in order to find out what 
you think. Is it your view that under this bill the Government 
or Congress would ever have to levy a direct or indirect tax, to be 
collected through the Treasury, to be appropriated to meet the obli- 
gations of this service 4 , 

Mr. GarreETson. It is not. y 

Mr. BarkuEy. Your view is that it would be self-sustaining, and 
that the question of taxation, as we understand it, would not enter 
into it at all? 

Mr. Garretson. Absolutely, from my standpoint, the question 
of taxation never can confront the country nor Congress. - 

Mr. Barxiey. These labor organizations, of one of which you 
have been the head, have grown up through a sort of necessity in 
the past in order to enable the men to deal collectively ? 

Mr. Garretson. To get away from the ‘‘Iron Law of Wages.” 

Mr. Barxtey. To deal collectively with the railroads or employers 
If this plan should be adopted, and the railroad men_ themselves 
should become participants in the management and in the profits— 
1 will eliminate the word ‘‘profits’? and say in the emoluments 0: 
the service —what effect would that have upon the necessity for thé 
continuance of these various organizations ? 

Mr. Garretson. My opinion is that that condition would remait 
unchanged. You will bear in mind—and, of course, I recogniz 
the fact that from necessity I am a partisan—but if you take the ol 
conditions that existed, and which are best described in what wai 
outlined by Ricardo and formulated LaSalle as the iron law of wages 
the old economist dealt with it on the basis that the laborer wai 
entitled to just enough to enable him to exist and propagate—tha: 
is, to exist for the benefit of the present generation of masters ant 
propagate for the benefit of future generations of masters. The labo: 
unions grew into existence in the fight against that view, and they 
are going to stay until the laboring man has got such a proportior 
of the product of his labor as will enable him to do a little mom 
than those two things. Therefore, in this system, they are goms 
to take Patrick Henry’s advice and do the eternal vigilance act. 

Mr. Barxiey. So that, notwithstanding the fact that these met 
are participants in the management and control and in the emolu 
ments, and, therefore, are dealing practically with themselves im | 
way, you think that the necessity for their continuance and for ti 
same vigilance would be as apparent as ever? 

Mr. Garrerson. The individual in this day and age of the work 
has no channel of expression. Organizations furnish him that chan 
nel. The clements of fear and resistance enter into the exist 
ence of those organizations. They are listened to because it ma 
be cheaper to listen to them and conform in some degree to tha 
which they demand than to try to stamp them out. That is al 
there is to it. 

Mr. Barkiey. Now, as to the representation on this board, ther 
is on the face of it an apparent inequality in the representatia 
given 110,000,000 people of five members, 20,000 people five member 
and 2,000,000 people five members. Do you believe that, if such 
plan should be adopted this is as fair, proper, and just division ¢ 
the representation as could be devised ? : 


\ 





RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 819 


_ Mr. Garrertson. I am in sympathy with it as it stands for this 
reason: If, as I said in answer to a question a moment ago, the 
‘tesponsibility for the execution of the enterprise is to rest upon the 
labor which conducts it, it must have a dominant voice. It is a 
foregone conclusion that responsibility and obligation go with powers 
and duties. No man can wield power without assuming obligations. 
‘He can not assume rights without associating duties therewith. 
‘Power is conferred and rights are granted, and therefore duties are 
gg and obligations assumed that must be met, and they can 
mly be properly met with authority to act where the power and 
‘esponsibility lies. You have forgotten one thing, and I have no- 
ticed that unfailingly, and that is that while it is true that the 
oublic has 5 direct representatives, and while it is true that the 
orimary allegiance of the 5 classified service men is to the service 
hat they represent, and that the primary allegiance of the 5 
‘ficial representatives is also to- their class, still those 10 men are 
4s responsible at the bar of public opinion and the bar of public 
ulegiance, as the others, and public allegiance rests as heavily upon 
whose 10 as upon the other 5. 

Mr. Barxiey. It might be imagined that a situation would arise 
|luring the continuance of this plan wherein one group at any given 
ame in any given controversy might become an umpire between the 
other two. 

Mr. Garretson. That is exactly it. 
| Mr. Barxiny. If that situation should arise, there would be 
bree classes involved, the public, the managers, and the employees. 
|f a controversy should arise where the employees’ interests were 
jet over against the interests of the public, and the managers’ inter- 
)sts should not be directly involved, would the five representatives 
f the managers be likely to fall on the side of the public or the 
)mployees, or would they probably take middle ground and become 
)/m a real sense umpires between the contending forces ? 

| Mr. Garretson. | will give you my opinion, and it is only an 
) pinion, but it is founded on my knowledge of men: In most of the 
iontroversies that would arise, that board would act individually 
fnstead of collectively. You will find that the line of cleavage is not 
ja the majority of cases along the line of the origin of the people or 
ilong the line of the classes from which they are chosen. Individual 
‘pinion will decide most questions where class cleavage arises, and 
rou would find in one controversy the employees’ representatives 
md the public service contending with each other, with the official 
ive representatives acting as the umpire. In the next points of 
jlifference, you will probably find the official class and the public 
Jlass at variance with each other and the employees’ representatives 
cting as the umpire. Under the third condition you would find the 
|Wo employees’ classes, or the official class and the nonofficial class, 
|pposed to each other, with the public’s representatives refereeing 
| he matter. 

| Mr. Barxtiey. If you take any legislative body, or, for instance, if 
‘ou take Congress, you will find this situation: [ am elected from a 
ertain district, and nobody else in the United States has any voice 
a my election except the people of my district; but when I get up 
ere and become a member of this body of 435 Representatives, while 
still represent that one district in Kentucky, as a matter of fact I 














820 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


become a national legislator, and in many respects I am supposed to 
look beyond the boundaries of my district and to take into considera- 
tion the view of the whole country. 

Mr. Garretson. Except for post offices. 

Mr. Barxiey. Except for post offices, but they have taken all of 
them away from us now. [sit your view that this board of directors 
would assume a position somewhat similar to that? 

Mr. Garretson. I firmly believe that they would. 

Mr. Barxtey. Now, as to the representation, I confess that it is 
impossible for any government or any other institution to provide 
the exact or precise number of members to give equal representation. 
For instance, New York has two United States Senators to repre- 
sent 10,000,000 people, while Nevada, with about 100,000 people, 
has two Senators with the same power; so that, in any form of 
government, it is impossible to give the same representation to an 
equal number of people as long as. you have artificial districts and 
boundary lines. What I am seeking to ascertain from you is, whether 
or not you have finally reached the conclusion in your advocacy of 
this bill that this provision affords as nearly a fair and just represen- 
tation as any that can be devised under a plan similar to this ? 

Mr. Garretson. Now, I do not want my reply there to be mis- 
understood, or as indicating that I am wedded ‘to any particular 
provision. If improvement could be devised that would adequately 
meet that situation, leaving, as I have stated, dominance with the 
responsibility, I would have no criticism to offer thereof. So far as 
we have been able to study this out, this is the best plan that we 
were able to furnish. In that, or in any other particular detail, if 
a plan that meets the approval of the committee or of Congress can 
be devised, safeguarding the things that I have mentioned, I would 
welcome it. 

Mr. Barxvey. If you were to admit for the sake of the argument 
that your bill is abstractly and socialogically just and fair as between 
the owners, the public, and the railroad employees, what is youl 
opinion as to whether public opinion now has reached a stage where it 
would approve the enactment of this bill at present? 

Mr. Garretson. Mr. Barkley, I would not willingly give you a 
false view on this subject. I have an idea that if it were put to a 
referendum vote to-day, simply from a spirit of conservatism and 
suspecting evil in a change, the majority of the men in this country 
to-day would probably vote against it, but I say to you that in the 
immediate future I believe that the opposite result is going to he 
true. It isa thing that will cause millions of men to investigate and 
later embrace this plan; that is going to be the case when they ar 
once convinced that it contains within it one of the elements that wil 
correct the things that they complain of. | 

The CHAIRMAN. We will meet again at 2.30 o’clock p. m., and heal 
Mr. Decker, of the Public Service Commission of New York, who i 
present. Mr. Plumb is to submit a statement in regard to financia. 
conditions. 

Mr. Pius. I will not take more than 15 minutes. 

The CHarrMAN. Then, you can precede Judge Decker. 

(Thereupon, the committee took a recess until 2.30 o’clock p. m1. 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 821 
\ AFTER RECESS. 


_ The committee met at the expiration of the recess at 2.30 o’clock 
p.m. 





ADDITIONAL STATEMENT OF MR. GLENN E. PLUMB, GENERAL 
- COUNSEL FOR THE ORGANIZED RAILWAY EMPLOYEES OF 
AMERICA, WASHINGTON, D. C. 


, Mr. Pius. Mr. Chairman and gentlemen of the committee, in 
opening my statement on Thursday morning, last, I said: 


During this week and since your honorable committee requested me to appear in 
order to present the case of organized labor with respect to its bill for public owner- 
ship in control of the railroads, there has come into the possession of the railroad 
brotherhoods and 10 affiliated railway labor organizations of the American Federation 
of Labor a state of facts never spread before the American people or submitted to the 
jury of public opinion. These facts tend to show that the wrecking and looting of the 

Hew York, New Haven & Hartford Railroad, the Chicago & Alton, the Rock Island 
System, and the Frisco lines are not sporadic examples of the highway robbery to 
which the American Nation has been subjected as toits public transportation high- 
ways. Leading directly from Wall Street and from the banking houses controlled 
directly by the Morgan and Rockefeller groups, these facts show that there has pro- 
‘ceeded a systematized plundering of virtually all of the transportation highways of 
the United States. 
_ We believe that a congressional investigation will reveal that not one railroad 
system dominating any part of the 254,000 miles of railroad in the United States but 
has suffered and is suffering, in degree if not to the same extent, from carefully deliber- 
ted manipulations of the sort that have wrecked and ruined the railroads I have 
‘mentioned. It will reveal with emphasis the truth of the words recently uttered 
before the bankers of Missouri by Elihu Root: ‘‘Surely some provision must be made 
to prevent the continuance of the steady progress toward bankruptcy of the railroads 
which characterized the decade before the Government took possession in 1917.” 
It will reveal that these interests are again gathering their forces of private and secret 
control and seek, after having gained from Congress a sanction to rehabilitate their 
tailroad properties at public expense, to begin again and follow through its corrupt 
and Picked cycle the systematized plundering and looting of the public and the 
public interest in the nation’s highways. 


In response to that promise I now continue. 

I have shown by excerpts from reports by the Interstate Commerce 
Commission that the property investment account of the railway 
lines in all of the transportation districts of the United States are 
wholly unreliable, and can not be used as the basis for determining 
\what the public shall.pay for the service. 

, I have shown that in the five railway valuations first completed 
and published by the Interstate Commerce Commission the actual 
|20st of reconstruction new, including the increased value of lands and 
teal estate, is but 50 per cent of the aggregate property investment 
jaccounts of the five railways so valued. 

I charge that the nearly completed survey of the entire transpor- 
jtation area of the United States contained in the reports of the 
Valuation Division of the Interstate Commerce Commission, so far 
jas that work has now progressed, confirms the results disclosed by 
(the valuation of these five roads. I charge that the aggregate 
mMyvestment account, as stated by the carriers so examined, exceeds 
the estimated cost of reproduction new by the same or approxi- 
Mately the same percentages shown in the valuation of the five 
railroads as shown in my testimony. 

























822 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


I charge that in such investigations so made by the Valuation 
Division of the Interstate Commerce Commission, where the cost of 
reproduction new approximates in amount the investment account 
as stated by the carrier, it will be found in most instances that this 
approximation is due to the fact that vast expenditures have been 
made out of surplus and excessive earnings, after the payment of 
ample dividends on the actual investment; that these surplus 
earnings have been expended on or ploughed into the property im 
such a way that the actial cash investment, including these surplus 
earnings, had brought the level of cost of reproduction new up to 
the property investment aceount. 3 

I charge that President Underwood, of the Erie Railroad, in an 
interview recently given to the New York World, stated that the 
expense of operation under Government control had been greatly 
increased by the employment for political purposes of unnecessary 
eniployees, and that this increase in pay-roll expense had been made 
for the purpose of building a political machine. I charge that 
investigation of President Underwood’s indictment will disclose that 
if there has been wastefulness of noney in swelling the pay rolls, it 
has been at the instance of railway managements to make the expense 
account under Government control appear extravagant and wasteful. 

I charge that the time the Government took control of the opera- 
tion of the railroads they were in such depleted condition as to main- 
tenance and repairs of both roadbed and rolling stock that it has 
required hundreds of millions of dollars advanced by the Government 
to place them in eflective operating condition. I charge that in the 
making of such expenditures the railroads operated and controlled 
by men under the influence of Wall Street directorates have spent 
vast sums in unusual expenditures for maintanance and supplies, 
anticipating the return of the railroads to the private owners; that 
such unusual expenditures have been made for the purpose of plac- 
ing these properties in perfect operating condition and furnishing 
them with supplies for a long period of operation ahead, such sup- 
plies having been paid for out of Government money at exorbitant 
prices. 

I charge that the Interstate Commerce Commission was six years 
ago directed by Congress in the provisions of the valuation act to 
ascertain and report the value of all aids, gifts, and grants made to 
railway corporations, the value of those grants at the time made, and © 
the value of the portions of the grants still*in the possession of the 
carriers at the time of valuation. This work has not been done. _ 

I charge that the records disclose that an area of land exceeding 
190,000,000 acres, or 296,875 square miles, has been given by the 
United States Government and by the various State governments to 
our railroads to aid in the construction of our national highways; 
that this area exceeds in extent the areas of all of the New Bn land 
States, New York, Delaware, New Jersey, Pennsylvania, Maryland, 
Ohio, Indiana, and Illinois, and exceeds the area of either England, 
France, Germany, or Austria Hungary before the war; that of the 
grants made 113,000,000 acres had been patented and 35,000,000 
acres had been forfeited prior to June 30, 1910; and that of the re- 
mainder the greater part is still available. I charge that the values” 
of the grants so made have either been appropriated to the private 
property of the railway promoters or they have been capitalized as 














Areas within ‘peers? 
limits of unforfa 

for railroads ands 
imuta émount 
one-half that w 
the lands grant 
survey sectionges 
often not obtains! 





Areas within “pit 
limits of forfeited 


railroads.— The 
conditionally g 


forfeited was o 
mary limits. 


waite Grant limits. 








NY y Y, 


FEDERAL STE == ; 
| , 
Estimated wes toticd. . HE UNITED STATES sHowine 


Estimated area of unforfeited gra 
Area patented to June 4 1910 | 


Reminder pending odiueinenr¢ WETHIN WHICH LAND GRANTS 
reort | BY THE FEDERAL GOVERNMENT 


Estimated totai area granted 
Aree patented to June 0, 1910 


) 


Resnmiedes pending adjvsim oq! (| AID IN THE CONSTRUCTION OF 


OADS AND WAGON ROADS 


152894—19. (Fa 
























[To accompany Pt. 5, Hearings on Return of Railroads to Private Ownership. | 







































































LEGEND 

Areas within “primary” and “indernnity” 
limits of unforfeited Pasersl land grants 
for railroads and wagon roads.— The max- 
imum émount of land obtainable was 
one-half that within the primary limits, 
the lands granted being in the alternate 
survey sections. The maximum was 3 
often not obtained. 


Areas within “pritnary” and “indemnity” 
limits of forfeited. Federal land grants for 


railroads. —The maximum amaunt of land 
conditionally granted and subsequently 
























Texas was an independant sovereignty bef i 

United States, and the treaty of rah provided thet ete nals te 
retain the ownership of all public lands within its boundaris rh 
has given to railroads land grants amounting to Aecestia: ly 
32,400,000 acres, over one-sixth of the area of the State. men feu 









forfeited was one-half that within the pri- 
mary limits 








wwiexmene Grant limits 









FEDERAL RAILROAD GRANTS 








| Acres . = 
Eats é y ; Cag - 190,000,000 no 
j= Hemant ties = FS #500009 MAP or THE UNITED STATES snowine 
| Estimated area of unforfeited grants 2 - - 155,000,000 
Area patented to Juns 1, 1918 : - . - 133,660,000 _ 










THE LIMITS WITHIN WHICH LAND GRANTS 
WERE MADE BY THE FEDERAL GOVERNMENT 


Remainder pending adjustment (probably greater part available) 41,340,000 





FEDERAL WAGQW ROAD GRANTS 








Estimated total area granted - yd 
dene 1910 4 . 
patented to June WO. 1910 lel 7 000 ; Be 
Remember pending adjusim on! (praccrnenttyl aif Arsiable) - 242.000 ar TO AID IN THE CONSTRUCTION OF 






RAILROADS AND WAGON ROADS 


(Face p. 822.) - 








152894—19. 











































oe 
thy <> 
°¢ 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 823 


art of the value of these properties upon which the grantees now 
jand of this Congress the right to exact returns from the public. 
ind, by the way, | wish to submit two exhibits in support of my 
mge as to land grants, Exhibit 1 showing the areas within which 
d grants have been made to the western railroads and Exhibit 2 
pwing the application of that area to this vast territory I have 
scribed as extending from New England to Llinois. 

charge that during the period from 1900 to 1910, the Chicago, 
lington & Quincy, the Chicago, Milwaukee & St. Paul, the Chicago 
North Western, the Great Northern, the Illinois Central, and the 
uthern Pacific Railroads gave away in bonuses to their stock- 
ders more than $250,000,000; that the actual dividend disburse- 
mts on this excess capital for the year 1913 alone, amounted to 
re than $11,000,000. 

[ charge that during the limited period from 1900 to 1910, eight 
stern railroads alone issued new stock for $101,000,000 less than 
‘market value, or gave away this enormous amount in bonuses 
stockholders; that the dividends paid on these fictitious stock 
ues in 1913 alone amounted to over $4,317,000; and I name as the 
jroads involved in this inflation the Baltimore & Ohio, the Boston & 
ine, the Delaware & Hudson Co., the New York Central & Hudson 
ver Railroad, the New York, New Haven & Hartford, and the 
ansylvania Railroad. 

[charge that during the same period 18 representative railroads 
erating in all parts of the United States as a whole, gave away 
ck bonuses aggregating $450,414,000. 


charge that the control of these railroads, which have so increased 
ir property investment account at the expense of the public and 
ve so profited by land grants, the value of which is to a large extent 
lected in their property investment accounts, are now controlled 
whole or in part by the Morgan interests, the Rockefeller interests, 
1 the Gould interests; that this control is made manifest by the 
erlocking directorates of the financial institutions directed by these 
terests, who through their directorates control the operations of 
se railways; and I will say that we have available complete charts 
wing the interlocking directorates and financial interests so 
Be ted, which we shall be glad to present to a proper investigat- 
body. 

(charge that these three interests, situated in New York and 
rating through Wall Street, are necessarily aware of this enormous 
lation of the property investment accounts of the railways which 
y control and are seeking now to have returned to their possession; 
at the attempt of these interests to secure the adoption of any plan 
ereby the property investment accounts of these railways shall 
*ecognized by law as the basis for ratemaking they are conducting 
litical conspiracy to procure from this Government a validation 
ull of the illegal acts heretofore consummated by these railroad 
Porations, and to make into a binding obligation upon the public 
‘exploitation through which these public highways have passed 
their direction and control. 

n behalf of all of the employees these systems of transportation 
‘the public we demand that Congress shall make a due and 
rough investigation of the charges herein set forth, so that the 
erican people may know to what extent it is sought to subject 


Ww 
a 


824 RETURN OF THE RAILROADS JO PRIVATE OWNERSHIP, 


them to exploitation under the plans proposed to this committer 
of Congress, plans which would make lawful the fixing of rates based 
on the now unlawful aggregate property investment accounts of these 
systems. 

I make these charges and this demand with a full sense of the re- 
sponsibility which they impose upon me as representative of this great 
body of the Organized Railway Employees of America, and I am 
prepared during the investigation which we invoke to substantiate 
each and every one of these charges. 

Gentlemen of the committee, the sole end and aim of organized and 

ublicly commissioned business is to furnish the community with 
its products at constantly reduced relative cost. The vast privi- 
leges granted to railroads by the public were accorded to them solely 
for the purpose of aiding the public in securing transportation at a cost 
less than could have been obtained had such grants not been made. 
These grants were made for the benefit of the public. They have 
been perverted to the profit of private owners. The values of these 
grants so made have been capitalized against the public. They are 
now urged upon Congress as the basis for determining what the 
public must pay for the service it sought to secure through the 
granting of these privileges. 

This demand made upon Congress is the last desperate and suicidal 
act of a feudalism based on privilege. It is the perversion of these 
privileges that has created the machinery for piling up the ever- 
increasing costs of public service. For this perversion the private con- 
trol of the transportation business exists. The sole purpose of con- 
tinuing the present system is to assist it in constantly increasing the 
cost of living. ‘This demand alone confesses the failure of the system 
to meet the end for which it was created—the service of the public. 
To this system of public plunder we utter the word Jerico. It 

must fall. Against it we raise the voice of our implacable defiance. 
Under its domination no public servant should ask us to return. We 
ask instead, as American freemen exercising our constitutional rights 
and privileges, a democratic share in the control of the business of 
transportation to be so conducted as to fulfill its purpose under a con- 
trol to be wielded by the public and by all of the skill and ability at 
the command not only of the day worker but of the great body of 
officials of the railways—the same skill and ability upon which 
America has always relied, but skill and ability directed solely to 
public service and not to the exploitation of privilege for profit. So 
directed, the railway industry will achieve its primal purpose; that 
is, to reduce the cost of living, to make life easier, and to secure t0 
every citizen his full enjoyment of the right to live and to possess that 
which he creates. 

The CuarrMan. Mr. Plumb, you have made many specific charges 
without specifications. Is it your idea that should an investigation 
be granted you would supply such specifications ? 

Mr. Pius. If the investigation is granted, we either have the evi- 
dence in our possession or we know where it can be obtained, so that 
the committee or the investigating body can call for that evidence. 

The CuarrmMan. You stated in one of your charges that the roads 
were seeking to get rates based upon a valuation far in excess of the 
valuation based upon cost of reproduction ? 

Mr. Pius. Yes. 


- 


[To accompany Pt. 5, Hearings on Return of Railroads to Private Ownership.] 






SHADED PORTION REPRESENTS 
EQUIVALENT OF FEDERAL 
aAND TEXAS LAND GRANTS TO. 
SA WESTERN RAILROADS. Jae 





urssouRt ; 
fl. CAROLIBA 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 825 


_ The Caarrman. Did not the Supreme Court, in its decision in 
‘Smythe against Ames, hold that that was only one of the elements 
that had to be considered in determining the rates ? | 
| Mr. Prunes. It did. 

The Cuairman. Did it not specify eight or nine separate elements 
that entered into rate making? 

Mr. Prums. It did. 

The CuarrMaNn. So that those other factors would have to be taken 
into consideration ? 

Mr.-Piums. Certainly. 

_ The Cuarrman. In connection with that specific charge you also 
charge that the Interstate Commerce Commission, pursuant to the 
physical-valuation act, had not made any investigation, or at least 
no report on grants, gifts, and aids to the various carriers ? 

Mr. Piums. I do not intend to be understood as saying they have 
made no report. They were required to find all of the aids, gifts, and 
grants, and in so far as they have investigated they have found the 
aids, gifts, and grants which the present owning corporation has 
received, but have not gone back to the aids, gifts, and grants received 
by its predecessor corporations. 

The Coarrman. Under the physical-valuation act, as I recall it, the 
seunission is required to present a complete financial history of the 
roads ? | 

Mr. Pius. Yes. 

The Cuatrman, I think they use the word “history.” 

Mr. Pirums. Of the road and its predecessor corporations. 

The Cuarrman. Of course, you do not conclude from that that the 
commission may not go back to the predecessor ? 

Mr. Prums. But they have not done so, and say that where the 
records of the predecessor corporations are not available they have aot 
sought to do so. But these matters of grants are all of record. 

The CuarrmMan. Yes; that is all a matter of record. 

Mr. PLums. But they have not gone to the records to find out what 
the grants were if they could find it in the records of the corporations. 

~The CuHarrman. I suppose, of course, the Land Office would have 

a record of the land grants. 

Mr. Piums. Yes. 

- The CuarrMan. So that has been available for a great many years ? 
Mr. Pitumps. Yes. | 

~The Cuarrman. Congress has not issued a land grant to a railroad 
for how many years? 

Mr. Piums. Oh, a great many years, but it has been issuing pat- 
ents under those grants even up to the present time. 
The Cuairman. Yes; that is where they have a checkerboard grant. 

Mr. Prums. Yes. 

The CHarrMAN. Do you know how many acres of these land 
grants are still in the ownership of the grantees ? 

' Mr. PLums. Well, 110,000,000 acres have been patented, 35,000,000 
have been surrendered, and that makes 145,000,000, which means 
45,000,000 more which are yet subject to claim under the grants. 
‘However, in the meantime, there have been acts passed which 
permitted a railroad company to exchange its right under some of 





826 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


these grants where that right covered arid lands or mountain tops, for 
other valuable lands not included within the original grant. 

The CuarrMAN. Those were the school land grants. 

Mr. Piums. Yes. 

The CuarrmMan. Do you believe that the investigations made 
by the Interstate Commerce Commission of the Rock Island, the 
Frisco, the Pere Marquette, the C. H. & D., the New Haven & Hart- 
ford, and the Pittsburgh Terminal were thorough and fair ? 

Mr. Prums. You mean under the valuation act or in the preceding 
rate cases % 

The CuHarrmMan. No; the investigations that were prompted by 
Congress. You remember those investigations had been made by the 
fe Commerce Commission and voluminous reports have been 

ed. 

Mr. Piums. They were not as complete as the investigations made 
by the commission under the valuation act because no such funds 
were furnished them for carrying on the work or no such forces were 
at their command. They were doubtless as complete as the means 
at hand permitted them to make at that time. 

The CuarrmMan. I do not know whether you are aware of the fact 
or not that the investigation by the commission of the Pere Marquette 
and the Pittsburgh Terminal was made by a resolution adopted by 
this committee and was not the result of a resolution adopted by the 
House or by Congress. Would it be your opinion that if an investiga- 
tion is deemed necessary, it could be done by the commission ? 

Mr. Piums. In my opinion it could be. 1 think that with the com- 
mission furnished the means, much more complete information 
could be obtained because of the records which it now possesses than 
could be obtained through any other source, and it would be fairly 
and impartially obtained. There is not a word of criticism of the 
manner in which the Interstate Commerce Commission has performed 
what it has done. It merely has not done enough. 

The CuarrMAN. You realize the limitations under which it has 
labored. | 

Mr. Prums. And in the valuation act there is not any direction 
that would necessarily have been complied with at this time by the 
commission. It may be that when the commission has completed 
its work, there would be no necessity for such an investigation but 
the time of the completion of that work lies a long way ahead, and i 
this committee could be furnished with the results of an investigation 
of these points, so far as they have been conducted by the Interstate 
Commerce Commission and the valuation division, it would give 
Pea information to the committee and to the American 

eople. 
E The CHAIRMAN. The committee wishes to thank you and the other 
proponents of your plan for the ability which you have shown in its 
presentation. : 

Mr. Piums. Thank you. 


2 
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 827 


COMMITTEE ON INTERSTATE AND FoREIGN COMMERCE, 
House OF REPRESENTATIVES, 
Monday, August 11, 1919. 


)STATEMENT OF MR. LEWIS H. HANEY, JACKSONVILLE, FLA. 









, The Cuairman. Mr. Haney, please give your name, address, and 
'yhom you represent. 

| Mr. Haney. I am connected with the Southern Grocers’ Wholesale 
tssociation as director and chief economist of their bureau of research 
,nd publicity. Shall I proceed ? 

, The CHarrMAN. Yes. 

| Mr. Haney. I want, however, to make it clear, Mr. Chairman and 
yentlemen of the committee, that I appear before you in a double 
japacity, first, as intimated, as chief economist of the bureau of 
esearch and publicity of this association, and, second, as a student 
\E railway economics. I have been, through my career since I left 
|e university, a professor of economics, connected with the Federal 
rade Commission, and professor in various universities in the coun- 


ty, and it is in that capacity, after all, that I want chiefly to address 


/ou. 

IT have no general plan to offer. I do not believe in reforming this 
|(tuation or any similar situation by revolutionary methods. I am 
) formed that the Esch bill is prominently before this body. and I 
ddress my attention to certain definite evils, proposing certain 
/efinite amendments to the Esch bill, which are, In my judgement, 
) signed to remove and adequate to remove those evils. 

, Im the first place, please note that the wholesale erocer of the 
ountry has been the first to feel the growth of the great Food Trust 
| hich has become more and more in evidence during the war period. 
{ 





| 


he great meat packers of the country have, during the war, come to 








ominate the cheese business, have gained much control over the 
\uef items of canned foods, notably, canned salmon, and are to-day 
. olding themselves out as distributors of full lines of food products 
jich as are ordinarily handled by the wholesale and retail grocers 
: the country. I do not care to enlarge on the facts of that unless 
le committee should desire it. My point is that they have been 
abled to make these inroads upon the food distribution chiefly 
| irough special privileges which they have in transportation. The 
mamittee being a body which has before it the duty and power to 
iggest remedies for such a situation is my reason for presenting the 
| atter before you. 
} In the first place, there are discriminations in railway service which 
| @ responsible for this situation. The meat packers’ refrigerator 
‘WS were originally designed for the transportation of fresh meat, 
| hich is a highly perishable product requiring “‘heavy”’ refrigeration. 
t order to insure the satisfactory condition of the meat on delivery, 
+ was also necessary that the movement of such meat cars be ex- 
sdited, and they have always been given special service. Evi- 
mtly, therefore, the movement of fresh meats by refrigerator cars 
a special and preferred movement justified on the ground of the 
wishable and*important character of the contents. As time went 
, the meat packers came to market with many products other than 
| eats, all produced at first in more or less close connection with their 


=~ <q 


e 4 | 
828 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. . 


packing houses, e. g., cotton-oil compound, canned soups, chili cor 
carne, etc. Also ‘‘peddler-car’’ service was initiated. According 
to this service, the packers’ refrigerator car was loaded by the packei 
with fresh meat and ‘‘packing-house products,” in whatever quantity 
and proportion he desired, and was then transported by the carrier t¢ 
the first unloading point, where it was opened and a portion of the 
contents removed. From there it was taken to the next unloading 
point, and so on, to its final destination. The peddler car was thus 
in part, a storehouse on wheels, enabling the packer to make delivery 
from a central warehouse direct to ee at remote pomts. 

Then the ‘‘packing-house products” class was extended and th 
railways were induced to insert in_ their tariff provisions allowing 
any article shipped by a packer to be shipped in peddler cars unde 
refrigeration. 

Recently the meat packers have gone into the wholesale grocer} 
business and have taken advantage of their private refrigerator cars 
and especially of the peddler-car service, to help them drive out thi 
wholesale grocer. 

The Bureau of Research has proof of shipments by the packers ir 
their private refrigerator cars of large quantities of the following 
commodities: Beans, dried fruit, canned fruit, canned vegetables 
package coffee, peanut butter, pork and beans, cheese, macaroni 
sirup, rolled oats, salid dressing, pickles, canned salmon, salt, lare 
compound, corn flakes, rice, package mincemeat, jellies, butter 
cartons, stationery, and other products dealt in by grocers, some 0 
which have come in since the preparation of this list. None of them 
as you will observe, are articles associated with or necessarily con 
nected with the meat-packing business, nor are they such as require 
refrigeration. ; 

The evidence is sufficient to prove the following points: 

1. That the contentions sometimes made by those representing tht 
meat packers that it is impracticable to put most grocery products int 
meat cars, on account of the dampness, is not founded on fact. At 
examination of the items included will indicate that, as a matter 0 
fact, practically all sorts of grocery products are shipped in the pack 
ers’ refrigerator cars. 

2. The evidence shows that very large quantities of groceries ar 
shipped in peddler refrigerator cars. “ 

3. It indicates that in many instances relatively small quantities 
of meat are included in such cars. 

4. It proves that refrigerator cars are used for transportation 0 
large quantities of goods which do not require refrigeration ant 
establishes the fact that a considerable part of the space in these heay} 
cars and a considerable part of the refrigeration 1s wasted. 

5. It establishes the fact that a specially expedited and exclusiy' 
service designed for the rapid transportation of fresh meat is bein 
used as an instrument to secure control of the grocery business for th’ 
benefit of the meat packers. 

By the inclusion of groceries in peddler cars the packer gets pret 
erential service for grocery products. \e 

I have here a somewhat lengthy statement consisting of letter 
submitted by various members of our association,. indicatin th 
nature of this advantage. Briefly, to digest the contents of thes 
letters, I will say, in the first place, that the packers maintain m ¢oD 








RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 829 


nection with the ownership of their private car lines a large organi- 
zation which keeps track of the movement of these cars and follows 
“them up, in some cases riding on the trains to check up the service 
at stations and at junction points. In other words, they have a 
control over their cars which leads to an especially prompt handling 
of the cars. If a car does not arrive within the usual time for the 
day’s work of the local crew at a station, the crew is directed to stay 
overtime, presumably making overtime wages, to handle the packers’ 
ear. If it comes in after hours, they will come down before their 
regular work hour the next morning, so that the car may move for- 
ward as early as possible. Peddler cars are not allowed to be set out 
at any points short of their final destination unless they are in bad 
| order or because of some imperative reason of that sort, and the time 
required at destination to place a car is ordinarily far less than that 
‘required for the ordinary equipment such as is available to the whole- 
sale grocer or provision merchant. 

Not only is the time elapsing between the point of origin and point 
of destination less, but the frequency of service given the packer is 
|greater. In most cases the jobber does not find any refrigerator car 
service available to him when desired, and schedule merchandise car 
“service is either lacking or generally dependent upon tonnage avail- 
‘able. The packer, however, through the control of private cars, 
“secures such service whenever and wherever he pleases. He runs his 
“youte cars’’ two or three times a week, or daily, as he desires. 

_ In the third place, the service given to the packer is regular, the 
-packer’s ‘‘route cars’”’ are run on schedule time, and the retail grocer 
ean count on receiving his groceries, if shipped in a peddler car, on a 
certain day; and even sometimes at a certain hour within the day. 
No such service is available to the wholesale grocer. 

In the fourth place, another advantage which the packer enjoys 
Jes in the good condition of the shipments. The wholesale grocer’s 
goods are handled and rehandled by local train crews, which condi- 
tion is avoided by the packer. 

In the fifth place, the packer, by shipping his groceries in his private 
refrigerator cars, reduces the quantity of lost, stray, or short ship- 
Ments. 

Again, a very considerable advantage which the peddler car distri- 
bution of combined shipments of meats and groceries gives to the 
packer, is the ability to deliver a large assortment of goods in the same 
shipment. Now, this multiplies, as you will observe, all the other 
advantages, including the speed, frequency, and regularity of the 
Service, because the retailer can be assured that not only will his 
order for bacon, hams, and lard be delivered on schedule time, but 
that he can secure in the same shipment his rolled oats, corn flakes, 
and macaroni. This ability to fill his order promptly for a large 
variety of goods has been made the means of bringing considerable 
| pressure to bear upon the retailer to handle the grocery products 
supplied by the packers. 

hen, there is the exclusive service which the ownership of these 
private cars enables the packer to enjoy. Whether the cars are only 
partly loaded or empty, and no matter how urgent the demands of 
other shippers may be, they move forward containing nothing but-such 
‘goods as the packer as an owner desires to place in them. The so-called 
package cars, when avialable to the jobbers, do not give him the right 


152894—19—-vor 1—_—_53 

















t atiginlll 


830 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


to exclude others from their use. It is submitted that it is inconsist- 
ent with the functioning of railways as common carriers that approxi- 
mately 90 per cent of the refrigerator equipment should be subject 
to the exclusive use of certain private owners, which exclusive use 
has been made a factor in the competition of their owners with the 
wholesale grocers of the country. 


The so-called package car, when available to the jobbers, may con- 
tain all sorts of products, such as machinery, returned cement sacks, 


- and any class of goods that might be put into an ordinary box car. 


When it is borne in mind that the privilege of operating private 
refrigerator cars under peddler car service exists primarily for the 
purpose of facilitating the prompt distribution of fresh meats, the 
utilization of such cars and service for rice, canned goods, and other 
nonperishable grocery products must be considered as a miscarriage 
of economic justice. He 

Frequently the jobber can not get such refrigerator car service 
when ordered. | 

On May 20, 1919, the commercial agent, of the Chesapeake & Ohio 
Railroad Co. wrote to Altsheler & Co., Louisville, Ky., as follows: 

On account of the Chesapeake & Ohio having no stations for delivery of freight this 
side of Lexington, we do not undertake to. operate scheduled refrigerator car service 
from this point. In case you order refrigeration from us for loading via our lines, 
we would furnish same as early as conditions would permit, for which we would 
require a minimum of 15,000 pounds from point of origin to point of final destination. 


* * * We realize that these conditions are not very encouraging, but it is the best 
we have to offer at present. | 


Under date of May 21, 1919, the Louisville & Nashville Railway 
Co. advised as follows: 


Possibly you are not aware of the fact that the meat packers all furnish their own 
refrigerator cars, which are especially equipped for the handling of fresh meats, ete. 
The railways do not undertake to furnish any cars in that service. * * * If you 


can not furnish your own equipment, there does not seem to be anything further to 


be done. 


\ 


Under date of May 20, 1919, the Illinois Central Railroad writes: 


Fresh meat requires extraordinary service, which is not accorded merchandise 
generally. We do not enter into any peddler arrangement on general merchandise, 
They should have added: ‘Except for the big meat packers.” 
In addition to summer refrigeration, wholesale grocers frequently 
require the service of insulated cars in winter time in order to prevent 
the freezing of such products as canned goods and cheese, and m 
this way he also suffers from this inability to secure such equipment. 
Now, gentlemen, I have frequently heard it said, “You do not 
need those cars, and, as a matter of fact, you can secure the same 
service from the railroads in the ordinary box cars or merchandise 
cars.” The facts in regard to that statement are as follows: | 
Quite frequently the railways’ ordinary merchandise cars will be 
‘held up” for sufficient tonnage. For example, the Georgia South- 
ern & Florida Railroad writes that cars are loaded with merchandise 
to move on their scheduled trains ‘‘when a sufficient volume ol 
freight is tendered,” and a typical jobber’s report is that “None ot 
the roads are able to give local shippers daily service to what is 
known as intermediate points, it being the practice to hold freight 
for such points until such date as they have sufficient tonnage to 
make up a regular local car.” That testimony has been univers 


: RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 831 
° great majority of the distributing points throughout the 
South. 

| Again, there is practically no expedited service available to the 
Jobber, such as the packers receive in their refrigerator peddler cars, 
‘which are supposed to be operated for the transportation of fresh 
Meats. When you do get service or when you do have a car, it is 
not expedited as are the packers’ peddler cars. 

| Again, the jobbers’ merchandise cars, even when operated on a 
schedule, are likely to be ‘‘set out”? while on the road, as is not the 
case with the packers’ peddler cars. It is the univesal experience of 
the wholesale grocer that cars containing his shipments are frequently 
‘set out short of destination, resulting in a delay on the line of at 
least 24 hours, and in some cases 48 hours. | 

| Another universal complaint of the wholesaler is that his cars are 
delayed at division and junction points. This may be either through 
failure to make connections with the local schedule, or for the pur- 
pose of transferring and checking freight. The packers’. peddler car 
1s transferred without delay. 

If the regular merchandise car arrives after hours, it is held over 
until the next day, while the packers’ car will be handled at once, 
and sent on its way. 

_ These things we are mentioning for the purpose of backing up and 
making specific the reasons why I think that there are certain amend- 
‘ments called for in this act. 

_ So much for the question of service. 

_ Now, it is not in service alone that the packers are enjoying material 
advantages in the shipment of food products other than meats. 
Under the head of “packing-house products,” the meat packers get 
certain special concessions in classifications and rates, which were no 
doubt originally intended to facilitate the shipment of such important 
‘perishable food products as fresh meats. It is difficult to make « 
comparison as to rates, for, as the Interstate Commerce Commission 
has held “the circumstances and conditions surrounding the ship- 
‘ment of packing-house products and fresh meats in peddler cars, 
and all other freight in ordinary merchandise cars, are radically 

Tifferent, and rules, regulations, and requirements applicable thereto 
* * * dissimilar.” 

I doubt if they realized how true that statement was. ; 

| The class ‘“‘packing-house products” is unreasonably broad. It 
neludes a wide range of products, both perishable and nonperishable, 
‘anging from fresh meats of various kinds, through numerous kinds 
of dried and salt meats, and lard, to lard substitutes, cottonseed oil, 
yanned soups, and pork and beans. See Texas lines tariff 2-D. As 
vresult, the packers have been able to secure advantages designed for 
neat on certain articles generally handled by grocers, and which are 
ot necessarily connected with the packing business. 

Several important railways in their rulings, providing for the 

landling of ‘‘packing-house products” in peddler cars, go so far as to 
nelude not only packing-house products but ‘‘other commodities” 
unspecified) or ‘‘any commodities shipped by packing houses.” 
This obviously enables the packer to secure such advantages as he 
‘joys in connection with his meat products, for any products which 
le may care to handle. 

a 





832 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


One of the most serious discriminations in rates connected with the 
packers’ peddler cars results from the provisions of the commodity 
tariffs in force under the southwestern lines tariff No. 33-O, and the 
Texas commodity tariff No. 13-B, as governed by western classi- 
fication No. 55. 

The southwestern lines tariff provides the commodity rate which 
applies from recognized packing-house points in Kansas, Missouri, 
Oklahoma, and Texas, to points in Arkansas, Louisiana, Oklahoma, 
Texas, New Mexico, and Missouri. That is a wide territory. These 
commodity rates are available to the packers’ peddler cars only. 
They are lower than the regular class rates, The ‘‘packing-house 
products” class includes various items which in the regular classifica- 
tion rank as first, second, third, and fourth class, fresh meat being 
generally first class. The special commodity rates, however, are 
nearly all lower than, or equal, to the fourth class rate, and the com- 
modity rate on fresh meat is equal to the regular third class rate or less. 

Rather than burden you with further detail of this rate discrimi- 
nation, let me pass on to give you some actual figures showing how it 
works out or the amount in cents which the packers enjoy as an 
advantage over the wholesaler in the distribution of identical prod- 
ucts. From Kansas City to Fort Smith, over the Frisco road, a 
distance of 334 miles, the fourth-class rate which must be paid by the 
wholesaler is 614 cents, while the packing-house products rate under 
the commodity tariff is 55 cents, a difference of 64 cents per hundred. 
From Kansas City to Stillwater, Okla., by the Kansas City Southern, 
a distance of 258 miles, the regular fourth-class rate is 52} cents, 
while the rate on packing-house products is 45 cents, making a differ- 
ence of 7} cents in favor of the packer. 

A leading wholesale grocery firm of Oklahoma City reports that 
in dealing in pork and beans they have to compete with the packers 
on the basis of the following rates: From Kansas City to Oklahoma 
City, packers’ rate, 214 cents; grocers’ rate, 512 cents. 

And so it goes. That is the discrimination which the packer 
enjoys in the distribution of such produce as canned soup, canned 
vegetables with meats, lard compound, and similar products, In 
case the shipment moves on a joint-line basis, or over two lines, the 
packers’ differential is 24 cents, while the grocers’ is 5 cents, thus 
ieee to the advantage of the packer the sum of 2} cents per hun- 
dred. 

The packers get a special service at the regular rate. Even where 
no commodity tariffs exist, most of the tariffs provide that the contents 
of peddler cars shall pay freight at the regular LCL rate from point 
of origin to destination. It follows that the packers secure a special, 
preferential, and exclusive service, involving greater speed, regu- 
larity, and frequency than ordinary freight service, at the same rate 
paid by the wholesale grocer for the regular freight service, which 13 
not exclusive, and does not have the speed, regularity, or frequency 
of service given to the packers’ peddler cars. It is true that the 
packers provide the cars used by them, but the railways pay for their 
use. The packers load and ice their cars, but the railroads give them 
switching service. So that, when all has been said, it remains true 
that we have here, even where there are no special discriminatory 
provisions in the tariff, such as I have cited from the Southwest—a 
discrimination. in that the packers secure a special preferential serv- 
‘ice at a rate which is not special, but regular. 


ll 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 833 


Now, gentlemen, as a student of economics and especially trans- 


portation, I want to make the following points as briefly as possible: 


_ Under the present situation of private ownership of refrigerator 


- cars, We have a serious discrimination against the small packers, 
' Along with the ownership of private cars or private car lines, such as 


the Armours, Swifts, and others maintain by the thousands, there 


_ goes an organization that supervises those cars. The cars are being 
- constructed, and they have to be maintained and repaired. Their 


—<. 





7 *» “2 


a — a a ee 





. course on the road has to be followed, and their prompt return looked 


after. In other words, the packers take over a very material part of 
the common carriers’ function in supplying supervision on this large 
item of railway equipment. The small packer can not afford to do 


it. He has not been able to do it. He has tried, and the result has 
proved disastrous. 


In evidence taken by the Interstate Commerce Commission in the 
private car line case not long since, it was shown that the Big Five 
ackers’ cars make on an average about 80 miles per day, while the 


independents’ cars make on an average about 54 miles per day, which 


is a very material difference. Furthermore, the Interstate Commerce 
Commission’s opinion in the matter of private cars goes on to show 
that an Iowa packer who leased 20 cars for shipments and tried to 
enter into competition with the large packers in shipping carcass 


‘meat, found that his cars were held on the road for periods, with one 
exception, ranging over 100 days; that the total rental paid for the 
cars was $4,686 while the total earnings were $1,946. Naturally, this 


packer did not continue in the game. Again, and I am quoting from 
the Interstate Commerce Commission; a small packer, in Birmingham, 
Ala., attempted to ship carcass meat to the Northeast, including such 
aoe as New York, Boston, Pittsburgh, etc., and an exhibit filed by 

im shows that the cars were not returned to him within 15 days from 
any point north of the Ohio River. They were detained for periods 


Tanging on an average about 30 days, some of them being held 66 days 


and 90 days. He was unable to secure enough mileage payment to 


_ meet his rental charges. He never secured cars from the carriers, 


but when these were once loaded, they remained away for long 
Briods, and he could secure no use of the same. ‘The situation, so 
ar as I am acquainted with it, is such that the private ownership 
of refrigerator cars by the large meat packers has been an important 
factor in the discriminations practiced in their competitions with the 


» small meat packers. 


Again, the situation is one which involves serious waste, and, 


therefore, is contrary to the public interest. As a result of the 


entrance of the meat packers into the distribution of groceries and 
similar food products, there has been built up a system, outlined above, 


according to which nonperishable products are transported in large 


quantities in refrigerator cars. This system involves the following 


| economic wastes, which are in the nature of a loss to the public: 


1. Ice. Rice, beans, canned goods, etc., do not require refrigera- 


- tion, and to haul them under the heavy refrigeration required for 
fresh meat is a serious waste of ice. 


2. Dead weight. Refrigerator cars are several tons heavier than 


} ordinary box cars, and to use them for foods which might be hauled 
In ordinary box cars involves the hauling of unnecessary weight. 


834 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


3. Switching. The placing of private cars for the packers to be 
used in the distripution of groceries involves unnecessary. switching 
operations. 

4. Empty back haul. The private refrigerator cars of the packers 
are hauled back empty. This is almest without exception. This 
is a serious waste, in that the cars may be used for vegetables and 
fruits in their back haul. Of course, if ordinary box cars were used, 
as should be the case with nonperishable groceries in many instances, 
they could be used for ordinary freight in the back haul. 

5. Each of the private refrigerator cars for delivery of nonperish- 
able commodities, both packing-house products and groceries, con- 
tributes to the existing shortage of such cars. The nation’s equip- 
ment of refrigerator cars is hardly adequate to its needs. They are 
needed in the summer to prevent spoilage by heat, and in the winter 
to prevent freezing. The maintenance of the system of private 
car lines tends to confine the use of these expensive items of railway 
equipment in the hands of a few who use them in such a way as (a) 
to include nonperishable food products in their contents, and (6) 
to cause empty back haul. 

6. The movement of freight trains is unnecessarily delayed to 
enable deliveries from station to station by the packers’ peddler 
ears. Also special service is given to such cars. Such special 
preferential service as indicated in the two preceding sentences is 
desirable in the case of much perishable foodstuff and meat, as 
already pointed out. The institution of such preferential service 
and equipmeat was originally designed for fresh meat. To the 
extent that nonperishapble groceries are included m shipments made 
under such preferential service, we have a spectacle of fast freight 
trains of refrigerator cars rushing from Chicago to southern points 
to deliver to branch houses of the packers nonperishable merchandise 
which they can then peddle through the special expedited ‘‘route 
cars” to the retail trade—all to the end of eliminating the wholesale 
grocer and other competitors who are dependent upon -ordinary 
common car service. 

The Interstate Commerce Commission has showed that the per- 
centage of empty mileage in railroad refrigerator cars is 37 per cent 
and the percentage of empty mileage for the packers’ refrigerator 
cars is 43 per cent. The Interstate Commerce Commission in is 
ruling in the matter of private cars says: 

Railroad car lines utilize their cars to as great an extent for return loading as possibly 


private car owners by putting return loads on their cars if by so doing the return 
movement is not delayed. - 


Now, to my mind the whole history of the transportation system 
indicates an inherent evil in private car lines. It indicates that the 
various evils, which are cropping out continually and have ever since 
1880 and which we have attempted to remedy by a little regulation — 
here and there, are inherent in the system of shipper ownership of the 
cars. 

You will remember that originally the idea was that the railway 
was to supply the rails-and then the shippers were to come on wi 
their equipment and haul them over the rails, just as is done over any 
toll road. That proved to be impracticable, it did not work out and 
after a brief trial our conception of a common carrier had to be 
changed. Then, with the development of the railways, especially 








RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 835 


‘between the North and the South there were the different gauges and 
‘the great battle of the gauges occurred about the time of the Civil 
War. Equipment was not standardized and private companies 
‘other than railways provided cars, the bodies of which could be 
transferred from one set of wheels to another to facilitate the transfer 
‘of the load from one road to another. With the uniformity of 

auges that necessity was removed.’ Then we had the fast freight 
ines, they have had their day, but we still had developing about the 
time that the fast freight lines were beginning to show such decline— 
developing steadily—we have the great meat packers of this country 
with their thousands of private refrigerator cars, and we have par- 
ticularly in the oil business the tank cars, the largest supplier of 

-which is the Union Tank Line Co., one of the former Standard sub- 

‘sidiaries. The reason why the railways did not supply refrigerator 
ears there is nothing mysterious about. The refrigerator car was 
experimental. It was not widely used in the beginning. It came in 
during that period in the eighties when the railroads had all they could 
do in building the tracks required. ‘They were interested in the live- 
stock business and they had stock cars and they were not interested 
‘in developing the meat traffic. I claim that the historical movement 

'has been away from private car lines and it will continue, I am sure. 
The private car line has been a continuous menace. In 1880 we had 

eases of rebate. In 1906 the Hepburn Act was passed chiefly to get 

tid of the private car line abuse. One of the chief factors in the 

‘upbuilding of the Standard Oil Trust was the advantages which it 

enjoyed through the use of private cars. 

_ The private-car line is inconsistent with the duties of the common 
carrier. Of course, in common law when a carrier holds itself out to 
‘carry any line of goods it is its duty to supply the equipment neces- 

sary to carry that line of goods. The Interstate Commerce Com- 

“Mission says in this same private-car line case: “When a shipper 

furnishes his own car for transportation of articles in common use 
and they move in large volume, he relieves the carrier of so much of 

its obligations as a common carrier.”’ I cite that not at all as bemg 

) legal authority or contributing anything to your legal knowledge, 

‘but to show that that body realizes that the packers are in part 

: common carriers, or, rather, they are performing a common carrier 

function. 

As amended in 1906, the interstate commerce law states, and the 
| language is carried forward with some additions in the Esch bill, 
‘ that “transportation” shall include cars, vehicles, etc., “irrespective 

of ownership,” which shows the duty of the carrier if that duty 1s to 

' be conveyed in ordinary language. 

Now, the Esch bill, in section 2 on page 11, says: 











_ The commission may, after hearing, in a proceeding upon complaint or upon its own 
iMitiative without complaint, authorize or require by order any carrier by railroad 
- subject to this act, party to such proceeding, to provide itself with safe and adequate 
facilities for performing as 2 common carrier its car service as that term is used in this 
act. 

t That, of course, is in transportation, and in another portion of the 
' bill the word “transportation” is used to cover movement by rail of 
| equipment, irrespective of ownership. aNe 
‘The court has ruled that the Interstate Commerce Commission has 
not power to compel railways to supply special equipment. I refer, 
of course, to the Pennsylvania case, 242 U. S., 208. 


we 


a 


$36 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


The CHarrMan. Oil tank cars ? 

Mr. Haney. Yes, sir. 

Mr. Sanpers of Indiana. The proposed amendment to the Esch 
bill would include other vehicles ? ; 

Mr. Haney. Yes, sir. 

Mr. Sanvers of Indiana. I just wanted to suggest that thought. 

Mr. Haney. I will refer to that specifically later on. 

The Interstate Commerce Commission itself, gentlemen, has wa- 
vered somewhat and has handled this matter indecisively. In the 
Pennsylvania paraffin case the commission ruled that the railway 
should supply those tank cars and in the matter of private cars, 
from which I have quoted several times before, the commission was 
apparently influenced by war conditions and apparently by the 
hopelessness of getting equipment and other material, and it in that 
case wavers and does not take a decided position either way. 

The CHarrMAN. Right in that connection, has not your associa- 
tion recently filed a complaint with the Interstate Commerce Com- 
mission ? 

Mr. Haney. That is the fact. 

The CHAIRMAN. With regard to the very particulars to which you 
call our attention % 

Mr. Hanry. We have filed a complaint with the commission. 

The CHarRMAN. When will that be argued ? 

Mr. Haney. I am not advised that the date has been set for that; 
I am not advised. | 

The CuHarrMAN. The decision of the commission on that matter 
would clarify the existing status, would it not? 

Mr. Haney. I do not think it would clarify the status, Mr. Chair- 
man. 

The CuarrmMan. At least the power of the Interstate Commerce 
Commission with reference to the subject matter? 

Mr. Haney. It might relieve the situation as to the commission’s 
power, no doubt, and I am not for a moment taking the stand that 
it would not help our situation some, but my point is that no ruling 
made by the commission under existing law is ever going to remove 
the difficulty entirely, and that is why I am appearing before this 
committee suggesting changes in the law. 

Mr. Coorer. Do you know to what extent the packers load their 
refrigerator cars with groceries and nonperishable products ? 

Mr. Haney. I am not able to give any figure; no, sir. I know 
that not infrequently they will load their cars with such products 
to the extent of 50 per cent. 

Mr. Coorer. You speak of the refrigerator cars being hauled back 
empty. What would be the effect on the packing industry itself 
if these refrigerator cars were loaded up for return ? 

Mr. Haney. I think that in many cases these cars could be utilized 
by wholesale grocers or others who might have clean food products 
or anything that would not injure the cars as a container for meat 
products. “g 

Mr. Coorer. Do you not think that it might seriously affect the 
shipment of meat products to the people of the country if these cars 
were not hurried back to the packers to be reloaded ? | 

Mr. Hanzy. Of course, the shipper would be the first who would 
desire to have then hurried. There would be the delay in unloading 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 837 
i} 


‘nyolved which might be serious or not serious, according to the 
upply of the equipment. Please notice that one of the points I 
b making, one of the main points, is the adequacy of the supply of 
iquipment and that under the present situation we do not have ade- 
{uate power to compel anyone, the responsibility being divided, to 
‘ave an preauate total supply of these cars, and so the situation is 
very strained. 
_ Mr. Coopsr. As to the refrigerator-car service, do you not think 
hat when the cars are loaded with perishable articles that they 
hould be hurried on to their destination ? 

Mr. Haney. Most decidedly. 
-° CHarrMAN. How much longer will it take you to finish, Mr:. 
Taney ? 

ag Haney. I should say 15 or 20 minutes. 

The CuarrMANn. The committee will take a recess until 2 o’clock p. m. 
(Thereupon the committee took a recess until 2 o’clock p. m.) 









| 
: 


AFTER RECESS. 


STATEMENT OF MR. L. H. HANEY—Resumed. 


The CuarrmMAn. The committee will come to order, and Mr. Haney 
lay proceed. . 

» Mr. Haney. I was about to state what remedies seemed to me 
dyisable to cover the difficulties that I discussed this morning. 

I think that the situation can be entirely covered by a few definite 
ort amendments to the Esch bill. In the first place, there should 
e absolutely specific definition of the term ‘‘common carrier,’’ and 
‘oe which will be broad enough to bring under it private car lines, 
‘od to bring them under it clearly and fully. On page 2 of the copy 
[the bill which I have, H. R. 4378, after line 5, I would suggest the 
bietion of a pararaph to be marked (d), and to read as follows: 


; The furnishing of cars for the transportation of freight, irrespective of ownership. 


We would then have the section reading, so far as this point is 
ncerned, as follows: 


Section 1. That the provisions of this act shall apply to all common carriers engaged 


| The committee resumed the hearing at 2 o’clock p. m. 








_(d) The furnishing of cars for the transportation of freight, irrespective of owner- 
ip. 

) Then, on page 3 of the bill, in line 9, following the term “sleeping- 
Ww companies,” in my judgment, it would be advisable to insert the 
‘owing language: “companies furnishing for transportation such 
\decial equipment of wide use as refrigerator cars and tank cars’’, so 
tat we would have brought under the term “common carrier”’ 
Fong with express companies and sleeping-car companies those 
mapanies which furnish tank cars and refrigerator cars. 

, To the same effect, on page 6, in the first paragraph, I would sug- 
(St that in line 3 the word “‘all’”’ be inserted before the word ‘‘loco- 
| Ottves,” so that the statement would provide for the use, control, 
jad so forth, of all locomotives, cars, and other vehicles, and I would 
iid to line 6, making it the last phrase of the paragraph, the words 


838 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


‘“iprespective of ownership”, so that the paragraph as amende 
would provide that: “The term ‘car service’ in this act shall includ. 
the use, control, supply,” and so forth, “of all locomotives, cars, an 
other vehicles,” and so forth, “irrespective of ownership.” 

So far as my study of the bill as it stands is well founded, th 
insertion of those three amendments would make adequate provisio 
for accomplishing the first object that I would propose, namely 
making absolutely specific the definition of a common carrier, SO 
to include private car lines so far as they exercise functions of th 
common carrier. 

The second general suggestion the way of proposed amendment | 
to require the railways as common carriers to furnish all equipmen 
reasonably needed for the transportation of commodities which the, 
hold themselves out as common carriers to transport. 

Before mentioning specifically the language that I have in min 
and the point at which it should be inserted, if it is desirable, T desir 
to reinforce the point that the shipper ownership of common-carric¢ 
savipment is at the bottom of the trouble. I admit freely that b 
regulation of certain practices the evils may be minimized and in pa 
removed, but my study. of the situation has led me to believe that a 
long as we have the divided ownership there are going to be som 
difficulties that can not be removed entirely, and other ones, it seem 
to me, the history of the problem shows will arise in due time. 1 
ownership involves the ultimate supply. It is the owners that pri 
vide the equipment as to manufacture. I understand that Swi 
& Co. recently were manufacturing four of these refrigerator ca! 
per day. Then there is the maintenance and re air of this equi 
ment, and the supervision of its movement, all of which has to 
with the adequacy of the supply of the equipment, the total suppl 
if you please, of this equipment, for the railways own ractically u 
meat cars. The large packers own over 90 per cent of all the met 
cars, and, if I read aright, the figures of the Interstate Commert 
Commission, the packers have approximately 50 per cent of all r 
frigerator cars of all types. , 

Now, the total supply is affected for the reason that, when y¢ 
have divided Seenene Nee it is difficult to get satisfactory result 
The common-carrier function is exercised by the packer, but he 
not responsible as a common carrier for seeing to it that the rai 
of the country supply an adequate quantity of this equipment. + 
supplies 90 per cent of the meat cars and 50 per cent of all refrigerat« 
cars, but he does not do it as a common carrier, and no order rul 
against him if there is a shortage, to produce more Cars and mal 
ee available. I doubt if you can make a common carrier out of 

acker. | 
Z More than that, not only is the total supply involved, or an app¢ 
tionment of the existing total supply, as between the large and 1 
small packers or others who may desire that type of equipme 
involved, which leads us into discrimination. ) 

In that connection I want to submit a letter, a signed statemer 
by the Florida Provision Co., located at Jacksonvule, Fla., dat 
July 15, 1919, and reading as follows: a 

I was in the business of supplying fresh meat to my trade along the line of t 
Florida East Coast Railroad— 

















RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 839 


One of the roads, by the way, that does not have refrigerator cars 
nd depends, I believe, upon an exclusive contract with the Armour 
ubsidiary lines for its refrigerator equipment. 

This meat was shipped by me in a packer-owned car, as the railroads were not in 
‘position to furnish me with refrigerator service. After having had the use of this 
ir for one year I was notified that I must not use this car, and the railroads were 
Otified not to furnish same to me. Through the packers’ refusal to permit the use 
{this car for the transportation of my meats and the inability of the railroads to 
(mish me with a refrigerator car 1 was compelled to relinquish this part of my 
“asiness. 

Now, I do not undertake to say how many cases of that sort there 
ave been. It is enough, it seems to me, that in a business such as 
ais there should have been one. 

The tendency to discrimination is closely associated with the exist- 
ace of private ownership, shipper ownership, of this equipment. 
he railways now say to a shipper “Furnish your own cars, and we 
|all give you the service.” For example, I have here two of many 
tters that 1 have received in response to questionnaires, which 
yad as follows, the question being, ‘Is such service actually available 
wr products other than meat and packing-house products.”’ 


Answer. These peddler cars are used exclusively by the owners. 
While these companies— 


‘Reads another statement— 


dle so-called peddler cars we do not provide same, as they are cars belonging to the 
|\cking houses. Cars under refrigeration are furnished by the packers and we simply 
large our less-than-carload rates to each destination. Do not understand that these 
1 are available for the handling of other business, since they are furnished by the 
/wckers themselves. - 


_ Of course, they are the ones that own them. They are the com- 
ion carriers to that extent. 

| In line with this same line of reasoning, the exclusive service which 
mes to the packer as a result of his ownership, or to any private 
wner—let us say the Union Tank Line Co.—is to be noted. It is 
0b consistent, gentlemen, with the common carrier’s function, and 
4s wasteful that there should be involved an exclusive use of such 
;fuipment as ought to be pooled and made available to all who have 
1y demand therefor, that it should be limited in its use to a single 
‘oup of shippers, which may at the peak perhaps be able to use it 
etty well, but during a large part of the time the equipment is 
| tuled back empty and has to be utilized when you get it for the trans- 
) rtation of goods that do not require such shipment—nonperishable. 
| The whole thing is summed up, it seems to me, in the divided re- 
,)onsibility which exists under the present system. It is a system 
| which we have a half slave and a half free sort of a situation. The 
| shippers can furnish and supervise such a shipment; the little fel- 
‘Ws can not, and suffer thereby; that is, to say nothing about the 
atter of discrimination in service, which I touched upon this 
| ornine’. 

Mow” the ruling of the Interstate Commerce Commission on the 
,atter shows how anomalous it is. In its ruling No. 4906, in the 
atter of private cars, that commission says: 

) As before stated, it is undoubtedly in the interest of all shippers that needed cars 


ould be secured from the carrier direct. 
| a) 





840 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


And note the following language: 


But so long as the system of the use of privately-owned and operated cars continv 
to play so important a part in transportation by railroad in this country, and so lo 
as the carriers fail to provide themselves, by ownership or lease, with cars to transp 
so important a part of the commerce moving over their lines, there seems to be 
sound reason why shippers should not continue to secure cars through independe 
car companies. 


And this conclusion amounts to this: So long as the packe 
furnish refrigerator cars, and so long as the railways do not furni 
refrigerator cars, so long the packers will continue to furnish refrige 
ator cars and enjoy the advantages pertaining to the situation. Al 
the same statement can be made with regard to tank cars. 

That quotation, by the way, in my judgment seems to put ve 
well the standing of the Interstate Commerce Commission on t 
situation. It is not clear cut, to say the least. 

Now, to remedy that situation, I would propose that on page 
of the Esch bill there be inserted 

Mr. Sanvers of Indiana. Pardon me, is that the committee”pri 
you have there ? ; 

The CuairMan. No; he has the original print of number 43; 
which you have in your files. | 

Mr. Hanry. In the copy which I have, the amendment which 
desire to propose is in the way of an insert in line 8 of page 6, followi 
the phrase ‘‘adequate car service.” There I would suggest t 
insertion of these words: ‘Including such special types of equipme 
of wide use as refrigerator cars and tank cars.’ 

The bill would then provide at this point that: 


It shall be the duty of every carrier by railroad, subject to this act, to furnish & 


. 


and adequate car service, including such special types of equipment of wide use 
refrigerator cars and tank cars. 


Mr. Sanpers of Indiana. That was what line? 

Mr. Haney. Line 8 on page 6. 

Mr. Denison. When Mr. Clark was testifying, I asked him t 
specific question if the commission would have the authority unc 
this bill as drawn to compel such service, and his answer was th 
would have full authority to do so under the provisions of the } 
as now drawn. 

Mr. Hanny. I have a statement from Commissioner Myers ip 
cating that that was not the fact. That is, in his judgment, of cout 

Mr. Denison. Yes; I understand. 

Mr. Hanry. And in any case I must confess that, in view of 
ruling of the Supreme Court in the Parafline case, in which the co 
mission had ordered the railway to provide itself with tank cars 
would doubt whether we could be sure of the matter, unless | 
language were made definite and specific. 

The CyarrMAN. You asked us to require them to furnish spe¢ 
car service. That is much more specific than the language whi): 
interpreted by the Supreme Court in the Pennsylvania case, for 
that case they claimed that the commission had not any power 
require the Pennsylvania Railroad Co. to furnish tank cars wt 
they sought that power in a portion of one of the paragraphs of | 
act. Here we say, “Shall furnish safe and adequate car service. | 

Mr. Hanry. Ate you sure that the court will hold that “| 
service’? means anything more than, or this statement as a wil 





RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 841 


oncerning car service means anything more than, the statement of 
he common-law obligation of the carrier to provide needed equipment. 

The CuarrMan. I rather think so, although I would not like to 
lace my judgment against theirs. The Supreme Court might say 
hat, at least. 

Mr. Haney. There would be no difference between those who — 
avyor the bill as it stands now and myself in the object which it is 
esired to accomplish. 

The CuarrMAN. I understand you suggest these things in order to 
lear up any doubt. 

Mr. =e Yes, sir. 

The Cuarrman. All right. 

Mr. Haney. To the same general effect, on page 11 of the bill, 
ecording to the copy which I have, in line 6 I would insert the same 
inguage after the words ‘‘in this act,” so as to empower the commis- 
ion specifically not only to require by order any carrier by railroad 
ubject to this act to provide itself with safe and adequate facilities 
ut to empower the commission to compel any carrier to provide 
afe and adequate facilities, including such special types of equipment 
f wide use as refrigerator cars and tank cars. 

Mr. SAnvERS of Indiana. Is there any danger in the use of these 
pecific terms being controlling, so that they would tend to narrow 
fe terms as used in the act ? 

Mr. Haney. I had thought of that, and of course having thought 

f it, it is my own opinion that to state it as covering such special 

ypes of equipment, naming two of the widest and most generally used 
es, would meet the situation. 

. SANDERS of Indiana. Of course, the only danger is that very 
‘equently in legislation of that sort, when you name special types, 
i 18 difficult to get the courts to include anything else except those 
hat are specifically named. 

Mr. Haney. I believe that, as a practical matter, aside from stock 
ars of certain types, the two that are named are the only ones that 
all for action at the present time. 

Mr. Sanpers of Indiana. Of course, if they were the only things 
1at need to be remedied, it would not be necessary to mention types 
t all; it would only be necessary to mention those two and be done 
ith it, and those may be the only two; I do not know. 

Mr. Haney. Those are the only two that have come under my 
bservation. Then you will observe that what I have proposed so 
wis to make clear, specific, and beyond the shadow of a question 
at private car lines which have been mentioned would come under 
1e head of ‘“‘common carrier;’’ second, to make clear, specific, and 
eyond the shadow of a doubt the duty of the railways to provide 
ich equipment, and the power of the Interstate Commerce Commis- 
on, subject to the provisions herein stated, to require the railways 
) provide such service. 
ow, there remains the further thought, suppose that the Inter- 
ate Commerce Commission does not see that it is in the public need 
) require it, or that the provisos stated on page 11, beginning with 
ne 12, are such as to make it difficult for them to bring compulsion, 
1 Case the matter is carried into the courts, where would we be as 
)»Temedy, assuming that there is the urgent need for this which I 
Ave endeavored to set forth? That brings me to raise the question 





842 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


as to why the idea of a part of the Kenyon and Kendrick bills, and th 
Anderson bill—the Anderson bill being in the House and the Kenyo 
and Kendrick bills being in the Senate—should not be taken cogni 
zance of by this committee, inasmuch as it is purely a railway matter 
I refer to that section of those bills which provides that the carrier 
‘shall not accept for transportation cars which are shipper ownec 
unless subject to the provision that they shall be open to the use ¢ 
any one who makes reasonable request therefor, and to make m 
suggestion definite it seems to me that on pase 6, following the para 
graph which prescribes it as a duty of the carrier to furnish sue 
equipment, there might be inserted a paragraph like this: 

All cars, irrespective of ownership, which receive special service on account of us 
for transportation of perishable freight or other freight requiring special service, sha: 
not be used for transportation of freight which does not require special service, unle: 
such cars are made available to all shippers on equal terms. 

I confess that I have not given study to the language of that pre 
vision which makes me sure that it is the best, and of course it 1 
merely suggested as an alternative to the language used in the Kenyo: 
and Anderson bills; but it does seem to me that possibly it might b 
desirable to make such a provision which would take effect at onc 
and which would insure, pending the observance of a duty by th 
carrier, or the enforcement power in the hands of the commissior. 
against the discrimination which now attends the existence of thes 
types of equipment in private hands. 

. Cooper. May I ask a question right there, Mr. Chairman 
When the packers are using their own refrigerator cars in the shi 
ment of perishable products, in what way is that a detriment to th 
public? Does that increase the cost of living? . 

Mr. Haney. It is a detriment to the public, as I see it, in this wa) 
sir. In the first place, there is a scarcity of refrigerator cars. Kx 
frigerator cars should be used for articles which require refrigeratio. 
in the interest of economy, to the extent that there is any freigh 
requiring refrigeration had for shipment. To the extent then tha 
these equipment are by their exclusive and private use confined ¢ 
the use of certain shippers who do not have enough perishable freight 
to utilize them as types of equipment designed for perishable freight 
to that extent there is waste and the public is injured. In the secon 
place, as I have shown, under the existing situation they constitut 
a discriminatory advantage which has been the chief factor in ug 
building such monopolistic power as the meat packers have, and | 
you believe, as I do, that by and large competition is apt to give 
an average lower range of prices than monopoly, you wil agree wit 
me that it has a bearing on the situation. | 

Mr. Cooper. Do you represent a wholesale grocers’ association ? | 

Mr. Haney. The Southern Wholesale Grocers’ Association, 

Mr. Coorer. When the packers use these refrigerator cars to hay 
nonperishable products, they place the goods on the market for i) 
organization that you are mterested in, as well as themselves, d 
they not? 

Mr. Haney. Yes, sir. | 
ae Coorrer. Does that affect the Wholesale Grocers’ Associatio 
any 3 


4 


HH RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 843 
Mr. Haney. It has enabled them, through the superior service 
vhich they receive, to make rapid headway in the wholesale grocery 
ousiness. 
.. Mr. Cooper. The point I am trying to make is this. The fact 
hat the packers use these cars for nonperishable products, does 
hat increase the cost of living, or does it delay the putting of these 
‘oods on the market ? 

‘Mr. Hanry. No, sir; it does not delay it. 
._ Mr. Cooper. What effect has it got on the public? Iam interested 
o the public’s side of it as much as I am the wholesale grocers and 
iackers. 

Mr. Haney. Yes. 
| Mr. Cooper. Now, the attitude that you are taking is this, that 
‘ou believe that the Wholesale Grocers’ Association ought to be 
lowed to use the packing cars of the packing industry to haul your 
ars to market ? 
_ Mr. Hanry. Not quite. The attitude that I am taking is that 
‘his class of equipment should be pooled and made available for the 
se of any one who wants it, and that refrigerator cars should be 
‘sed only for articles requiring refrigeration to the extent that there 
Te any such articles seeking transportation therein. 
| Mr. Coopgrr. That is all, Mr. Chairman. 
| RORMAN: Have you finished your direct testimony, Mr. 
Taney ? 
| Mr. Haney. Well, I want to observe, if I may, that I would not 
or a moment make any such proposals as I have made if I felt that 
|b was necessary that the packers would have to suffer for equip- 
‘gent; in other words, that the public would be deprived of tresh 
feats in any way, shape, or manner, or that the refrigerator cars 
Ctually would be less efficiently used than they are now. Unless 
\7e can assume that if some such action as this is taken the refrig- 
trator cars of the country and the tank cars would be operated in a 
Tay that we might call a pool, then I would withdraw everything 
bat I have suggested. My own feeling is that this is the time, when 
)Onditions are in a state of flux, when there is a large mass of railway 
;quipment secured by the railway administration, which has to be 
\andled, to set up an establishment, a subsidiary railway corpora- 
)0n, which would have as its sole function and duty the ownership 
nd management of such special types of equipment as those we have 
een speaking of. It could acquire the equipment now owned by the 
ackers by giving them bonds, possibly. Presumably the equipment 
‘ould pay for itself. I can see no great difficulty in the financial 
}tansaction. Individual railways could own stock in this sub- 
(diary corporation in proportion to their needs for such equipment. 
he equipment would then be pooled; it would be under the super- 
jsion of a separate subsidiary corporation, perhaps utilizing officers 
ow skilled in such business. I do not think, if you have been 
| lined to entertain any of the suggestions that I have made, that 
fay objection to such proposals as those I have made, based upon the 
ssumption that the equipment would be inefficiently used if the 
)ackers did not own the refrigerator cars, or the Union Tank Line 
0, did not own the tank cars, could be well made. 
| The Cuamman. In your direct testimony, did you make any 
satement to the effect that private car lines were granted any special 
\tivileges by reason of carload minimums? 7 

























844 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Hawny. I did not cover that point. I have evidence to shoy 
it, however, and it has appeared incidentally in figures, which I hay 
mentioned. You may recall that in one statement made by one 0 
the railways quoted, the figure of 15,000 pounds minimum was men 
tioned. The packers have a 10,000 pound minimum on their ped 
dler cars, I think without exception, at least in the territory in whic) 
T am especially interested. 

The Gephustene That difference in the minimum carload woul 
inure to the advantage of the private car line owners ! 

Mr. Haney. Yes, sir. More than that, sir, in the southwester: 
territory there is a minimum charge for the use of the car, not onl 
a minimum weight, but the charge for the car must be a certat 
number of dollars, a certain shee of pounds multiplied by th 
fresh-meat rate. Under the tariffs in force in Texas and other point 
in that territory, the packers can include in their peddler car: 
various articles, such as canned meats, canned vegetables, an 
Jard substitutes, cottonseed-oil products, and apply the charge fo 
these products toward the minimum charge of the car. 

The CHAIRMAN. You believe that we, by legislation, should compe 
the common carriers to buy up the private car lines ? : 

Mr. Haney. I believe that by sae advised legislation that shoul 
be done. As I have said, I do not for a moment, Mr. Chairmar 
think that it is possible for the individual roads to attempt to d 
that, but to have some such subsidiary railway-owned corporatior 
no matter who owns the railways, I think is feasible and esirabl. 

The CHarrman. To make private car lines common carriers woul 
subject them to all the burdens and all of the provisions of the inte 
state commerce act, would it not? 

Mr. Hanry. They would not be private car lines in that sense. 

The Cuarrman. No; but they would be subjected to all the bu: 
dens and all the requirements of common carriers. 

Mr. Haney. Yes, sir. 

The CHAIRMAN. Would not that be so burdensome as to in the en 
make it expensive ? 

Mr. Haney. I hope not. It depends upon the rates. 

The CHAIRMAN. We can not bank upon hopes very much. 

Mr. Haney. It depends upon the rates that are to be allowed. 

The CuarrMaNn. Any other questions? HH not, we thank you ft 
the presentation of your views. 


PART 6. 
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


CoMMITTEE ON INTERSTATE AND ForEIGN CoMMERCE, 
Housr oF REPRESENTATIVES, 
Monday, August 18, 1919. 

The Cuarrman. We will now hear Judge Cowan of Texas. 
STATEMENT OF MR. S. H. COWAN, ATTORNEY FOR THE 
AMERICAN NATIONAL LIVE-STOCK ASSOCIATION AND THE 

NATIONAL LIVE-STOCK SHIPPERS’ LEAGUE, FORT WORTH, 
TEX. 


_ Mr. Cowan. Mr. Chairman and gentlemen of the committee, I am 
the attorney for the American National Live-Stock Association and 
ihe National Live-Stock Shippers’ League. These organizations 
sjomprise the organizations of live-stock producers and shippers 
wractically throughout the United States so far as the matter of 
ransportation subjects are concerned for the league and the pro- 
lucers’ end of it and other things connected therewith in addition 
jo transportation for the American National Live-Stock Association. 
Che latter has its headquaretrs at Denver, Colo., and the former at 
Jhicago. Jam a citizen and afarmer. I want that understood. I 
tppear in that behalf as well, and nobody will deny me the oppor- 
unity to say that I am a citizen and farmer, though they might as 
| lawyer representing these organizations. 
_ My appearance here is in representation, however, of these organ- 
zations for the purpose of presenting to this committee the matters 
vhich are under its jurisdiction and involved in the various proposals 
or railroad legislation. 
_ It has been thought best by the executive committees of these 
Bsrctions, which committees are large in number, to first give 
onsideration to the general principles which they believe ought to 
inderlie the railroad legislation and the administration of the law, 
und then to present it to this committee and otherwise to Congress 
‘hrough the form of resolutions and through such persons as they 
nay select rather than to bring to Washington City, at large expense, 
“large number of persons who have not had the time or opportunity 
0 give thought and study to these questions which are constantly 
efore the members of this committee and oftentimes before Con- 
tess, believing we can better present it in this way, and we felt that 
his committee would not be influenced by the fact that we do not 
ring here and make profert of the voters of the United States who 
‘re engaged in the live-stock business in order that you may see 
hem and fear them. 
I have represented these organizations practically during their 
xistence. I have represented some of the live-stock organizations 
| particular, namely, the Cattle Raisers’ Association of Texas, for 
great many years. As to this organization in particular and others 


152894—19—vo1 1——54 845 








846 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


they are members of these other organizations, and we cooperat 
entirely in all particulars and in that particular I represent them ir 
the same manner that I do the organizations of which I have spoken 

Judge Rowe, of Fort Worth, is here and will subsequently mak« 
presentation in particular of some features of this matter to you 
committee, he being the especial representative and attorney of thi 
Cattle Raisers’ Association also in these matters. 

In the National Live-Stock Shippers’ League we have the coopera: 
tion of several of the State commissions in the Corn Belt. The Stat 
commissions, I think, are to be heard particularly and the commere: 
counsel or the counsel for the Public Utilities commissions of some 0 
the States are to be heard at the time that the State commission: 
are to be heard. 

Judge Helm is here. He is always a strong right-hand mah t 
anybody he sides with, and a hard left-hand hitter if he is on thi 
other side. Judge Helm has been induced to remain here in order t 
hear me speak, because he always likes to do that, it inspires him wit! 
hope, because I say things and I am not afraid of being defeated fo 
election, because I am not going to run. So Judge Helm is stayin 
here; he got his ticket canceled for that purpose. I think he wi 
stay two or three days now; he did not intend to before. 

We have the poorest lot of politicians in the livestock busines: 
and as farmers that are to be found anywhere in history on the fac 
of the earth. We are large in numbers, we are strong in production 
we are not free of speech, we could not organize to raid a chickei 
yard, we could not organize for anything, except just to do wha 
happens to come along that we are compelled to do for the purpos 
of making a living, and sometimes going a little bit further. 

Mr. Winstow. You have a good claims department? 

Mr. Cowan. No; very poor. The automobile men have collecte 
more money from the railroads during the Railroad Administratio 
than all the farmers and stockraisers of this country, so I hear, an 
they did not have to bring any suit. I think that there has floate 
into the historic shop of the vintage of 1912 of Henry Ford and 10 
of other operators in building automobiles more damage to the cat 
than all the livestock shippers of the country collected during th 
last year. I wish this committee would investigate that, because 
had a letter from some fellow who wanted to appear on that subject 
and I have no doubt that he was telling the truth about it. The 
are the smartest men in the world, possibly with the exception ¢ 
Mr. Ford, and they can get everything they go after, and they hay 
gotus. We have now in my town 30,000 automobiles for transports 
tion, usually hauling one or two persons at the expense of about 2 
cents a mile, for which we go into debt. I do not know where th 
high cost of living is going to stop if they kéep raising the price | 
gasoline, notwithstanding the fact that we have more oil than aa 

lace on the earth. 

With these few desultory remarks, I want to introduce myse 
again to this committee. Ihave not been before you for a long tir 
previous to this. I want to refer to some things here that have bee 
coming before you, and have been published in the newspapers 1 
some extent, and before the Senate committee and been talked abot 

a great deal. I hope in the end to aid in getting something practi¢ 
done for the benefit of the ordinary man. I do not want to critieu 


1 
i RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 847 
wybody for anything they have thought or anything they have done, 
jotwithstanding how I may feel about it, and I am perfectly willing 
“0 forget, in so far as is possible, but you can not forget a man as long 
48 he still tries to take everything which you have, and since I first 
yegan to appear before this committee it has seemed to me that 
here is always some smart man, a great deal smarter than I am, 
‘hat could come down in my country from Philadelphia or New York 
ir Boston or some place up the Atlantic coast here—maybe in this 
‘icinity—and show you that the railroad rates ought always to be 
nereased and never decreased, that they have never earned enough 
‘0 pay expenses, and that there ought to be appointed constantly 
tere, out of every act of Congress, a large commission of some sort 
Osit in Washington and administer over our affairs, even to singing 
he psalms at our funeral. They have succeeded remarkably well, 
1 spite of the intelligence of this committee. They never sleep. 
they work three shifts, day and night; they have never stopped. 

ifter the people who work for a living in this country have come 
‘efore Congress and had Brother Sims, Mr. Esch, and a few of these 
Iderly gentlemen here who have been on this committee for 30 years 
ass good laws, they think that we are over with it now; they have 
ot even made a start. In fact, subjects come up that nobody ever 
reamed of before, and here I see my good friend, Brother Sims, 

utting his name to a bill which to my mind is ununderstandable, 

‘I may use that expression. I am not criticizing him, because I 

vere him and like him, but just think of the position we have gotten 

‘Latter 30 years of this long controversy, and still we have not made 

| Start. It is like the price of gasoline, the more oil you get the 

igher the price of gasoline. You prosecuted the Standard Oil for 

emg a trust, and it raised the price of oil the next day. I do not 

now what we are coming to, because it looks to me that in a short 

me, if all the gentlemen can succeed who have asked you to do 

)mething to help their pocketbooks, if they are ever to succeed, 

‘ten there is not going to be anybody to raise anything to live on, 

‘ifar as I can see, because the farmer of this country and the stock- 
\user of this country can not carry on business, gentlemen, and pay 

jlese rates. There comes a time when you can not make business 

|ay, because the people will not do it; they can not do it. 

| I think some of you gentlemen are farmers—you look like it— 

| ubtless you have tried it, but when you pay $3.50 a day to a fellow 

r eight hours’ or nine hours’ work on a farm, for leaning most of 

jlé time on a hoe handle, you know that the farmer is going broke. 

|hat is just exactly what is happening in my country. 

| Yet they say that the railoads must have 6 per cent, and 6 per 

jint must be their net, regardless of their other expenditures, after 

i tying operating expenses, which may include, however, much for 

|bor. I do not know what it brings a day, butit takes two or three 

jecks to pay most of them and keep from violating the rule regarding 

,6 amount of any one check, whatever it is, a month. I believe in 

| @ laboring man getting what he is entitled to, but I do not believe 

| his coming in and taking everything that I have. I tell you, 

|mtlemen of this committee, that it ic now time to talk turkey, and 

)u have got to talk turkey or you are not going to have any. I do 

jt think that Mr. Plumb—and this is a desultory remark—is a bad 

jan, but I think he thinks awfully bad when he comes and puts it 

























i 
| 
! 
. 
i 


848 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


in a bill that a fellow who gets the wages can levy the rate and tak 
it out of Jones’s pocket in spite of Jones. Then comes some gentlemat 
from New York ce Boston, I do not know which, and he says, af te: 
we have paid Mr. Plumb’s bill, “The plumber’s bill,”’ after we hav: 
aid that, ‘“you must give us 6 per cent.” What is going to be lef 
or Jones? Nothing. He can not possibly do business. The firs 
thing you know there will not be enough traffic in this country t 
move. We only can possibly live as it 1s to-day. We are buildin: 
good roads in our country, and the trucks by reason of the charge 
for their service are hauling less than carloads from Dallas to For 
Worth. I send implements from Dallas to Fort Worth and I sen 
them by truck rather than ship them by the railroad. We hay: 
three railroads running between Dallas and Fort Worth. Do yo 
not think it is time to talk turkey, because we have got to go bac! 
doing business on the roads of this country if the plans, so called, o 
these wise gentlemen from the East shall find their way into th 
statute books of this Government? I find that there is a concurrenc 
of thought on the part of these gentlemen that a State is nothing, tha 
a State is entitled to nothing. ‘‘State rights” is a back number. 
Wo said a long time ago, they say, that the State of Texas does no 
cut any ice, you have no right down there to fix rates, you have n 
right to regulate your railroads, you would do it wrong if you did iI 
you have already done it wrong, notwithstanding that we have give 
some thirty million acres for the building of railroads—is not tha 
right, Mr. Rayburn; you probably know? We have subscibe 
liberally and given rights ol way, we have given towns and aid 1 
every way, exempted them from taxes even, and have in every wa 
fostered the upbuilding of the country and the building of railroads 
We have made at least 25 millionaires in New York that would n¢ 
exist otherwise, who spend a large part of their money in Paris an 
elsewhere—notwithstanding all these things, we have no right t 
regulate our rates, and even the Interstate Commerce Commissi0! 
with one lone examiner to determine the matter, has the power unde 
the law already enacted here, according to them and the Suprem 
Court of the United States, to lay down the rule, that if the Text 
Pacific Railroad charges a cent a hundred pounds more to haul 
carload of bones from Fort Hancock on the Rio’Grande River to I 
Paso than it charges to haul a carload of bones from Marshall, pract 
cally the same distance to Shreveport, it is a discrimination and bein 
2 discrimination that therefore there is vested in the Interstate Con 
merce Commission the power to exempt the railroads of the State ¢ 
Texas from the obeisance of our Constitution and laws. They wa 
that perpetuated. That is a strong statement to make. The Go 
ernment authority ought to hesitate before exercising that power, 
it has it. I say it has not that power, but how am I going to proy 
it? They say, ‘‘ You gentlemen should take it to the Supreme Court. 
I say, ‘‘ You can not take it to the Supreme Court, because we 4% 
acting now in the State of Texas on 16,000 miles of railroad, we a 
operating under a temporary and preliminary injunction issued | 
three judges at New Orleans, whereby the constitution of the Sta 
of Texas and every statute which we have regulating rates, and i 
power of our State commission is set aside. We are prohibited fro 
doing any act or bringing any suit m any court to protect our righ 
under a single law of the State of Texas and we can not help ourselv 
I suppose these gentlemen would like for that to be continued. 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 849 


| We are coming to a point where you will have to come to Wash- 
‘ngton to find out whether you can get change for a five-dollar bill, 
i i” can get the $5. 

' I am saying to this committee, earnestly, that the people of this 
sountry are ready to revolt against the concentration of power in the 
‘eat of government. There has never been a time when the people 
yanted local self-government more than now; there has never been 
, time when they wanted real representation more than now and 
vhen they wanted less restraint. I heard a Congressman say here 
he other day that being here he could not find out those things are 
t home and he wanted to know what the people thought. I am 
elling you, gentlemen, what they think, and if you do not think so, 
70 and make inquiry along the streets anywhere in our country as 
‘0 what they think, regardless of politics, if we have any—I do not 
mow whether we have or not. 

_ I want to impress upon this committee that we do not need much 
agislation to turn the railroads back to the people that own the rail- 
joads. I think there is a great deal theoretically in the government 
wnership of railroads and public utilities; I think theoretically there 
‘3a great dealtoit. Ihave thought for many years that the exercise 
f the Rove: of regulation was but a step in that direction. I believe 
hat all thinking men have thought a good deal along that line. I did 
| 0b appreciate the full extent of the impossibility of it under our form 
\£ government, to say nothing of other reasons, until I saw it tried, 
‘nd an object lesson is one of the best lessons in the world. 

| Now, assuming that the gentlemen who have undertaken to 
‘perate these railroads have done it with the best intentions; that 
\aey have tried to do the best they could; that they have utilized, 
fe must assume, as good judgment as the average man could who 
jould have been selected for that purpose, still, this has demon- 
trated that we can not as a Government run a business, that we can 
\ardly make a start at it. We hardly get away from the post until 
|e are met with so many difficulties that it is impossible to run the 
jice to a finish without all the horses falling down. 

} When we come to analyze the situation, irrespective of all the doubt 
May have had about Government ownership, because I have been 
\fraid of it, but the difficulty, as I say, after having analyzed out this 
ing and seen it as actually performed, I am amazed at myself that 
| could not before have foreseen just what did happen, that no gov- 
‘ment except a monarchy or a strong government which can con- 
nue itself in power and continue its policy sufficiently long for the 
fe of the business can operate a business, | do not care what that 
Jsiness is. When we take into consideration our method of selec- 
on of the men to operate a business, whether it is a railroad or 
hat not, it is too imperfect. Why, it is impossible for the President 
the United States to exercise any judgment in regard to his ap- 
dntees, for the most part. The President of the United States has 
yt More power, even passing this complete power that was given 
m during the war or which possibly existed without giving it—I am 
'»t here to debate that—the President of the United States has more 
dwer of appointments imposed upon him and more duties than the 
tads of any 20 governments that can be picked out in the world 
day. JI am making that guess, because there are so many that 
ere is no living man who knows how many officers and men he has 

















\] 


850 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


to appoint and how many committees he has to appoint, and even 
involved in this bill and in the Senate bill there are more commissions, 
more bureaus, and more men and officers to be appointed. How can 
he possibly know who to appoint to those positions ? I am not 
speaking of the present President, | am speaking of any President. 
The human mind can not contain any such information as would 
enable him to do what is best for the country. ; 

In the business life business selects the men who can successfully 
run it; it is the competition and rivalry in business that selects them. 

We can not expect anything to succeed in this country in the way of 
business where the business itself has not made its natural selections. 
It is the law of the survival of the fittest; it is the law of natura! 
selection; and no Congress, no legislature, no President, and nc 
committee of men can be selected on the face of the earth that can 
do that which the business does by the law of natural selection and 
the law of the survival of the fittest. Why, you can no more repea 
the law of supply and demand than you can the law of gravitation. 
You may think you have done it, but it will turn out that you have 
not. You can not destroy the law of natural selection or the law 0} 
the survival of the fittest. There are some immutable laws of nature 
that go with the entire make-up of all that constitutes the humat 
family. Now, think that over well; just consider that for a moment 
and it does not take but a moment to consider it. The life of thi: 
Government is but a span in the history of the human race. Iti 
but an experiment, and you are at the danger end of it to-day. Ther 
is no doubt about that. Everyone of you recognize that and unde 
stand it. Can we survive?. Have we too much freedom to be free 
Are we not by the very fact of our freedom taking away persona 
initiative and power and concentrating it somewhere for somebody ‘ 
exercise and control without real knowledge that it will be beneficia 
to do it? . 

I repeat again that we need very little legislation to turn thes 
railroads back. It has been the law of natural selection; it has bee! 
the law of the survival of the fittest; it has been the competition 0 
business; it has been individual initiative and rivalry that hav 
built up this great country, and all of that has gone on hand in han 
with the railroads of this country, with the organization of the rail 
road systems of.this country, and their ability to do as well as the 
have. Can you beat it? You can not get a combination of any sor 
in the country that will be a better operated proposition as a busines 
enterprise than the Santa Fe Railroad, or the Southern Pacific Sys 
tem, or the Union Pacific System, or the Pennsylvania before it 
dotage, or the New York Central before its dotage. Now, if yo 
take away or eliminate the use that has been made of some of thes 
railroad systems in the past or of those that have been made tools ¢ 
for speculators in New York or elsewhere—and I use New Yor 
simply as indicative of the center—you can not possibly improv 
the systems by anything that you can do. Now, as I have said, yo 
do not need much legislation in order to turn them back to those wa 
did operate them. Some of them, we will say, did not do it pe 
fectly. That is true. They were being used, or some of them, fe 
the purpose of filling pocketbooks, and they were taking away 2 
that they could get; but I will tell you that they were pikers in th 
game when compared with the Railroad Administration of the Unite 


' __—«ORETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 851 


States, armed with all the traffic men that they had, and studying up 
vyays and means of extracting money from the shipper, and to show 
‘heir service to the Government in the operation of the railroads to 
ye indispensable. They have not left a thing undone; no bet has 
yeen overlooked that would extract some more money while per- 
orming less service and poorer service from the start to the finish, 
_ Now, I do not say that that is the design of everyone or of the 
lirector general; I do not say that it is the design of the heads of 
‘hese principal departments and directors here at Washington— 
.am disposed to think to the contrary—but I say that when you put 
he traffic men of this country, probably some 20,000 of them—I do 
1ot know how many there are, but there are a great many more than 
_want them to have—TI say, when you put the traffic men of this 
‘ountry to work to devising schemes, plans, and means whereby 
hey may extract money from Jones’s pocket, Jones is in a bad fix. 
The director general himself and his directors can not control them, 
ind they have not done it. I can prove that. - They want to control 
‘hem, but they can not do it. They have not controlled the five or 
‘ix brotherhoods, and they can not do it. They are afraid to try it. 
The result has been that the traffic men have shaken out Jones’s 
»ockets wherever they could get their hands into them. Then, the 
‘abor organizations have held up their hands and said, ‘‘ You will 
‘ive us what we ask, and we will get a little more after a while, as 
‘0on as we use up what we have.” Now, I say that it is time to talk 
“turkey,” and you must talk ‘‘turkey”’ to somebody. It will not 
¢ long before you will have to. I believe that it is proper for labor 
0 be organized; I believe that it is proper for the farmers to be 
wganized, and that it is proper for the lawyers to be organized, 
mut I do not believe that it is proper for them to make use of that 
wganization for the purpose of exerting power in dealing unfairly 
vith their fellow man. I think that is the result of the unbridled 
: nd unlimited power that has been given in cases where labor organi- 
ations of this country have been permitted to exercise a very great 
iower. They ought to hesitate to further exercise it, because it is 
‘ust as dangerous to them as it is to other people. ; 

- Mr. Coorrr. Do you know to what extent the wages of the rail- 
‘oad employees, namely, the four brotherhoods, have been raised in 
| ota with the wages of other mechanics in other lines of in- 
ustry ? 

} a Cowan. I do not know that I can answer that question 
iirectly, but I am under the impression that the wages of other 
aechanics have been increased more. 

' Mr. Cooper. I think that is correct. 

Mr. Cowan. That is my understanding. . Are any of you unfortu 

pate enough to own a tractor? ‘There is no response. 

) Mr. Swerer. I do. 

) Mr. Cowan. When you get a mechanic on your tractor you will 
(md out what mechanics’ wages are. Where I know anything about 
/, the wages of mechanics are entirely too high, and the country 
‘an not support it. It is perfectly impossible for this country to 
/upport wages at a point where the business they do for their em- 
| loyers must be done at a loss, because that business has got to close, 
| Nd that job will have to close down. I was talking a few days ago 
vith my brother-in-law who owns a large-farm in Texas. I said to 




















852 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


him, ‘What will you do with your farm?’ He said, “T can not do 
very much with it. I may plant some wheat, and then unless 
somebody comes along and wants to rent it, it will lie out. No 
farmer can pay $3 and $3.50 per day for labor, and I will not try it.” 
Now, the time will come when these wages will reflect back on others, 
and it is no pipe dream to say that somebody will be looking for the 
cultivation of land in this country. Now, as I said a while ago, when 
I branched off on that discussion, I was saying that I do not think 
there will be needed much legislation to be passed at this time. I do 
not think that we can look very far into the future, and I think that 
we had better wait to legislate about these things and to correct 
these evils as they may arise, rather than to strain our imagination 
to the extent of now endeavoring to perceive or conceive what is to 
probably happen and to undertake to legislate about that. I think 
that the legislation that ought to be passed is to return the railroads 
to their owners, and let them perform their charter duties. They say 
that if you do that they will go into the hands of receivers. 

Now, that might be the best thing in the world that could happen 
to them. I do not know. I do not think that a receivership is a 
particularly bad thing. It may be indicative of bad conduct here- 
tofore, or of an unfortunate situation or the like, but I do not believe 
that Congress ought to attempt at this time to legislate about every 
conceivable sort of correction that might be needed. So that if 
you said to-day, or could say ex cathedra that the railroads shall be 
turned back to their owners by the director general, and that the 
companies shall take their properties and receive’ them from the 
director general as soon as it can be done with the ordinary methods 
of transferring offices, etc., what would you hurt? You would 
have left the act to regulate commerce and could regulate the rail- 
roads. You would have all the statutes made by the States, you 
would have the right of appeal to the courts; the Constitution would 
still be in force, and you could not confiscate the properties. The 
labor people of the country would be drawing the wages that they 
are drawing to-day, and the people would have to pay the higher 
rates that are in force to-day acib they could set them aside by pro- 
ceedings brought before the Interstate Commerce Commission, 
According to any standard here, however, for the determination of 
what a reasonable rate is, it could not be done. In a few instances 
it might be done upon the ground of discrimination. Now, whatis 
there that requires legislation ? 3 

Mr. Denison. Is it your view that the rates fixed by the Railroad 
Administration would continue without any legislation 4 

Mr. Cowan. That is a good deal like the Irishman who met the 
traveler on the bridge at Niagara Falls, if you will pardon me for 
answering your question with a story. ‘The globe-trotter was solilo- 
quizing on the bridge, and kept repeating, ‘‘Is it not wonderful to 
see that water pouring over the great fall? Is it not wonderful?” 
He was not exactly addressing the Irishman who was standing a litte 
ways down the bridge, but as he kept repeating it, the Irishman 
heard it and knew that the traveler intended that he should hear it. 
Finally, becoming tired of it, the Irishman said, ‘‘Well, what its 
there to prevent it?” Now, what is there to prevent it? They are 
in the tariffs that have been published and are on file, and the only 
thing there is to prevent them from being operative would be a pro: 








fie RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 853 
‘ceeding brought upon complaint to the Interstate Commerce Com- 
mission to have some change made in the tariffs. Judge Helm, is 
‘that your understanding of the tariffs now ? 
» Mr. Heim. They have been published. 
» Mr. Cowan. The President was authorized to initiate rates, and 
‘they were published under section 6 of the act. Then they were to 
become the rates applicable to that transportation. I may be wrong 
‘about this, and I will take it back if I am, but I think that the rates 
will remain in effect until they are set aside under due process. 

Mr. Montacur. How about intrastate rates ? 
Mr. Cowan. Well, as to the rates fixed by the director general 
‘intrastate, I should say that they would have to be adopted by the 
State commissions, or that they would have to make new rates. 
‘The Texas rates would be that way but for an injunction of the 
ag court. We are out of it anyhow. We are not a State any 
longer. 
_ Mr. Denison. The view has been presented here and quite ably, 
‘that when the Federal power ceased the rates that they have estab- 
lished would cease, and that the railroads would fall back to the 
rates that were legally established before the Government took 
control. It has been argued that they would go back automatically. 

Mr. Cowan. I am certain that that is not the case as to interstate 
tates, but I should think, offhand, that it would be the case with 
‘espect to State rates. J would rather ask Judge Helm what he 
jhinks about that. 

Mr. Herm. You do not need to pass upon all those questions. 

Mr. Cowan. You are trying to sidestep it. I want to get the 
enefit of your judgment. I am under the impression 
Mr. Heim (interposing). I will say this, that it is my understanding 
ihat, so far as it has been legally determined by any court, it is the 
riew that the Government-made rates will cease upon the termi- 
1ation of Government control, and that the rates in existence prior 
0 war conditions or prior to the taking over of the roads will become 
ihe legal rates, unless Congress shall in the legislation that is passed 
; ee and validate the existing rates. 

. Cowan. You are referring to interstate rates ? 

| Mr. Heim. To both. 
, Mr. Cowan. I am sorry I asked you the question, because that 
Titicizes me severely. 

a Heim. I am not giving my views as to what I think it ought 
0 be. 
} Mr. Cowan. I was under the impression that the Federal control 
ict put those rates into effect under section 6, and that the act does 
jot make any provision with respect to the cancellation of those 
}ates when the roads are turned back. I never had that question 
{ut to me before, but I am under that impression—that is, that they 
vould remain the interstate rates; but so far as the intrastate rates are 
/Oncerned, the case is different, because, as has been held by the 
-ourts the States had no power during the war to make rates at all, 
ond hence the director general’s rates were the rates applicable only 
turing that period, Congress having no power to make State rates 
‘hen or at any other time. I will be glad to look into that question, 
Jecause I may be in error about it. 
















854 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. ; 


Mr. Denison. I asked about it in view of your statement. 

Mr. Cowan. I am glad you did. I am still of the opinion that, so 
far as interstate rates are concerned, they would remain in effect. 

Mr. Wesster. I agree with your view, and I think it is entirely 
correct. 

Mr. Cowan. I thank you. 

Mr. Wessrer. There is a distinction between the rates fixed by 
the Government with reference to telegraph and telephone lines and 
the rates established by the Railroad Administration with reference 
to the operation of railroad lines. Everyone of those rates estab- 
lished by the Director General of Railroadsis transmitted to the Inter- 
state Commerce Commission, and a formal order approving that rate 
is entered by the Interstate Commerce Commission. Now, that 
being true, when the roads are returned to private ownership, I can 
conceive of no method by which that rate can be done away with 
except the method pointed out by law—by complaint to the Interstate 
Commerce Commission and a hearing. 

Mr. Cowan. I thank you for coinciding with me. I never had 
that question put to me before. The rates were required to be 
published under the provisions of section 6. That is the tariff part 
of the act. 

Now, I have wandered from the course that I expected to pursue in 
presenting this matter to the committee, but, perhaps, it was just 
as well. There are some things I want to come to in regard to the 
Esch bill—things that, with respect, of course, always to the pro- 

onenet of the bill, I disagree with. . I wish to point them out more 
in detail at a later time. ..The question that arises in every man’s 
mind that I have talked to throughout the country—and I have 
talked with a great many men by accident and otherwise about it— 
is, What will you do about the financial situation of the railroads when 
you turn them back? Now, before the committee adjourns for the 
noon recess, I want to submit my ideas about that. 

Mr. Escu. Probably this would be a good time to suspend. 

Mr. Cowan. If the committee pleases, when I do suspend, I wish 
to say, speaking for myself and Mr. Rowe, that we have had no oppor- 
tunity to read the hearings that have been held here except the first 
number. We have barely had the opportunity to read over some 
of the bills, and I would like, if the committee can do it without dis- 
commoding itself, to be permitted to resume my statement to-morrow 
morning rather than to go on this afternoon, because | will be able to 
analyze a good deal better the specific things that 1 wish to point 
out to the committee, and that is what you want to hear, I suppose. 

The CHarrMaNn. If it is agreeable to the committee, we will take 
a recess until 10 o’clock to-morrow. 

Mr. Wesster. I want to qualify what I said by saying that my 
observations related solely to interstate rates. 


a RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 855 


CoMMITTEE ON INTERSTATE AND ForEIGN COMMERCE, 

I | Housrk or REPRESENTATIVES, 

| Tuesday, August 19, 1919. 

. The committee met at 10 o’clock a. m., Hon. John J. Esch (chair- 
man) presiding. 


STATEMENT OF MR. S. H. COWAN, ATTORNEY FOR THE AMER- 
. ICAN NATIONAL LIVE-STOCK ASSOCIATION AND THE 
._ NATIONAL LIVE-STOCK SHIPPERS’ LEAGUE, FORT WORTH, 
_ TEX.—Resumed. 


The CHarrMan. You may proceed, Judge. 

Mr. Cowan. Mr. Chairman, I suppose that those resolutions follow 
along the line of the things which I have been saying and threatening 
to say and those which are embraced in the letter and documents 
‘which I sent to this committee at the beginning of its hearings, and 
which have been printed in the first volume or the first part of these 
hearings. I think that all of the commercial interests of Texas are 
pretty well united with respect to the main points. The disagree- 
ment among some of us has applied to the matter of consolidation of 
railroads, the division of the Interstate Commerce Commission into 
regional sections, and some details of that character, and there have 
been some of our weak-kneed brethren in Texas who have been 
willing to surrender the rights of the great State in the making of 
rates and the regulations of railroads, but I am not one of them. 
Most of that has been surrendered because of the supposition that on 
account of the decision in the Shreveport case we have passed into 
an era where the States can not expect to-assert their rights, and I am 
not one of them. I believe that is about the only disagreement 
between any commercial organizations, and I do not think that is 
\serious, because I do not think those gentlemen are as well informed 
about it as we are. Am I correct, Mr. Rowe, about the proposition 
|that our disagreements are mainly in regard to the matters I have 
\just mentioned ? 

| Mr. Rowe. That is true. 

+ Mr. Cowan. Mr. Rowe has attended a number of meetings in Texas 

which I have not attended of the Industrial Traffic League, and I 
\believe knows somewhat better just what took place, but I have 
}attended a good many of them, and in the main the people are 
practically a unit in Texas on the entire subject. 

It is strange to me, and I do not remark it by way of criticism, 
-but I mention it by way of a singular thing, that with it all we have 
jnot found, outside of our good friend Mr. Rayburn, anybody from 
) Texas taking any interest in this matter much. I can not understand 
that and maid not endeavor to explain it. 

‘Yesterday, at the adjournment of the committee, I was about to 
state something as to the character of legislation which I thought 
Was necessary at this time, following the statement which I believe 
[made that there was not much legislation that was really necessary, 
and I wish to pursue that thought this morning in order to make what 
‘few remarks I can pertinently make, consecutive, and to the point 
we are driving at. 

here may be a great deal of legislation which is desirable and may 
become desirable. My own thought about the matter has been that 
















856 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


not being able to foresee of these things that it seems are about to 

happen, which one of them will happen, I can scarcely prophesy 

what ought to be enacted in the way of legislation, at least, in so far 

as a remedy is coricerned against what may happen. As a preventive 

to the happening of these things I can well see that some strong stand 

must be taken by Congress or the test that this Government is being 
ut to as to whether we can control the affairs of this Nation so as to 
eep up peace and prosperity will turn out as a success or not. 

I will say at this time that we have given considerable attention to 
the matter of the preventive legislation, I may term it, or the pro- 
tection that we may provide by law against the happening of events 
which might prove a great calamity to the country, and Mr. Rowe 
and I work at nights, legitimately, and he has prepared some matters 
which he will more particularly present, and I shall not therefore 
take much time on that subject. | 

I shall desire to go through the bill that is before the committee 
when I reach that point in a short time to take up the different items 
of legislation that are proposed. Presently, 1t seems to me, that 
legislation might be divided into two classes, that which apparenth 
is necessary, and in addition thereto that which may be desirable 
and yet is not particularly necessary. 

Lest I might forget it, I beg to call your attention to the fact that 
at no time is it more appropriate to call attention to the fact that 
Nero fiddles while Rome burns and to point to the fact that the 
standard of return which has been allowed by Congress to the railroads 
continues until you shall provide these railroads be turned back. It 
would be expecting too much of human nature to say that those who 
profit by it will not use all of the means at their command, by the 
devious methods which they. can pursue to accomplish that end, and 
so we had it before you, in a demand, first—I call it an imperious 
demand—from Mr. McAdoo that they be permitted to hold these 
railroads for five years. We subsequently had Mr. Hines’s indorse- 
ment of that, not that he does not know better, because he is one of 
the smartest men in this country, and the members of this committee 
know that I know that because we fought the battles of the Hepburn 
bill here for many months. He is a very able man and I know 
that Mr. Hines knows better. I never asked him to tell me that, but 
I know that, and I do not think he very much impressed this committee 
with the idea that he believed really that these railroads ought to be 
retained under Federal control for five years. I do not say that by 
way of criticism of Mr. Hines because I am not going to criticize hint 
in any way. 

Mr. Sims. The period Mr. Hines suggested was three years, accord- 
ing to my recollection, and Mr. McAdoo’s five years. ; 

Mr. Cowan. Did he get down to three years? Well, Mr. McAdoo’s 
was five years. , 

Mr. Sms. I do not think, in principle, there is any difference, as 
far as that is concerned. 

Mr. Cowan. The difference lay in the fact that a boy when he gets 
a new fiddle or a new banjo concludes when he can strike a tune he 
has become a great musician, and Senator Sherman, I would say, in 
his satire on Henry Ford draws the parallel there and points to the 
fact that he concluded that because he could make the best cheap 
car, he had mastered all subjects that concerned finances and the 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 857 


government of men, and believed that he could reach the day when 
‘men could work three hours a day at full pay and every man in the 
world own a $300 car. Mr. McAdoo conceived the idea, and it was 
plain to be seen from his testimony before you that he honestly be- 
‘lieved—and that was the misfortune of it—that he could take hold of 
-allof these railroads of the United States and in the twinkling of an eye 
shake it down like a kaleidoscope, and put it together again and 
move it off with a combination of railroads, with a flag in front, with 
unified operation of railroads, and economizing to such an extent as to 
make a profit where the railroads could not make any. I knew better 
than that. Mr. McAdoo did not. He found it out just before he 
retired to the moving-picture scenes in California: 
I do not say that by way of disparity of Mr. McAdoo. I think he 
‘is one of the most wonderful men in many particulars we have ever 
“produced, not excepting Pete Barnum. As an advertiser he is the 
greatest I ever saw, but he nearly ruined the railroads by doing the 
oe thing that some of us appealed to you gentlemen not to permit 
and appealed to them here not to do, and that was to break up the 
‘organizations of the railroad systems of the country where they had 
had so much experience, as a family, you might call it, on each system 
in operation, and try to throw them together and the Government 
runit. And so, for several days, as you will recall, the question was 
@ here, whose employee will one of these men be; will he be an em- 
ployee of the Government or the railroad company. You will re- 
‘member that it took several days for Mr. Anderson to find out which 
‘that was. On the final wind-up and in the last argument which this 
‘committee, through Brother Sims, as chairman of the committee, 
ermitted me to make, largely against the standard return, because 
could see in that that the people were going to have to pay too 
‘much to some regardless of what others got, he called my attention to 
; the fact, while I was making the closing argument in the matter, that 
they had presented figures to show that there would be a profit of 
$100,000,000 a year after paying the standard return. I did not 
ere with it at all. I knew they had submitted the figures and I 
think these gentlemen honestly believed that, but it did not turn out 
‘that way. It turned out to be an enormous, constant, ever-increasing 
loss. Thus it will increase, because, unless something that is extraor- 
dinary happens that increases the traffic enormously in the country, 
‘the tendency will be for the traffic to fall off because of the high 
freight rates, and thus the earnings decline. 
I do not think we should continue to guarantee the enormous 
‘surplus, and there is where Mr. Plumb and I agree. We do not 
believe that the railroads are entitled to have a surplus guaranteed. 
| A railroad may be perfectly entitled to make a surplus if it can earn 
‘it by the efficiency of its operation of the multitude of its transactions 
‘or by its good fortune in a particular year or two. I am not speaking 
against that. But when it comes to guaranteeing a surplus out of 
Jones’s pocket, Jones kicks about it, and hence we do not want this 
committee and this Congress to retain Federal control any longer 
, than is necessary, so that we may get down to paying the railroads 
‘what they are entitled to, and not a guaranteed surplus of some 
/$300,000,000 a year above what they could make if they were oper- 
‘ating them themselves under the best conditions of the three best 











A 


858 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


ears of any three years that they ever had in their history, which has. 

een made the standard. 

Mr. Suus. If the Judge is willing, I would be glad if he will give us 
what he regards as the necessary and other elements which in his 
judgment should be considered in determiming whether or not the 
Government guaranty is necessary at all. You used the word 
‘necessary,’ and I do not know what you mean by it in its appli- 
cation. 

Mr. Cowan. I may have used that in several different connections, 
but I was speaking of necessary legislation. 

Mr. Sims. You said you did not want us to pay this return any 
longer than necessary, but did not state just what you regarded as 
necessary. ie 

Mr. Cowan. I understand now, perfectly. Whether it is appro- 
priate or not and whether it is necessary or not in order to maintain 
the standard of credit, we will call it, of the railroads, or im order to 
maintain them in a condition of efficiency, that you should, in some 
form, guarantee that they will make so much money, still, the present: 
guaranty ought not to be contimued because, confessedly, it involves 
a very large surplus, and therefore Congress should act as romp as 
possible in order that the roads may be turned back without having 
to further guarantee and pay out that surplus which we are obliged 
to pay. 

inehetora I say that desirable legislation might well be put aside 
for the moment until you have provided for turning the railroads 
back and until they are turned back. Congress will still be in session. 
The conditions which require additional legislation can be better 
observed, and after you have simply passed the necessary legislation 
and turned them back, the sooner you can, you will have accom- 
plished what, in my opinion, is best for the public interest. I do not 
mean that there is not a great deal of desirable legislation. That is a 
question to argue and determine when you come to the specific bills, 
but I do say that there is not a great deal of necessary legislation, 
and now I will point to that; but answering further, Mr. Sims, I do 
not believe in any form of guaranty of the earnings of private property 
that is not guaranteed by the Constitution of the United States or the 
constitutions of the States. As a broad proposition, that is my 
opinion. 

Now, as to the necessary legislation [reading]: 

1. That 90 days after the passage of this act the United States shall cease the opera- 
tion of railroads and transportation companies and the corporate owners or operating 
company shall be deemed to be in full possession and operation thereof, charge: 
with their full duty and responsibility under the act to regulate commerce as com- 
mon carriers, and under the laws of the several States which, but for the proclamation 
of the President taking over such transportation companies and the provisions 0 
the Federal control act, or other acts of Congress, relating to such companies, would 
have been applicable and in force. a ae 

2. That the director general of railroads shall immediately upon the passage of 
this act make such orders, general or special, providing for the methods of surrender 
of and turning over to the said owner or operating company from which any railroad 
or transportation company was taken over or the successor thereof, and serve notice 
thereof upon the carrier, retaining under his operation which shall be deemed for 


and on account of such owner or operating company, any railroad or transportation 
company property or part thereof which, for any reason, shall not be turned back 


as herein provided. F 
8. Sufficient funds from the revolving fund or other source for current use shall 


be paid over to the said railroad or transportation companies, respectively, to enable 


"a 
= 
| 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 859 


: = 


‘them to earry on their business as corporations and carriers, not to exceed the amount 
“of money received on taking over said railroad and transportation company, except 
‘where the United States may be indebted to such railroad company, under the Federal 
control act to be paid in final settlement with said railroad company. If a greater 
amount than the United States may owe to such railroad or transportation company 
“is advanced as necessary as an operating fund the same shall be by way of loan as 
‘hereinafter provided. 
| 4. That all rates, fares, and charges, rules, and regulations pertaining thereto and 
to the operation of such carriers and pertaining to transportation shall remain in 
force and effect for four months after the passage of this act except where changed 
by order of the Interstate Commerce Commission as to interstate transportation or 
State commission or authority as to intrastate transportation, the jurisdiction of 
which shall, in all particulars, be in full force and effect from and after the passage 
of this act, notwithstanding the provisions of the Federal control act or the procla- 
mation of the President or any order of the director general, But it is specifically 
provided that no such rate, fare, charge, rule or regulation is hereby given any further 
force or effect than any other rate established and put into effect by such carrier 
,or carriers, or by the Interstate Commerce Commission, or by the authority of the 
‘State, and shall be and remain subject to the provisions of law, carrying no presump- 
‘tion of reasonableness that will prevent the recovery of reparation should such rate 
‘be declared unjust and unreasonable. 
_ 6. All liability for loss and damage or other liability incurred in the ordinary 
‘course in operating such railroad or transportation company by the director general 
‘Shall be deemed a liability of such railroad or transportation company for which 
such carrier shall be liable and a charge against the United States as may be pro- 
‘vided by the accounting system or method provided for in the settlement between 
the carriers and the United States. 


Mr. Sanpers of Indiana. I wish you would read section 5 again. 
_ Mr. Cowan (reading): 


| All liability for loss and damage or other liability incurred in the ordinary course 
in operating such railroad or trarisportation company by the director general shall 
be deemed a liability of such railroad or transportation company for which such 
‘carrier shall be liable, and a charge against the United States as may be provided by 
the accounting system or method provided for in the settlement between the carriers 
and the United States. 


I might stop to remark that I have not been able to just use the 
precise language that would be best. I am trying to point to the 
committee to the necessary legislation, as I view it [reading]: 


6. That an accounting board shall be appointed by the Interstate Commerce Com- 

mission to cast up and make an accounting and report to the commission, and the 
settlement shall be made and certified to the Treasurer of the United States for pay- 
ment, the rules to be such as to adjust all matters of agreed liability, and in case of 
dispute to be tried by the Court of Claims or otherwise, as may be determined by 
Congress. The commission shall make report thereof to Congress, together with its 
recommendations. 

7. To appropriate money to pay such obligations as the Government may owe to the 
railroads under the Federal control law, to be advanced prior to settlement of accounts 
upon the application of the bondholders when necessary, to the extent and as may be 
determined by the commission, and in case of overpayment the same to be treated 
a8 a loan and first lien on the property of such railroad company. 

- To provide a fund for loans to such railroads as may require it in order to efficiently 
operate, to be determined by the commission upon application of the company:and its 
bondholders and after public hearing and notice to and opportunity by the railroad 
tegulating body of the State wherein said railroad or its subsidiaries are operated, or 
Where no such body exists, then upon notice to the governor of such State, and oppor- 
tunity afforded for such State to be heard. 

| In like manner loans may be made to receivers of such railroads, under proper 
Applications and provisions for security authorized by the court where such receiver- 
ship is pending, and authority granted by order of the court in such case allowing the 
United States to become a party in such receivership case, to be represented by the 
Attorney General. 

_ to authorize the Attorney General and make it his duty, upon the request of the 
| Interstate Commerce Commission, to file and prosecute suits in the courts of the 
| United States, to which jurisdiction shall be given, for the appointment of receiver 








860 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


of any railroad subject to the provisions of the act to regulate commerce, which are 
insolvent or which are about to become insolvent or which fail to perform or for any 
cause are unable to perform their function as a public carrier, or which fail to secure 
or pay to the United States any obligation owing to it. 

Following that Judge Rowe will present here his views, in which J 
concur, some of which are mine and some of which are his, but we 
subscribe to them, as to the preventive legislation to protect the 
country and to protect the railroads against the dangers, which [ 
need not enumerate, which would arise if this continued idea of strik- 
ing everywhere and trying to tie up all of the industries of this 
country should prevail. Congress has never been confronted with 
a more important and serious subject, if I may be permitted to say so. 
Though I hold no brief for them, I certainly hold no feeling against 
them in any sense. The brotherhoods and the labor organizations 
of the country, if they could succeed in the propositions which they 
have made, would be stepping in at the door of their own destruction, 
~ That is my personal opinion. I can hold that opinion, because I 
gather it from history of all of these governmental activities and 
inactivities and from the history of the times, because when I see 
the greatest monarch on earth dethroned and ignored and put in the 
backyard working in the garden, with his wife running a rooming 
house, inside of three weeks, and the whole Government of 
175,000,000 people, if it was a Government, cast into a seething and 
unknown some sort of soviet, socialistic, bolshevistic—whatever 
you may call it—condition of no Government, I wonder what is 
coming next, and yet, I think, it has spread like the influenza during 
the war, and the great danger is that this Government will not be 
strong enough, and the men who stand at the wheel, as you do, cau 
not cuide the ship of state and prevent the happening of these things 
which, perhaps, through fear that may be aroused of your con- 
tinuance in position or some men’s continuance in their legislative 
position, may stop-them from exercising that judgment which made 
this country and which made it great, the independence of thought 
and action, to the end of securing the rights of life, liberty, and the 
pursuit of happiness. 

T have submitted heretofore, as stated, and which are printed as 2 
part of your proceedings—but doubtless you have not read them; | 
do not say that by way of criticism; you can not read everything 
that is filed here, time forbids—certain principles which have been 
gone over with great care by the executive committees of the National 
Live Stock Shippers’ League and the American National Live Stock 
Association, and which in substance have been indorsed by prominent 
live-stock organizations, most notably, the Cattle Raisers’ Associa 
tion of Texas, which is not confined to Texas alone. That resolution 
I think, I submitted here as expressing the mature thought of mer 
who have no ax to grind, except where it helps the public interest 
because the transportation of live stock throughout the United States 
and the transportation of feed and farm products is interwoven witl 
the public interest so that he can gain nothing that the public doe: 
not gain, and the public can suffer nothing that he does not suffer 
except in those isolated instances where there may be local conditions 
that might benefit him and not benefit some others. I say that is the 
deliberate judgment of the men who have thought upon that subjec 
and who have discussed it, men of large interest and of great patriot 







* RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 861 
ism throughout every part of the United States. I hope it will have 
‘your attention because of the facts I have related respecting its 
source. 

One of the difficulties, of course, that the committee finds and I 
‘find in attempting to present a matter to a committee is to keep after 
only the things that there is some probability of reaching and doing 
something with. 

'_ There is not so much use, I do not believe, in my discussing at 
‘length at all the propositions that have been put forward in the Plumb 
bill. As I tried to say in the outset, I did not mean by using remarks 
that might be considered sarcastic or by way of criticism—I did not 
‘mean them in that sense. I know these men. I think they are mis- 
taken; that their judgment is mistaken. The Plumb bill, I may 
say, involves to my notion the exercise by the Government of the 
extreme of power that to have exercised would destroy the private 
ownership, operation, and initiative in the upbuilding of the railroads 
and other carrier systems of the country, and it intertwines not only 
with the Government, not only with those few employees, but a part 
‘of those few employees of the railroads who happen to be so cireum- 
stanced and situated that they may command by force of their organ- 
ization things which the others could not command for want of 
organization. | 
_ 1 do not know how many farmers and stock raisers there are in this 
country, but there are a great many, a great many more than there 
are of the gentlemen who want to take this matter over into their 
,own hands and runit. I say that if the Government should exercise 
such power—I think for the reasons stated it can not be anything 
| else—they may not intend to do that, but that would be the accom- 
/plishment, in my judgment it would be ruinous to all. 
| Government ownership, I mentioned yesterday, is not necessary to 
discuss because Congress has no intention of undertaking to provide 
for it, and that is because public sentiment is practically universally 
“against it at this time. 
| ‘This committee will recall that some members of the committee, I 
think maybe the chairman for one, perhaps I ought not to call names, 
out members of this committee, when the matter was brought before 
you by the Government ownership representatives, when the Federal 
/:ontrol bill was up, thought it was not the time and place to consider 
what subject. You had to meet the exigency and emergency of war 
\ind there was no time to consider it, if there was ever such a time. 
} Say as one, that I do not think it is any more a pressing matter now 
© consider because we are operating under superlative conditions 
jind unknown state of unrest, difficulty, enormously high prices, 
»rofiteering, and hunting for victims and all of that, under conditions 
it least where the mind can not rest sedately upon such a grave 
\,roposition as Government ownership, and I do not think it should 
})e considered here, whatever might be the merits of it at some other 
}me and under some other conditions. 
| Mr. Monraeur. Would it interrupt you if I asked a question ? 
) Mr. Cowan. Not at all. 
_ Mr. Montacue. Do you think that if we should go to Government 
)Wnership that it would be wise to divorce the roads from Govern- 
nent control; that is, just own the property and turn it over to be 
} ontrolled by others, without responsibility to anyone? 


152894—19—vo1 1——55 


















— 





862 KETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Cowan. I will answer that question. With due respect to the 
gentleman who made the proposition of Government ownership but 
private operation, to my mind it is perfectly absurd if the Govern- 
ment goes into it at all not to have it lock, stock, and barrel. I do 
not Balieva that it is in any sense consistent with public interest that 
if the Government owns the property it should turn it over to some- 
body else, private parties, to operate it. 1 can not see the sequence. 
I can nct see where it would be of any possible benefit to the Govern- 
ment, owning the property, and turning it over to private capital to 
operate. I believe in Government aid. 1 believe that Government 
aid has been well given and that State aid has been well given. J 
think that the Government can always afford, where the public 
interest requires it, to aid in the development of its industries, such 
as it does in the Reclamation Service. J can conceive, in order to 
improve the Reclamation Service on which it has spent so much 
money, how it is possible that the Government can well afford to 
furnish aid at the lowest interest and money to construct railroads 
into that property in order that what grows out of the ground may 
reach the markets and lessen the cost of living. 

Mr. Sanpers of Indiana. On the question of Government ownershij 
under private operation, do you think that Congress has the power, 
through eminent domain, to take the railroad properties of the 
country and lease them for a period of 100 years without any con- 
sideration except the possibility of some return to private individuals, 
without any consideration coming from the private individuals ? 

Mr. Cowan. Either with or without consideration, I do not think 
it is within the power of the Government. : 

Mr. Sanpers of Indiana. The use of the power of eminent domain; 
but I do not mean the use of a property, giving the beneficial interest 
to another. 

Mr. Cowan. I might agree as to the power, but the use of the power 
and the propriety of the use of it if you had it, just as I have said to 
Mr. Hines and Senator Cummins, speaking of the compulsory con- 
solidation of railroads, that it was not within the power of the Goy- 
ernment to do it—that it does not exist in the Constitution. 

Mr. Monracun. It is not within the power to regulate commerce? 

Mr. Cowan. Not within the power to compel the consolidation of 
two railroad companies. I am willing to stake my reputation on 
that, if I have any—at least, I will stake my word. There is no such 
power that can be found to compel a corporation owning one railroad 
to enter into a combination with another corporation owning another 
railroad. I may see where it might be desirable that they should 
consolidate or be consolidated. i can see where the Government 
might exercise the power and take one and take the other in aD 
appropriate way and then combine them, but the other proposition, 
to my mind, is perfectly absurd. I say that with great respect fo 
those who think otherwise. I think they are absolutely mistaken. 

Mr. Stas. Do I understand you to mean that the Government has 
not the power, after acquiring a railroad property, to lease it unde 
such conditions as might seem best ? 

Mr. Cowan. I do not assume that the Government would do any 
thing of that sort. | | 

Mr. Sms. If it does it substantially in the public interest I can no’ 
see how you can limit the power of the Government to lease property 
acquired by condemnation. 









—--* 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 863 





| Mr. Cowan. That might be true. The question, I think, had 
}eference to the Plumb bill. 
_ Mr. Sanvers of Indiana. Yes; the Plumb bill. 
) Mr. Sms. The Plumb bill claims to provide for the public interest 
,enerally, as being best for the whole country. The question was 
»sked you whether the Government could acquire these properties 
ind then turn them over to individuals to be operated. 
| Mr. Cowan. The two things that you present and the question that 
he other gentlemen presented are quite different. I am not dis- 
\greeing to the suggestion that is involved in this inquiry, and not 
rguing, but I was answering his question. 

r. Sims. The way he asked it? 
“Mr. Cowan. Yes, sir. 
‘Mr. Montacur. Would the Government have the right, after 
wning the properties, assuming Government ownership of railroads, 
) turn them over to anybody without consideration or to give or 
onate them without consideration ? 
| Mr. Cowan. I would hate to hazard any answer to that question. 
| Mr. Monracue. That is a simpler question than the one you 
‘aswered just now. 
_Mr. Cowan. I do not know what the Government can do in that 
ay if it deems it to be in the public interest. I do not believe that I 
/yuld answer that. 
| Mr. Montacve. Do you think that this Congress could pass a law 
(ving away the Capitol and the grounds to you and me without any 
}msideration at all ? . 
| Mr. Cowan. I do not think that they would give the Capitol and 
jrounds to you and me; but when you gave $100,000,000 to feed the 
}eigners and to keep them fighting 
| Mr. MontTacue (interposing). That was a moral consideration that 














} directly connected with a material consideration. 

| Mr. Cowan. That is true. To answer your question, Congress 

jould not give the Capitol and grounds to you or me. 

| Mr. Monracur. I am putting a supposititious case to you. 

| Mr. Cowan. Certainly not. 

: a Montacur. And I wanted to know whether you thought they 
nald. 

) Mr. Cowan. I do not think so. 

| Mr. Winstow. Under the Plumb plan would the Government give 

| @ power of operation over to the people over whom they would 

jive no control for 100 years ? | 

) Mr. Cowan. Can Congress 

} Mr. Winstow (interposing). Under the Plumb plan they provide 

r———— 

“Mr. Cowan (inter osing). I understand your question. I can not 

| swer it, because I would be construing that plan without being as 

|miliar with it as I ought to be in order to place a construction on it. 

. Winstow. Assuming Mr. Plumb to be correct, then, as I 

‘derstand, his plan involves the appointment of five, representing 

€ people at large, by the President, one being made from time to 

ne for periods at least would represent the people at large. There 

uld be five more who would ie selected by what they call the 

erating men of the railroads indefinitely; for 100 years there would 

five representing the classified operators of the railroads and they 












864 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


would elect their representatives during 100 years. If that is true 
there would be 10 elected by the class of people who are made up of 
operators and classified operators, and the Government would haye 
nothing to say as to the selection of those 10 men. If that is true 
would not that mean that the Government would give a majority ol 
the power of direction to a limited class of people for 100 years ¢- 

Mr. Cowan. I say, that is the impression I gathered. In writing 
an article on that subject I said that there was no limit to the dura. 
tion of their office absolutely. I think the whole thing is wholls 
impracticable. 

Mr. Cooper. You are familiar with the Plumb plan, I have n¢ 
doubt. 1 think it was stated here by Mr. Plumb himself before thi 
committee that under the Plumb plan there would be a reduction ir 
rates and that thereby the cost of living would be reduced. If] 
understand it aright, the employees of the railroads will share in the 
profits made by the railroads under the Plumb plan. You as thi 
representative of the shippers do not want a reduction in freighi 
rates by these employees because it would take away from then 
some of the profits which they would make if there was no reductiol 
in rates ? 

Mr. Cowan. I think that is an exceedingly doubtful feature. 
do not think they would want to take away the profits, because tha 
would not reduce the high cost of living. It may have been to ge 
the surplus and divide it among themselves, without any of it goim 
into old Jones’s pocket. That is my opinion. 

Mr. Sms. The Plumb plan provides that whenever the profit 
exceed 5 per cent of the gross receipts a reduction of rates mus 
automatically take place. 

Mr. Cowan. I read that. I am also reminded of the story whic 
a man told me on Sunday, about a provision of law in New Hamp 
shire for giving all over 8 per cent that the railroads made to th 
State, and going over a period of the entire existence of the railroa 
it had never given a cent. That law applies to many places, I ar 
sure. When the law was repealed they proceeded to distribute 10 
per cent stock dividend to the stockholders. There would be 2 
chance, in my opinion, speaking seriously, Mr. Sims, of that eve 
taking place, the Government to get any of the surplus or anybod 
else to get any of that surplus except the men who had in their con 
plete power the naming of both the rate of pay and the rate of freight 

Mr. Sms. This is a corporation operated for general public pu 
poses. Do you mean to say that it would necessarily have to operat 
the property if the Government took it over with that kind of a bow 
of directors? How could they settle all of the questions for il 
Government in that matter 4 

Mr. Monracur. Then, you overthrow the plan. 

Mr. Sanpers of Indiana. That would not be the Plumb plan. 

Mr. Cowan. I wish I could have heard the testimony. If ha 
met Mr. Plumb; I like him and I think he is a man of great abilit 
but I think he is misguided. He handed me his plan way along la 
spring, and, as I understood him, the merit in his plan was the fa 
that the men who, by their labor, their ingenuity and abilit , make 
possible for the railroads to make a lot of money should have 
share; that is, it is a kind of profit-sharing idea. I think that w 
the reat merit of his plan. : 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 865 


_Mr. Stas. I wanted to ask you whether you must incorporate them 
‘n that way ? 
: a Cowan. In an abstract way, you must answer that nega- 
lve y. 
. Mr. Winstow. Between those who would do the profit-sharing and 
he Government, it would be the old proposition of heads you win 
ind tails you lose. 
~ Mr. Cowan. That is quite correct. 
' Now, I am afraid I am taking too much of your time, and I think 
| have stated sufficient here to show the general proposition, and [ 
1ave stated the special legislation which, when supplemented by what 
dr. Rowe may present, will be enough, at least, to put the railroads 
yack into the hands of the owners of the properties safely, and with 
uch Government aid as the Government ought to give. I have used 
‘everal expressions in what I have read to you about the provisions 
if the law in regard to advancing money and making loans, and in 
‘hat you will observe that I have said upon the application of the 
fompany and its bondholders, because if those gentlemen repre- 
‘enting the bondholders fear that something is going to happen and 
ear a receivership and the like of that, we say that they can get 
noney from the Government if the idea I spoke of is adopted, and 
[ they will give the Government the lien that the courts will give to 
eceivers’ certificates. 
- Mr. Denison. I notice that in the plan you have just presented 
rou provide by law for a continuation of the rates for four months. 
's that true ? 
Mr. Cowan. Yes, sir; I do that. 
Mr. Denison. To avoid that doubtful question ? 

h Mr. Cowan. No, sir; not to avoid a doubtful question, but we 
vant to make it so that no one can say that we are trying to cripple 
he railroads. We know that we will be going for four months... We 
mow that we will live that long, if the Bolsheviki do not get us. We 
‘vill live that long, and we say to them that while this reconstruction 
3 going on, while everything is getting back, and while the organiza- 
ion of the railroads as going concerns is going on, we will let you keep 
rhat you are now getting on and up to that date, unless the Inter- 
tate Commerce Commission or the States should change it according 
0 law, which they probably would not do. They would probably 
‘oncede that. The people have been very liberal with the railroads; 
ery liberal indeed. | 

ow, I want to call the attention of the committee to this argu- 
‘ent that has been made: One gentleman has referred to the starva- 
‘ion of the railroads and that was somebody from Boston or New 
Tork. The argument was made that the Interstate Commerce Com- 
dission has thrust starvation upon the railroads. Why, gentlemen, 
he railroads have profited by the Interstate Commerce Commission, 
nd if the railroads had been handled as they should have been 
\iandled, and operated as efficiently and economically as some 
/ystems have been operated, they would have profited enormously, 
|S many of them have done. The rates have been tried out in many 
}ases, and always the benefit of the doubt has been given in behalf 
/f{ the railroads. There has been no disposition on the part of the 
lersonnel of the commission nor of the commission as a whole to take 
Way from the railroads fair and reasonable returns. 



















866 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 

Of course they realize that you can not guarantee eet man’s 
sagacity in business, and in having located a railroad at the right 
place. You can not guarantee all persons against accidents or the 
dearth of business; but taking them where the business has been 
normal the Interstate Commerce Commission and the public in 
seeking that method of simply having a determination made by an 
impartial tribunal of the rates as between those carriers and the 
shippers have not starved the railroads. They have been appealed 
to by the men who have operated these railroads, and who bring 
themselves with great clamor before the Interstate Commerce Com- 
mission, and declare that they are about to be ruined. Now, those 
men are millionaires, or nearly all of them are, and most of them 
are many times millionaires. Where did they, get their money i 
they did not get it out of the operation of those properties which 
they have been handling, or in the handling of the securities of those 
properties? It comes about in this way, and I want to point to the 
great State of Missouri, famous for jackasses and others: I sat in 
the courthouse at St. Louis and saw the Frisco Railroad go out of 
the hands of the receivers into a new birth as the new Frisco Co,, 
and I saw them extract therefrom five and one-half million dollars 
which wes put into the pockets of certain bankers in New York and 
certain lawyers in New York, and into the hands of certain com- 
mittees that never turned their hands in some cases. They had 
secured from the Corporation Commission of the State of Missoum 
an additional valuation, in order that they might issue $50,000,000 
more of bonds. The stockholders paid in some additional money 
but the wind-up of it was that all of the profit, all of the milk, all o 
the butter, and all of the cheese went to New York in that five and 
a half million dollars, and still the poor old Frisco is in the mire, o 
would be if it were not for some oil discoveries in Texas, down on 2 
little branch of the road in that State. 

I wish that Congress could investigate some of those things. I 
would amaze you to see them. That is the result of receiverships 
and there has not been one so far as I know that has not added o 
the previous debts, whatever they may have been. Thel. & GN 
Railroad of Texas was so much in the habit of going into the hand: 
of receivers that most people did not know when it was in and whet 
it was out. Some people blamed the State of Texas, yet it wa: 
exempt from taxes by the State of Texas for 25 years and was give 
a liberal land grant when it was built. The lands they have no 
got. They never did get them in the corporation. New York 
some way or other gotit. The lands of the Houston & Texas Centra 
Railroad are the same way; the lands of the Texas Pacific are th 
same way-—that is, they have an 80-mile reservation stretching al 
through the country for over 350 miles, from Colorado City to E 
Paso. They had alternate sections 40 miles on either side of th 
center, and all-of those were lands given them by the State of Texas 
Of course, it is very fine to say that the State of Texas shall hay 
nothing to do with the control of the railroads. \ 

Mr. Sims. That was almost as bad as the receivership of tbh 
Western Pacific case. } 
~ Mr. Cowan. We have provided for them everything that should b 
essential to the public interest and to their own welfare, and the 
some more. We have been liberal—extraordinarily liberal. 








RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 867 


hope Mr. Thom is present. He nearly sheds tears at the distress 
‘of the railroads brought about by the different commissions. Now 
a train of gentlemen come forward and say to you that you must 
abolish these rulings of the States in order that all of it may be 
brought here, and when they get Federal incorporation for all of the 
railroads, then they say that everything will go as happy as a mar- 
riage bell. And it would go as happy as a marriage bell, because we 
could not come here to Washington to watch their step, and we could 
not understand it if we did, because it is so devious. Why, those 
gentlemen from New York could hide behind a corkscrew, and you 
could not see them. I never saw one. When Mr. Taft opened his 
mouth to speak, the court spoke, and the judgment had already been 
prepared and printed. I might remark here that I have written some 
letters for this committee about advancing rates, in which I said, 
if everything were concentrated here at Washington, the ordinary 
shipper would have no more show than a sheep has to kill a butcher. 
‘That is exactly the show that the creditors of the Frisco Railroad 
had if they had not provided some sort of scheme to get their money. 
Speaking of receiverships, the Interstate Commerce Commission 
\had ordered the payment back of money collected by certain rail- 
\roads on unlawful cattle rates. They had collected on unlawful 
{rates $175,000, including interest, and that amount was ordered 
| paid back on account of the unlawful rates. That was done after 
|the matter had been tried out before all the courts. Now, did they 
get it? No, sir. Why? Because the railroads had gone into the 
(hands of receivers who would not have considered it, it being in 
\litigation. The case is pending in the Supreme Court with no pro- 
vision to pay it if the plaintiff wins. This is not brought about by 
| the Interstate Commerce Commission. 
| The CuarrmMaANn. Do you believe that there ought to be some 
| Federal legisiation in regard to receiverships for common carriers ? 
i Mr. Cowan. I do, and if legislation should be enacted requiring 
that the receivers of railroads must sell out everything, lock, stock, 
and barrel, and clean up, you would never have another receivership. 
| They have all been turned back with more debts and some additional 
ibonds. I say ‘‘all’”’ and, perhaps, I ought not to use so broad an 
/ expression, but, so far as I know, that is the case. 
Mr. Sims. Of course that occurred under the direction and wisdom 








of private ownership. ; 5 
+ Mr. Cowan. Yes, sir; that is correct. Theoretically and in the 
jabstract there are many arguments for Government ownership, but 






the difficulty that I have found,-as I said yesterday, was that the 
Government is not organized to run a business. It would not matter 
tow they attempted it, they would make a mess of it. Our experience 
‘as been so terrible in the attempt that we have made that the 
public has put it aside for the present, so that there is not much use 
m wasting our time on that. ) 

_Mr. Montacuet. What attempt have we made? 

Mr. Cowan. Under the Federal Control Act. I will tell you what 
[ think about it: I think that when Mr. Anderson wrote that bill, 
Which, as I have heard it said, he wrote for the Administration, he 
tenaciously, from start to finish, and without faltering, stood by the 
proposition of not turning the railroads back until Congress should 
30 determine. When he did that, he was going just as far as 1t was 


868 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


possible to go to retain them under Government control, in the hope 
that Government ownership would follow it. I think Mr. McAdoo 
thought the same way. There were evidences of that to my mind, 
although I may be wrong. Of course any man can be wrong about 
such a thing. When they broke up the organization of each system 
of railroads, and switched those men around from place to place, it 
looked like it to me. You will recall that to the very last ditch the 
insisted on not having a time limit fixed when they should go bade 
automatically. 

Mr. Monracur. Did the railroad brotherhoods insist upon an 
indefinite period of operation ? 

Mr. Cowan. I do not recollect. 

The CuarrMan. There is no doubt about that. 

Mr. Cowan. Now, Mr. Anderson—and I do not doubt that he 
- was honest, I am pointing out the significance of what he did—he 
no doubt thought that the railroads ought to have a bigger return 
than they were getting, and so it was that in addition to the standard 
of three years previous to June 30, 1917, they included the last six 
months of that year, and some of them stood by that until they were 
voted down. Therefore, it seems to me that the idea that was 
uppermost in their minds all around was that the railroads would 
remain in Government control. 

Mr. Sanvers of Indiana. The chief argument of Mr. McAdoo in 
support of his five-year plan was the fact that that would give an 
opportunity to demonstrate whether Government ownership would 
be a good thing as a permanent policy. Was not that the chief 
argument of Mr. McAdoo? 

Mr. Cowan. There was an argument of that sort made here, and 
that would only strengthen my conclusion. 

Mr. Wrnstow. Might it not have been their idea that at the end 
of five years it would not be possible to take them out of Government 
ownership ? 

Mr. Cowan. I think that is undoubtedly true. That is undoub- 
tedly correct. ’ 

Mr. Winstow. Would not the experience of two years indicate 
the wisdom of that prejudgment ? 

Mr. Cowan. In my opinion, yes. 

Mr. Coorer. Do you not think that Mr. McAdoo has seen a new 
light since then? . 

Mr. Cowan. No, sir; I think that Mr. McAdoo was unfortunate in 
biting off something that he could not chew. I heard him tell the 
Senate Committee—I do not know whether it is in the report, or not-- 
that the President could make rates better than any commission. 
Senator Cummins said that the present President might do that. 
Mr. McAdoo, seeing the embarrassment he was getting into by 
making such a remark, said ‘‘ Well, any President.” Of course that 
made it worse. That was stated before the Senate committee. 
went to see Mr. Williams in the hope that we could get the standard 
return down to the actual dividend, or down to the actual operating 
expenses, fixed charges, and the dividend, and he informed me that 
the Government might need to take the profits they would make for 
various purposes, and so it was presented by Mr. Anderson to the 
Senate committee. 

Mr. Underwood asked him if it was expected that they would turn 
over the taxing power to the director general. Mr. Anderson 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 869 


claimed that it was not the taxing power, and Mr. Underwood 
tlaimed that it was, and there it rested. Therefore, I say, taking all 
of those things together it looks like there was a desire to accomplish 
that purpose. Now, that might not be the subject of, any criti- 
sism at all, but I say that that was not the time to do it. It is no 
time to do it now. Let us get back into a calm, sedate condition, or 
in a condition where we could enact the Constitution of 1812 (a la 

Ford) or any other constitution which would properly govern in 
peaceful times of rest and quietude, before we try with this experi- 
ment of Government ownership of all sorts of things, when nobody 
xan tell what the end will be. 

Mr. Merritt. A short time ago you referred to the fact that there 
was a deficit and that it was likely to increase. As I recall your - 
sroposed legislation there, you propose to continue the present rate 
‘or four months after the Government gives up control ? 

Mr. Cowan. You mean the rate on freight and passenger service ? 
' Mr. Merritr. Yes. 

Mr. Cowan. That is correct. 

' Mr. Merrirr. Even with the present rate, that deficit exists, and 
uter the railroads are returned, would not this same deficit continue 

f they operated under the same rates? Do you think that within 
our months under private control the private managements could 
sause those deficits to cease ? 

’ Mr. Cowan. I do not know. I think that Congress has, perhaps, 
n the multitude of things that it has to do, overlooked making an 
‘nvestigation of that subject. Any man who has given attention 
jo it knows that the shifting of items or large items of improvement 
nto operating expenses or into capital account is so easy and so 
indiscoverable that it depends upon the policy that is being indulged 
n by a given railroad or by the Government over all of them as to 
10w much there is charged into operating expenses that ought to 
lave been charged to capital account, or how much should have gone 
‘nto accumulated profits. You can not tell about that until after 
‘he work is done. I leave it to any of you gentlemen, and if you will 
nvestigate it, you will find that to be the case. I see along the 
‘ailroads as I travel most enormous expenditures in the way of 
elaying steel, ties, and ballast. There has been a wonderful develop- 
nent going on on some of the lines. Now, how much of that is 
tharged to operating expenses and how much to capital account, 
do not know. If the policy is to expend an enormous amount of 
noney in relaying steel, putting in ties, ballast, etc., and then charge 
t to operating expenses, the railroad company might by changing its 
dolicy make an enormous saving in the account to which it is charged. 
+ Mr. Merrirr. The thought that was running through my mind 
|¥as not in any way a criticism of your suggestion, but I was simply 
‘tying to clear up my mind as to what our duty may be in the premises. 
ily recollection is that certainly since the war began—I am not sure 
‘bout the date, but I think since 1914 or 1915—the wages alone of the 
vailroads have gone up from $1,700,000,000 to $3,000,000,000, or 
early double. Now, those wages, with the present cost of living, 
vertainly will not come down, and, of course, cee is a great demand 
jtow to put them up. Query: Is this committee justified in turning 
he roads back under conditions which may produce very wide 









J 
i ‘ 


870 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


receiverships? Of course, I can conceive that there are some weak 
roads that might go into the hands of receivers anyway, but if there 
is to be a general cataclysm, can this committee assume the great, 
responsibility of turning the railroads back without some sort ot 
cuaranty for the continuance of the standard returns, or extending 
it for a longer period than four months, which is a short time in which 
to see how the business will work out? 

Mr. Cowan. I can not answer that question for the reason I have 
already stated. I do not know how much of this loss is really a loss 
of money, or how much of it has gone into betterments to the prop- 
erty, but there are many items where there can be very great savings 
made, .I do not think that the Director General was justified m 
contracting at the very high prices for everything when the traffic 
to be hauled was decreasing as much as it was. I thought a great 
deal of the fact that Mr. Hines stood out for cheaper steel than the 
board proposed, but I did not think much of the performance when 
they bought steel at the same old price, reserving the right to prose- 
cute them under the antitrust law. It was a great joke. I am sat- 
isfied that the price of coal has been forced up on the railroads in 
various ways much above what coal should be had for. . 

Now, I do not say it by way of criticism, but on account of the 
multitude of things that Congress has had to do it has failed to make 
an investigation to find out about these things. The bureau of 
economies that the railroads maintained here was closed, Judge 
Helm told me, and they are not getting those statistics now. I do 
not know of any way to find out those things at all, but before your 

uestion could be answered you would have to find out about those 
things. Since they have advanced rates from 25 to 50 per cent, so 
that the rates are now, according to all standards of the past, 
enormously high, when the railroads are turned back to their owners 
for their operation, they may respond to the necessity that is upon 
them. In my business, if I think of starving, I can not reach my 
hand into the pockets of the Government and take money from the 
people, or have a guaranty against loss. That would only invite 
profligacy in expenditure, and it would be a calamity upon the 
country, in my opinion, for Congress to enact any form of guaranty 
now. Of course, it is true that the commissions can not make rates 
that will confiscate their property, but if you are taking out of the 
pec re pockets money for that purpose you are confiscating some 

ody’s property, unless the carriers are entitled to those rates. They 
could be tried out. They have not been tried out for a long time. 
If they are not getting enough, or if the rates should be too low, let 
them file their tariffs increasing the rates, and let them take thie 
responsibility of getting their money out of the shippers. 

Merrirr. 1 was especially’ directing my attention at the 
moment to the period of four months. What you do suggest is 
that Congress should take a long enough time to make a propél 
diagnosis of the disease, and I want to make sure that the patient! 
does not die while we are making the diagnosis. 

Mr. Cowan. He will be kicking. There will be no danger of tha’ 
in my opinion, because if the rates are not high enough they wil 
ask to have them advanced. Then the time will come in the ent 
when you will advance rates so much that traffic will decline 

much that it will meet its own limitation. The law of supply ant 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 871 
_demand might not be able to adjust those things. But if you leave 
| it where the railroads can say, “ We will get it from the Government 
_anyhow,” there will be no effort at efficiency. It would be a grave 
mistake not to put them on their own initiative. Let them have 
“four months with those high rates, which they had never asked 
_ for before. 

Mr. Srus. Or still higher if the commission so determines ? 

Mr. Cowan. Or still higher if the commission so determines. 

The CuHarrman. You did suggest, however, at the opening of 
your remarks, that it might be necessary for the Government to 
advance loans to some of these roads, even roads that were under 
a receivership. 
| Mr. Cowan. Yes. 

The CuarrMan. What-security would you exact? 

Mr. Cowan. You mean loans to the receivers? The court would 
provide for that. You know that money advanced a receiver takes 
| precedence over the rights of bondholders or anybody else. 

| The Cuarrman. But take an independent road not in the hands 
of a receiver. Would you exact security from such a road? 

Mr. Cowan. Yes; I would require the application to be made 
by the bondholders and make it a first lien, as I have stated. The 
bondholders are just as much interested as anybody else in making 
‘it a first lien. 

“Mr. Sims. And then the public would never have to pay any- 
thing as a matter of taxation. 

| Mr. Cowan. That is correct. The public simply helps but does 
not pay. That is my idea. 

Mr. Sims. But in collecting the rates they do the same thing and 
the person who pays the rate will never have any chance to get the 
) money back. 

Mr. Cowan. Quite correct. 

If you will now go with me and take up H. R. 4378, I wish to refer 
and to pass some comments upon some of the provisions of this bill, 
without criticism of the committee or of the Interstate Commerce 
‘Commission or any one who aided in the preparation of the bill, if 
‘they did. I have read what Mr. Clark-said in explanation of the pill. 
Lassume by his being called first and having first testified that the 
‘commission had something to do with the provisions or with some of 
‘the leading provisions of the bill; not that the commission was pro- 
‘posing a bill or was the proponent of a bill, but they were aiding at the 
/ request of the committee or some member of the committee, I sup- 
‘pose. But whether that is true or not, I have read what he said. 

I notice in section 1, line 6, first page, this language: 

That the provisions of this act shall apply to all common carriers engaged in— 

| (a) The transportation of passengers or property by railroad or by water or partly 
} by railroad and partly by water; or 

(b) The transportation of oil or other commodity, except water and except natural 
| or artificial gas by pipelines or partly by pipeline and partly by railroad or water; or 
| (c) The transmission of intelligence by wire or wireless. 


4 













) There are no changes of a very material sort except adding the 
| telephone and telegraph provisions and some little items of correction 
mm the first section. ; 
_ I want to speak on the subject of water transportation, first. I 
am afraid that our astute friends—and I take off my hat and bow to 


872 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP, 


them in humble submission and recognition of their great ability— 
our friends, the railroad people, are about to se one over on the 
public on this water transportation matter. I see that Mr. Clark 
discusses the subject of the tramp steamer. They are even lookin 
out now to get hold of the tramp steamer so you will cut off the Gul 
of Mexico from the opportunity of using the high seas, provided it is 
necessary to do that in order to make necessary and reasonable 
railroad rates down there. That is just about What it means, just 
exactly as Congress did in passing a bill to put a tax on the Panama 
Canal. Nobody ever. would have wanted that canal built if they had 
known that they were going to do that. It could not have been done 
for any other ultimate purpose in the end, really, from the ver 
foundation of it, than to benefit the transcontinental railroads. 
do not see how anybody can look at it in any other way. I do not 
say Congress intended to do that or Congress thought 1t was doing 
that, but that is the result. . 3 

If we can not take a tramp steamer from New York to Galveston 
except with rock ballast or water ballast to get a cargo of cotton, if 
we-can not load with freight at New York and get the benefit of 
the rate down to Galveston, why? In whose behalf have the high 
seas been closed? The Morgan Line, the Mallory Line, operated in 
connection with the railroads, or the all-rail line? And you propose 
to cut off the benefits of the high seas to Galveston or any other 
Texas port by preventing a tramp steamer from coming down there’ 
loaded, when it might come there loaded, and make it carry water 
ballast, in order to take a cargo of cotton from there to Liverpool. 
Gentlemen, it is-amazing to me. It not only affects Texas, but it 
affects the entire Mississippi Valley and the intermountain country, 
and I warn you gentlemen that water-transportation rates have no 
place, under the provisions of the act to regulare commerce, for the 
Interstate Commerce Commission or the railroads either, to fix such 
rates, and it is the gravest mistake ever made and the biggest piece 
of buccaneering that has ever been done in this country. Now, just 
let some of them answer that when they come down here to argue 
these questions before you. It destroys the high seas to our country. 
That is just what it does. 

ape Drewatt. What is the explicit provision in the bill that covers 
that? 

Mr. Cowan. I am not able to state at the moment, but-I think this 
bill contains within it the idea that the Interstate Commerce Com- 
mission can fix the rate of freight by steamer and they can prohibit 
discrimination and they can fix maximum and minimum rates and 
taken altogether I have thought that the bill intended to accom- 
plish that thing. If it does not, I am very glad of it. If it does, it 
ought to be expunged from the bill. 

Mr. Denison. It does, Judge, I think, except as to tramp steamers. 

Mr. Cowan. I mention these things not that I can take them up i 
detail now, because we have not the time, but do not make the grave 
mistake of closing the high seas to commerce when we have the 
opportunity. The first thing you know you will close the public 
roads. As I said yesterday, less than carload traffic is being handled 
out of Dallas by truck and out of Fort Worth by. truck, and when wé 
spend our hundreds of millions of dollars in Texas in building roads, 
such freight will be carried everywhere by truck, and then they will be 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 873 


‘m here to prevent truck competition. I am telling you gentlemen 

that there is the difficulty. There are only a few of us who can once 

‘in a while come up here and talk to you, and they keep coming. The 
Interstate Commerce Commission office is absolutely saturated with 

‘men from the activities of railroads and banks and other places, and 

all the public officers in Washington are in the same situation—not 
illegitimately, not that they have no right to be there, not that their 

‘purpose is not good, but the fact that they can always have the 

opportunity, by reason of the circumstances, of telling these things 
and getting the mind saturated with something that ought to be done, 
and the fact that the gradual dripping of the water wears away the 

stone, while the farmer and the stock raiser and the man who lives 
out in the country, the little merchant out there, are working and 
making a living, and has nobody to come here, and if he hires one to 
come here, he does not think that he ever does them any good, but 
wastes his money splurging around Washington, and therefore Con- 
gress does not get the benefit of the thought of the people, except just 
the few who happen to come along to puncture these things which 
they are putting forward. 

Mr. Sanpers of Indiana. Would you except anything except the 
tramp steamer ? 

~ Mr. Cowan. I would. I would not allow the Interstate Commerce 

‘Commission to fix the rates on the high seas at all. Itis none of its 
business to fix the rates on the high seas. 

| Mr. Montacur. How about coastwise steamers ? 

Mr. Cowan. None of it. 

Mr. MonraauE. I mean, the fixed, regular coastwise lines. 

Mr. Cowan. If they fixed it, they should fix a maximum rate and 
it should not fix a minimum rate. 

The CyarrMan. Then how are you going to coordinate rail and 
water traffic ? 

~ Mr. Cowan. They may fix the through rate, rail and water. - I 
do not see how they can fix anything but a maximum through rate, 
and they ought not to be permitted to fix the minimum. 

The CHarrmMan. Of course, this bill allows both maximum and 
minimum. 

Mr. Cowan. That is just where, in my opinion, the bill makes 

“avery grave mistake—in the minimum rates. I can not see any use 
in fixing a minimum rate. How does that come in? The commis- 

‘sion has power over discrimination—complete power. Where does 

the right and the necessity of fixing a minimum rate come in? 

The CuatrMANn. Would it not be applicable in many of the cases 
that come under the fourth section and might it not relieve many 
of such cases ? 

- Mr. Cowan. Wherever the long-and-short-haul clause comes in, 
ou might give specific authority to cover that particular case, 
ut to make the broad proposition that they can fix minimum rates 

by water—I am perfectly amazed at the proposition. 

_ Inregard to the use of terminals, I think the matter is one of very 

‘great importance, probably of as much importance as anything in 

‘the bill. I doubt, as I have said before, if it is the time now to stop 

turning back the railroads and stop passing legislation to accomplish 









i 


874 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


the things necessary by reason of the emergency, in order to pass all 
the legislation that ought to be in the end passed. 

Taking the case of live stock and confining myself to that, there 
is a habit or custom of railroads to divide up the charges. . The 
shipper is only concerned in getting his live stotk from the 

oint where he loads it to the ultimate market; that is, unloading it 
into the stockyards and getting it into the hands of the commission 
man who sells it. Itis hard for him to know what ought to be the 
charges if they are to be segregated into a charge for this and a 
charge for that and the other. I think there ought to be a requirement 
that as to all public markets for live stock there shall be a through 
rate from point of origin to destination, including a delivery into the 
pens to the consignee or his agent; that the railroad company should 
have sufficient compensation for that, of course, goes without saying. 
About one-half cent per hundred pounds will cover the aggregate of a 
these special charges that are put on. In particular instances, they 
oftentimes become quite burdensome. You gentlemen who are 
familiar with it will recall that the Supreme Court of the United 
States a long time ago in the case of the Covington Stockyards Co., 
held, before the enactment of the act to regulate commerce, that 
it was the obligation of the carrier to receive live stock and carry it to 
its destination and there deliver it to the consignee, and they refused 
to allow the special charge which was made. After the act to 
regulate commerce, the Federal court at Chicago—and it seems_ 
that the people are awful shifty out there—discovered that in the 
sixth section of the act, because it provided there should be published 
all special charges, if any, that therefore they could impose a $2 
charge at Chicago for reaching the stockyards which the railroad 
companies had built. Mind you, the railroads in Chicago-went in 
together and built the stockyards for their own depot and convenience. 
They continued to own and operate them for their own convenience 
and for their own benefit for years. It looked like a pretty good thing 
-as the market was building up, so they sold the stockyards, but con- 
tinued the railroad managers as the board of directors. After a 
while, the stockyards people who had bought them thought they 
wanted some money, and so they added a trackage charge of 40 
cents a car in and 40 cents out, to some roads and 75 cents to others; 
and thereupon the railroads added $2 to all live stock delivered at 
Chicago. Now, as a charge against the shipper, they are progressing 
with that. 

Mr. Hamirron. Added $2 for what ? 

Mr. Cowan. Added $2 to the through rate, and the Santa Fe Rail- 
road to-day maintains that the end of its line for live-stock shipments 
into Chicago is at Corwith, where there is one pen, no water, grown. 
up in weeds, and very difficult to find, the planks rotted and never 
used, 

Mr: Coopgr. Judge, does not that $2 apply to other institutions m. 
the country outside of stockyards ? 

Mr. Cowan. Oh, yes. Iam just speaking in behalf of live stock. 1 
say that this idea of adding these little charges here and there 1s very 
pernicious and hits the shipper in the face where he can not help 
himself, and we ought to have to all public stockyards a flat crow 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 875 
‘ate to pay for the service, because the shipper is getting just one 
things. He gets his stock shipped from his farm to the place where 
t is sold. atever compensation the railroad ought to have let it 
jave it, but let it have it for doing the one thing which to the shipper 
sasingle proposition. He never sees any of it except it is deducted 
jut of his account of sales. 

I will prepare and submit to the committee a proviso to meet that 
‘equirement, which I think ought to be enacted, and when I use the 
word ‘‘I’”’ I certainly do not do it in a personal sense. I do not mean 
tin that way at all. It is just a habit of speech. It has been fre- 
juently passed on by all the live-stock organizations of the entire 
yountry and indorsed by resolutions, and I suspect they have been all 
ent here to the various Congressmen and to this committee. 

, Now, with regard to unification under section 13 and repealing 
che antipooling clause, I would deal with that with very great care. 
believe the railroads may be consolidated where it does not stifle 
ompetition, but for Congress to go in and consolidate these railroads 
_ think is of very doubtful propriety. As committeemen here in 
Jongress who do you think would know best about whether it was 
vest for the public interest for the Aransas Pass Railroad to consoli- 
late with the road called the Sausage Line down there, or the Saug— 
hat is John Garner’s road—do you know better about that than the 
‘exas commission? Our people are there, they can be heard and 
he matter can be discussed and determined, and if there is to be a 
consolidation, why should it not be determined by the authority which 
hartered the railroad and by the people who support the railroad, 
ather than for Congress to undertake the task up here, with some 
‘upposed idea that it is going to effect some great efficiency in opera- 
‘ion by virtue of doing that. I hope this committee will eliminate 
hat consolidation proposition from this bill at this time until they 
an give it much better consideration than can be done now. 

. Mr. Sius. You mean the merger proposition in the bill? 

| Mr. Cowan. Yes. 

Mr. Montacue. What section ? 

Mr. Cowan. That is in section 5. 

Mi. Coormr. May I ask you a question there? Where the condi- 
ion exists that one railroad company has a monopoly on all of the 
est terminal facilities in a large industrial section, what remedy are 
ou going to apply; where it is a question of great benefit to the 
ublic and the industries in that district? How are you going to 
emedy that situation if you do not provide some means whereby 
hey can pool their interests or their roads and use these terminals 
jor the industries in such districts ¢ 
! Mr. Cowan. Of course, sometimes in order to answer questions you 
fave to inquire. The question is very broad. In what particular 
| ould a consolidation talieve an existing difficulty or remedy an evil ? 
Ve have to get down to the specific evil and see what effect it will 
ave on that before we can direct our attention to it. 

Mr. Cooper. I might state a specific case. In the industrial sec- 
tion in which I live certain railroads have a monopoly on the terminal 
| xcilities through which they deliver cars to these industrial plants. 
here are other roads there that are not as fortunate and they have 
ot the terminal facilities into the various plants. In order for the 


















876 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


cars to be delivered from one road to another and to get these terminal 
facilities there is a high rate charged by the railroad companies that 
have the terminal facilities. Do you not think that when it is in the 
interest of the public and for the benefit of the public there ought tc 
be some provision made whereby the other roads could have the 
privilege of using such terminal facilities ? 

Mr. Cowan. I can not answer that categorically, exactly; that is 
as to my opinion about it. I believe that it will become necessary i 
this country, and is now, with the increasing population and the sur. 
rounding of particular terminals with large business centers, tha’ 
when other transportation lines are built to such a place, they ough’ 
to have the opportunity to go in and use these termimals in some way 
with some compensation, for the receipt and delivery oi freight; but 
I do not myself know of any condition where that should require th¢ 
doing of it on any other basis than to charge proportionately for th 
use of the terminal to what it would cost that railroad to acquir 
the terminal, if it was going to acquire a terminal of its own, whiel 
it could not do. | 

Mr. Coorrr. Does not the Esch bill provide for that? 

Mr. Cowan. Yes; I think it does, in about those terms. 

The CHarRMAN. Yes; it does. 

Mr. Cowan. And I was not speaking of this so much with respect 
to terminals as with respect to consolidation of parallel and competing 
lines. That is not a consolidation of terminals. That is giving thé 
opportunity —— 

‘The CHATRMAN (interposing). That is a joint use of terminals, 

Mr. Cowan. Yes; the two things are entirely different. Neithes 
is pooling of earnings similar to the use of termimals by one railroad 
which another railroad happens to own. 

Mr. Cooper. I have in mind the fact that the Lake Shore Railroad 
which brings the ore from the Ashtabula Port to Youngstown, Ohio 
had no track by which they could get into the United States Steel 
Corporation and therefore this transportation of ore had to be done 
over the Pennsylvania Lines or the Erie Lines mto the United States 
Steel Corporation, for which there was a great expense charged. 
About five years ago the New York Central or the Lake Shore Line 
at a cost of over $1,000,000 a mile, built a road into the United States 
Steel Corporation in order that they could deliver these products te 
that company. a 

Mr. Cowan. Well, I think that such things as that should be 
relieved against, but that does not touch the point in my mind thei 
I was trying to make against the consolidation of railroads. In thie 
first place, I do not think that Congress should undertake the cont 

ulsory consolidation of railroads, because it would be perfectly 
utile.” I think it should be only permissive, and I think that per 
mission should only be granted where it is manifestly to the pu lic 
interest, and I doubt if the Interstate Commerce Commission 1s the 
proper body to determine whether the railroads chartered by Texas 
should be permitted to consolidate. 

(The committee thereupon took a recess until 2 o’clock p. m.) 


RETURN OF THE. RAILROADS TO PRIVATE OWNERSHIP. 877 


AFTER RECESS. 


. The committee met at the expiration of the recess at 2 o’clock p. m, 


STATEMENT OF MR. S. H. COWAN, OF FORT WORTH, TEX.— 
= Resumed. 


The CHarrMan. Judge, you had gotten to the fifth section of the 
bill, had you not? 

Mr. Cowan. Yes; I was speaking of the fifth section. I wish to 
hurry through as much as I can, and will presently say to the com- 
mittee that, as has been our practice in matters before committees of 
Congress, we would like to have the privilege, which has been granted 
heretofore in other cases, of filing a brief respecting the principal 
points which have been presented more or less in an uncertain and 
mdefinite way in the oral statements before the committee. If we 
have the privilege of doing that, I will somewhat shorten my remarks. 
_. The Cuarrman. Very well; it will be so ordered. 

Mr. Cowan. In the course of the remarks which I made respecting 
the matter of consolidation of railroads, we did turn to section 5, 
‘but I was not taking up the bill in the regular order of sections as 
they occur. MSeferring further, though, to that subject, I do not 
think it ought to be attempted at present for the reason I have here- 
tofore stated: that is, speeding up the time when we can turn the 
railroads back. When it is undertaken, it seems to me it ought to 
be wholly permissive, and there ought to be some provision made 
‘with respect to according to the States where these railroads are con- 
structed and operated some degree of consideration as to whether the 
consolidation is desirable or not. I make mention of that and I am 
led to do so because the statutes of our State and the constitution— 
T believe it is in the constitution, and I asked for the volume but was 
‘not able to find it—prohibits a consolidation of parallel and competing 
‘limes. I believe that is often prohibited by the statutes of different 
States. Iam not so certain about whether it is in the constitutions of 
‘various States, because I really have not hunted it up. I think, too, 
‘that the localities to be most affected should have a just degree of 
consideration: I would scarcely expect that consolidation would be 
‘permitted by the Interstate Commerce Commission or desired by 
Congress if it eliminated any substantial degree of competition. 

I look upon competition, although there can be none in rates, as 
‘being the most important assurance we have of securing an efficient 
Service, the idea being that with the rivalry and the desire to succeed 
‘and the desire to retain and hold the business of the particular in- 
dividual, the disposition on the part of the employees of railroad 
eompanies will be to handle the business so well as to retain the 
‘business of the patrons. I believe it is a great advantage to the rail- 
road companies themselves to have strong competition so that their 
employees on a particular line, seeing what others are doing, will 
have that disposition, which human nature is heir to, to do their work 
better; that the rivalry that naturally arises in business will help the 
railroads themselves to get a more efficient service out of the men. 

_ I believe it is worthy of great consideration on the part of this com- 
mittee that during the period of Federal control, there have been 
complaints from everywhere, and I suppose nearly everyone has ob- 


152894—19—vor 1——56 





878 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


served it himself, of the carelessness or indisposition to accommodate; 
to carry on the business and do it well. There has been a lack of 
personal service that has been notable in the matter of the trans- 
portation of live stock where the service has deteriorated a great deal, 

From all of the statements which I have heard made and from com- 
plaints that have been presented in one way and another, from the 
statements at public meetings and conventions of stockmen, and 
from what I have heard from commission companies at the stock- 
yards, I believe that the length of time in reaching the markets with 
live stock where they move, say, 500 hundred miles or more, will have 
been on an average sufficient to require an additional feed en route 
to what was required on the average of four or five years ago. 

I believe that the rivalry, for example, between the Rock Island 
Railroad and the Santa Fe, between the Milwaukee & St. Paul and 
the Burlington, between the Frisco lines and the Missouri Pacific in 
our southwestern country, has had a great deal to do with the char- 
acter of the service. I think all our transcontinental lines have 
competed for the Pacific coast business in all traffic to the extent of 
giving perhaps a better through service than is given anywhere else 
in the country. Certainly, it is a great deal better than it has been 
for the last few years between the Mississippi River and the Atlantic 
seaboard. | 
~ So, therefore, I think the matter of consolidation should be left 
out of consideration for the present, and when it is enacted, great 
care should be exercised lest it be made use of in a way to seriously 
injure the public without accomplishing any good for any one, and 
probably in the end injuring the railroads themselves. 

A great deal has been said in regard to the saving in money by the 
consolidation of railroads, and it was supposed that when there was « 
unification under the Federal control act, there would be great say- 
ings. I suppose that every member of this committee has given some 
observation to that subject, and I dare say, if their observation has 
been in the same localities where I have known better about it than 
elsewhere, they have seen that instead of there having been an 
economy in the operation by reason of unification, it has been prac- 
tically wholly absent. I can scarcely think of a man engaged in the 
railroad service in the separate offices, for example, in Selling tickets, 
or in railroad offices which are in the nature of commercial solicitors, 
as they are sometimes called, or division freight agents, and the like 
who have not been placed in some position or other under the Railroa 
Administration. I must assume, of course, there was a necessity for 
their service rather than a necessity for providing for them a particular 
position. The time you have to wait to get a ticket in any city at a 
central ticket office now will satisfy any man who tries it that it is not 
the best thing to do for the public service, so far as that part of it goes. 
The people oftentimes miss the train because they have to wait $0 
long to get a ticket. I do not think there has been any saving in the 
State of Texas or in any of the western territory west of the Mississipp! 
River by the consolidation of the railroads into one system. — 

Now, where might that saving occur? It can not occur with 
respect to the train service; it can not occur with respect to the mair 
tenance of roadway; it can not occur with respect to the maintenance 
of equipment. It might occur, possibly, with respect to the owner- 
ship of equipment to some slight degree, because it is conceivable 


| RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 879 
shat if all the railroads west of the Mississippi were consolidated, it 
vould not take so many cars to handle the business, yet inasmuch as 
he traffic is not offered at any particular time with regularity, one 
nonth compared with another, or one week compared with another, 
wr one locality compared with another, there must be so much equip- 
‘nent kept on hand to handle what may be offered and what may come 
rom connecting lines, that I seriously doubt if there would be much 
‘conomy in the matter of the number of cars that would be required 
‘o handle the business, and what there would be of that might be 
ifiset conceivably to a large extent, at least, by having to move the 
ars so far that the movement of the empties would take up the 
‘lack. The superintendence, in part, might be saved, but that sav- 
ng would be very slight. 

( would be willing to say, from a study of the subject, and being 
amiliar with the operating expense accounts of railroads, as far as 
‘t pertains to the ordinary operating expenses which would be affected 
vy consolidation that it would not save one-half of 1 per cent in the 
\perating expenses of two railroads for them to consolidate. I put 
sut this statement in the hope that inquiry will be made, and before 
rou should pass a law for consolidation, in the expectation that the 
ountry would be benefited by it in the economy of transportation, 
hat you secure for sure some definite knowledge with respect to 
yhat items could be saved, and I think you will find them so small 
hat you will be perfectly astonished. 

| Mr. Sanpers of Indiana. You think we ought not to give arbitrary 
iower to the Interstate Commerce Commission to determine when 
here should be a consolidation. 

Mr. Cowan. I would be very much afraid of it. It does seem to 
ae that we ought to have the right in the State of Texas—I mention 
hat because it is somewhat of a singular example, but it explains 
he point—to ourselves determine whether or not we want our rail- 
oads consolidated, and to have some degree of consideration given 
Ous in that particular. If there was some great good to be obtained 
y it that might be different, but I think the good will be so slight 
hat it would be far and away counter-balanced by the injury that is 
one to the public and -to the railroads themselves to consolidate 
vhen they will have to do without the rivalry that would exist 
‘etween their men which will not exist where they consolidate. 

I desire now to go back to another section of this bill—section 2, 

‘age 9—with respect to the extension of railroads or the building of 
ulroads, I believe it is. It is stated that— 
From and after , 19—, no carrier by railroad subject to this act shall under- 
ike the extension of its line of railroad, or the construction of a new line of railroad, 
shall acquire or operate any line of railroad or extension thereof, or shall engage in 
ansportation under this act over or by means of such line of railroad, or extension 
jereof, unless and until there shall first have been obtained from the commission a 
‘tificate that the present or future public convenience and necessity require or will 
‘quire the construction or operation or construction and operation of such line of 
ilroad or extension thereof, etc. 


‘This has been a subject very much discussed for a great many 
ears. I know of no evil that exists now that requires correction 
'y this enactment. I know of no case in which it has happened that 
Tailroad has been built, of any consequence at all, that ought not 
have been built, or where it is complained that it should not have 
‘een built. I believe there has not been a single new line of railroad 






















880 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


constructed between the Mississippi River and the Atlantic seacoast 
since I have become acquainted with these railroad matters. I de 
not recall it, if there has been. I doubt if there are enough lines o| 
railroads now, if our country continues to grow. This act ought te 
be entitled, to my view, and this is not said by way of criticism o| 
this committee, and I hope the committee will understand that al 
the way through—as a bill entitled ‘‘To perpetuate in the existing 
lines of railroads a monopoly in the transportation of all the business 
of the country.” ¥ 

It would be practically impossible to build a railroad from St 
Louis or Chicago to New York to-day, and touch the big cities be: 
tween, because the cost of the real estate necessary to construct suck 
a road and acquire terminals would be prohibitive. They could bet: 
ter afford to double track the roads they have now. As between St 
Louis and Chicago there are probably enough railroads to serve the 
purpose for many years; likewise between Kansas City, Omaha, St 
Paul, and Chicago. They are not building any new lines of railroa¢ 
nor have they built any new lines of railroad between any of thosé 
cities within the time I have been having anything to do with them 
The Western Pacific was built, and the St. Paul-Pacific Extension 
and perhaps those were the two last experiments that will ever be 
made in transcontinental lines, and they are already constructed 
There was connection, by odds and ends of one kind and another 
between Houston and New Orleans, and the Gulf Coast Lines of th 
Frisco. That was an undertaking that will not be repeated. 

This could only apply in cases where there is a desire to extent 
lines of railroad in unoccupied territory where now existing lines ar‘ 
securing the traffic by cross-country competition, and will contimu 
to do that, whereas they would not, if a new line was projected. 7 

Mr. Rowe has some specific instances which he will call to you 
attention; and he is well posted upon the subject, and desires to speak 
to you about it. 

There came up before the American National Live Stock Associa 
tion at its convention a year ago and over, at Denver, the matter 0 
the service on various lines of railroad commonly called branch lines 

For example, on the North Western line to Sheridan, Wyo., andor 
some of the lines in South Dakota the service was extremely bad, 3¢ 
bad that it was difficult to handle live stock safely over those limes 
at all. There is a large territory in Idaho, Wyoming, New Mexico 
Montana, and other of the central-western States not occupied hy 
railroads at all where the possibilities of farming that country im tlie 
way of agriculture are perfectly wonderful. In many instances, & 
it is said, the reclamation service provided by the Government bas 
not been utilized nor the land taken up and put under reclamatiot 
that could be put under reclamation if the transportation mattél 
was so adjusted that they could get their stuff to market. Th 
central-western country is served almost altogether by the trans 
continental lines, and unless there is some provision made for build 
ing railroads into that country it will remain unpopulated and unpro: 
ductive, which in large spots is the best country in the United Stat 

It was thought wise. and the matter was discussed and I wai 
directed to prepare a bill, and Senator Kendrick now desires that - 
should do so, that we propose to Congress that it shall provide thi 






RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. S81 










japital at the lowest rate of interest that the Government can obtain 
“0 construct, by the extension on the part of existing lines of rail- 
‘oads or the building by new enterprises of railroads into that country, 
‘he loan to be made on such long time as will enable the country to 
ufficiently develop to make those railroads self-supporting, “and 
‘bus the carrying charges would be lessened and the difficulty of 
joing into the market and getting the money to construct such new 
ies would be put out of the way, and in large part, probably, they 
ould be operated by existing lines already having the facilities to 
lo so and the overhead charges already being paid, which they 
vould not care to do if they had to get the money themselves on 
heir own securities to build the railroads into that country. When 
hat bil is prepared, I will submit a brief, and, perhaps, some of the 
vestern Congressmen and Senators will do so on the subject and 
lence I need not go into that subject now. 
_ Mr. Sms. What section are you referring to right now? 
Mr. Cowan. I was speaking of the section which prohibits the 
muilding of any new line of ce iand: ; 

Mr. Sims. I did not catch where you referred to; you spoke of 
ome portion of the country. 
_ Mr. Cowan. The intermountain territory. 
| Mr. Sms. Not in Texas? 
| Mr. Cowan. It would be in Texas as well. It might be in Texas 
\Swell. It is a strip of territory lying next to the Rocky Mountains 
nd within the Rocky Mountains and extending from the Cascade 
anges over toward the Pacific and on to Canada. 
| Mr. Denison. There is nothing in the bill that would prohibit that? 

Mr. Cowan. No; not at all. I mention the fact that there has to 
@ affirmative legislation that provides Government aid rather than 
|0 provide that they shall not be extended without the permission 
|f the Interstate Commerce Commission, and I point to the fact that 
‘here is no evil existing to-day that requires this enactment. It 
rould be about equivalent to saying that the existing lines of railroad 
1 the thickly populated country should have a continuous monopoly. 
n the traffic, because you could hardly show that additional roads 
)rere necessary, for example, between St. Louis and Chicago. I do 
| ot think it cuts very much figure, because nobody wants to build 
|hem, so far as I can see, for a very long time to come, and there 
|7ould be no applications on which the Interstate Commerce Commis- 
(ton would act, except in sparsely settled country, and that is where 
|\id should be given rather than restriction. 
Also with respect to the matter to which I have heretofore referred 
|}fone rate from point of origin to public stockyards that are denom- 
: late as terminals of the railroads, the depots, terminals, and public 
jiarkets, there ought to be one rate just the same as if that stock 
}en actually belonged to the railroad. A railroad would not make 
}Wo rates to its own pens if it owned and operated them, and neither 
fhould it do so with respect to pens which it uses in the same manner. 
here should be one fare, the same as a passenger rate, to such depot 
$ they use in a given city. I will submit a brief in connection with 
n amendment, which I will propose which will cover that point, and 
will not take your time on that. is 
I want to go particularly to section No. 13, page 21 of the bill, and 
uggest that the paragraphs in italics be eliminated entirely from the 








882 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


bill. That is so drawn that it accomplishes two things. It destroys 
in practical effect the power of the State commissions and vests th 
power of rate making on intrastate traffic in the Interstate Commere 
Commission or leaves it to the railroads. I hesitate to take you 
time in regard to that, having several times referred to it in the cours 
of my remarks, but the Shreveport case, to my mind, is so obnoxious 
to the rights of our State that I can hardly resist an opportunity t 
present some of the salient features of it to show why this shoul¢ 
not be enacted. 

First, it provides, ‘‘ Whenever in any investigation under the pro: 
visions of this act’’—that is, with regard to interstate commerce— 
“there shall be brought in issue the lawfulness of any rate, fare 
charge, classification, regulation, or practice made or imposed bj 
authority of any State’’—how can the lawfulness of any of thos 
things imposed by authority of a State be brought in issue befor 
the Interstate Commerce Commission? I assume, first, if Congres: 
can authorize the Interstate Commerce Commission to regulate them 
to supervise what the State does, or to make a rate in lieu of on¢ 
already existing there in intrastate traffic, or make a regulation or § 
classification or a rule of practice, that Congress could do it directly 
If you can authorize the Interstate Commerce Commission to do i 
you can do it by direct enactment. Suppose that Congress shoult 
enact that the passenger fare between Fort Worth and Dallas shoul 
be 10 cents a mile, is there any member of this committee wht 
believes that Congress can do that? 

Certainly, they would not admit it. It gives the most extensivs 
power by indirection, which, I believe, it is conceded by lawyers every 
where could not be directly exercised by Congress. | 

Going further, it provides: 

The commission shall have authority, after full hearing, to make such findings am 
orders as may in its judgment tend to remove any undue preference or prejudice a 
between persons or localities in State and interstate or foreign commerce, or any undu 
burden upon interstate or foreign commerce, which is hereby forbidden and declare 
to be unlawful, and such findings or orders shall be observed while in effect by th 

‘carriers party to such proceeding affected thereby, any act, decision, or order of a2; 
State or State authority to the contrary notwithstanding. 

I believe the best government is by those who know most about tht 
things which they govern. I believe that the poe who are mos 
responsible to the people who they govern is the best covernment 
I do not bolieve for a moment that if it could be submitted to a refor 
endum that the people of the country would favor the centralizatiol 
of the power to regulate those affairs in their States im the seat 0 
government at Washington. 

Ever since the Hepburn bill was up, beginning with that and befor 
that, as to that matter, there has been an eternal warfare going % 
between the railroads and the people whereby the railroads hav 
sought to abolish the State commissions and their authority, and the 
have either gotten control of the State commission in the State ¢ 
they have a constant fight with them from start to finish in the Fec 
eral courts. It may be said that the Supreme Court of the Unite 
States has elready held in the Shreveport case, in the South Dako 
case, in the Illinois passenger-fare case, and in the Nebraska cas 
that where a discrimination is found by the Interstate Commerc 
Commission to be practiced by a railroad, charging a lesser rate for 
similar distance within the State than it charges from that State to 









i RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 883 
‘point out of it, that the Interstate Commerce Commission is vested 
‘with the power to correct that discrimination and order the carrier 
to not further make such a charge, but to not charge a lower rate than 
‘that which it does charge contemporaneously to and from the 
‘interstate point. Let us concede that for the moment. If that is 
correct, if that is the law, and it is to-day according to the decision 
of the Supreme Court of the United States, it is taking over the juris- 
‘diction to fix a rate within a State in effect by indirection by absolving 
the railroad company from obedience to the State statute, constitu- 
tion, or order of its commission. That ought not to be dune, unless 
‘the facts are certain. It ought not to take away the power of the 
.State just by the mere ipse dixit of the commission without a chance 
to be heard before the court, without any day in court. The finding 
/of the commission that a discrimination exists is oftentimes a mere 
matter of imigination. The fact that they have found it does exist 
accomplishes what? It confers upon the Interstate Commerce Com- 
‘mission the power at once to set aside a State constitution. Imagine 
Judge Reagan, like Rip Van Winkle, awakening and seeing what 
happened with this late virile, you may say, administration of the 
law to regulate commerce, when he, as a United States Senator, it is 
said, was one of the Senators who drafted the original act to regulate 
commerce—he was the first appointed by Gov. Hogg on the State 
‘commission—rising up to see the State commission and the constitu- 
i of Texas, and it was a constitutional provision, destroyed by 
what ? 

By the findings of some examiner of the commission who went 
out to Texas and found a discrimination to exist on some things, 
and then found a potential discrimination on others, and then 
reached the conclusion as to what rates in the State of Texas must 
be fixed with respect to what would be reasonable between Shreve- 
port and all points in Texas, 800 miles away from Shreveport. The 
statement of the proposition carries its absurdity, and yet that is 
exactly what happened. I mention this to show you how uncertain ~ 
it is to place such a jurisdiction in the hands of anybody without a 
right on the part of the State to go before the Supreme Court and to 
determine whether the facts exist and justify the exercise of the 
jurisdiction at all. They included cordwood and lignite, and none 
‘of it could move to Shreveport because natural gas had been dis- 
covered there and there had not been any wood used in Shreveport 
in 10 years. So plain was that that the commission had to with- 
\draw that rate. ‘They were fixing the rates in Texas on cordwood 
and lignite because of a reasonable rate which they said should exist 
to Shreveport when none could move. That was the basis of their 
‘finding, which would have stood to-day but for the fact that it was 
(30 plain that the commission withdrew the rates on lignite, cordwood, 
eal tanbark. Nobody ever knew that tanbark moved either to or 
\from Shreveport or to any points in Texas, and they could not show 
‘it. They have, however, included crushed gypsum. It was shown 
‘before the commission, without dispute, that crushed gypsum rock 
is shipped only for the purpose of going to Portland-cement factories 
_to be put into the cement as a retarder; that about 2 per cent is used 
in the Portland cement. There were three cement plants in Texas— 
one at Dallas, one at Houston, and one at San Antonio—none at 














| 


884 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Shreveport, and that the gypsum which moved from Texas points—_ 
Dallas, Houston, and San Antonio—had nothing whatever to do 
with Shreveport. They had no use for the gypsum; had naturally 
no occasion to use it; and if they had, it would have come from 
near-by points in Oklahoma, and yet they fixed the rate on crushed 
gypsum at 3 cents a hundred pounds higher than the State of Texas 
commission made it; that is, they said that would be the reasonable 
rate for the distance to Shreveport. None moves. The only effect 
that had was that the railroads could put it into force to Dallas, San 
Antonio, and Houston, where it moved, but none would move to 
Shreveport. Thus, they enabled the railroads to raise the rate on 
crushed gypsum because of the mere possibility that a carload might 
be moved to Shreveport for some purpose. 

I say, when a jurisdiction to set aside a State constitution to put 
our State commission in the wastebasket can be hinged and fastened 
upon the people with such a foundation as that, it is time that the 
Congress say to the commission when you exercise that jurisdiction 
you must specifically find the discrimination that did exist and you 
must stop your jurisdiction by prohibiting a specific violation of law 
and not broaden out and seize the earth as to that matter on a mere 
pretense of a possible case of discrimination. 

The CHarrMAN. Judge, you prefer that provision to the provision 
contained in most of the other bills, wiping out the State commissions ! 

Mr. Cowan. It does it, because the Interstate Commerce Commis: 
sion will exercise the jurisdiction in the manner I have just pointed 
out. I am pointing you to a case where it did, and this would 
destroy all commissions if this enactment should be put in. 

The CHAIRMAN. The testimony before us, according to the state- 
ment made by Mr. Fulbright, was that your people are becoming 
reconciled to the Shreveport decision; in fact, that your commission 
has become reconciled, and that you now find your conditions are 
really better than they were before ? 

Mr. Cowan. Mr. Fulbright represented the Frisco Railroad; he did 
nothing else for a long time. He is now representing, I think, the 
Chamber of Commerce of Houston. I challenge Mr. Fulbright’s 
statement, that being contrary to the interest and judgment of 99 
per cent of the people of Texas; and I will ask Mr. Rowe what he 
thinks about 1t. 

Mr. Rowk8. That is correct. 

The CuarrmMan. I am sorry that we have such division among the 
Texas brethren. 

Mr. Cowan. Allison Mayfield, the chairman of our commission. 
before the State railroad commissions at Washington, presented ¢ 
resolution which was adopted by the State railroad commissions a! 
Washington some two or three years ago which contained the same 
provisions that are now to be found in the bill that has been intro: 
duced recently in the Senate by Senator Sheppard which accora 

lishes what I have just said should be accomplished, leaving th 










jurisdiction and leaving the State commissions to their appropia 
functions. I should think that when the chairman of the 
commission presented that resolution to the State commissions ® 









RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 885 


that Mr. Rowe will present many facts to show that Mr. Fulbright 
is wholly mistaken about it. I know that our people desire that they 
‘have the State commission. It is remarkable to me. I heard about 
Mr. Fulbright being up here and making those statements or some- 
‘thing of that character, but we desire to have the right to exist under 
the constitution and laws of the State. 

Mr. Sims. Is it not a fact that the State commission of a great 
empire State like the State of Texas is much more important to the 
‘people than in a State like Rhode Island or in my State, which runs 
past and west for nearly a thousand miles and north and south only 
about 110 miles? 
| Mr. Cowan. By far. It is found by the Supreme Court of the 
United States in a lot of cases, Smythe v. Ames, that appropriately 
\the rates in Iowa should be less than in the State of Nebraska because 
the Supreme Court says that the density of population would call 
for that and therefore that you can not compare the rates in the 
| State of lowa with the rates in the State of Nebraska. You will all 
remember that, I believe. You may take the State of Texas and I 
undertake to say that the density of traffic on the M. K. & T. between 
‘Denison and Waco is the heaviest density of traffic that can be 
found in this country outside of some coal-carrying railroads for 
}commercial business, [ can not now just recollect the figures, and I 
)think on the Texas & Pacific between Long View and Eastland or 
| Ranger the same thing will apply. 
| The question of the great density of population and then the 
/yolume of business moving, that has nothing to do with Shreveport 
or any other place, and they say that our State can not regulate 
/that and that, if you please, it shall be put on the same mileage 
|basis. That is what the commission decided in order to relieve 
(the discrimination. When it is put.on the same mileage basis it 
makes discrimination. It is an unsafe power to lodge there. It 
never did belong there and never was intended, in the first instance. 
We can not appeal the case that I spoke to you about yesterday 
‘from the three judges’ decision granting the preliminary injunction 
‘because of the expense of doing it. The changes of administration 
are so that no man is in the Attorney General’s office that knows 
janything about it. The war came on and we stopped the hearing; 
stopped the taking of the testimony in the case before the district 
court. Judge Smith, who used to be on this committee, I think, has 
| been one of the judges hearing the case. 

Mr. Sims. Judge Smith, of Texas ? 

| Mr. Cowan. Yes, sir. It would cost $50,000 altogether to appeal 
|} that case. It could not be appealed now. We would have to go on 
and complete the trial before we could get to the Supreme Court. 
| There we are with every shipper, the State commission, the Attorney 
}General, and everybody enjoined from exercising the constitutional 
|statutory jurisdiction in the State of Texas because Mr. Thurtell 
‘decided that the mileage basis was the way to determine what the 
bs should be, although confessedly it varies enormously as to the 
‘density. 

There are many other illustrations I might give that make that 
‘decision an outrage upon common decency and a free Government. 

f we can have our Constitution and laws set aside absolutely the 
Interstate Commerce Commission ought never to have exercised the 










= 


886 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. ; 


jurisdiction, if they had any. It was one thing they ought to haye 
dealt carefully with. In the first place, they divided the State. To 
show you how unsafe it is to confer such jurisdiction: Between east 
and west Texas, drawing a line down the Santa Fe, and then down 
the Brazos River, and east of that line took jurisdiction to require 
the railroads not to charge no more per mile than to Shreveport. That 
roduced so many discriminations that they granted a rehearing 
ecause of the conflicts it produced and discriminations it made— 
a hundredfold more than ever could be before—then finally they took 
in the whole State, and put in the differential territory; then seeing 
the discriminations there produced took another whack at it, and 
decided it, I think, the third or fourth time, before they ever came 
to a conclusion themselves, and when they came to the final con- 
clusion they made the mileage rates very different to what they had 
in the first instance. These mileage rates were in many instances 
fairly satisfactory. I wish some of you would read the history of 
that case; then you will see that it would not do to confer this 
enormous jurisdiction on the part of the Interstate Commerce Com- 
mission there exercised to interfere with the State rates and powers. 
Let Congress do it by direct enactment if it is going to do it at all. 

Mr. Sanpvers of Indiana. Is there any distinction, from a consti- 
tutional standpoint, between the power exercised by the Interstate 
Commerce Commission in the Shreveport case, and a direct power 
given by Congress to the Interstate Commerce Commission to control 
all the rates of carriers engaged in all interstate commerce; that is, 
from a purely constitutional standpoint ? 

Mr. Cowan. I think not. The commission, if I understand your 
question, the commission becomes the administrative agency to carry 
out 

Mr. Sanpers of Indiana. And from a constitutional standpoint, 
an act of Congress would provide for complete control just as well as 
they can provide a bill by which they can indirectly control? 

Mr. Cowan. Absolutely. I think ali of this can be avoided, and 
I think it is going to become a very important matter, through all 
the States west, where the States are large; it would never cut muel 
figure where traffic is almost all interstate, like New Jersey or Rhode 
Island and the smaller States; that is, to give to the Interstate Com- 
merce Commission the power and make it its duty to fix all the rates, 
leaving the States to act as they now do, fix the rates within their 
jurisdiction and when that is done, providing for cooperation, as you 
have provided for it here. Then they will have ironed out and pre- 
vented these conflicts of jurisdiction in advance. That is provided 
by the making of the main base rates of the country State and inter- 
state. 

The nature of a freight rate is a matter of political economy. In 
the first place, there is the overhead, a constant expense, not affected 
by the volume of the traffic, and that will cover 40 per cent of the 
entire operating expenses. The maintenance of right of way, the 
general officers, the taxes, and a multitude of other things, the wear 
and tear by the weather, are not dependent upon the volume of traffic. 
The fact of having a going concern and doing a business and keeping 
it up is not dependent on the volume of the traffic; rates must now be 
made according to expediency; rates are so high now that you have 
no comparison with what is reasonable. They are practically going 





RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 887 


. 

| 

to remain that way, because we are operating on a 50-cent dollar. 
I do not look for any material decrease in rates except to remove some 
discriminations under the standard, if you call it a standard, that 
.now exists. [am expressing now my own personal thought about it; 
-1 am not trying to express the sentiment of anybody else who might 
want to increase or decrease the rates, because I think with the busi- 
ness working for many years on a 50-cent dollar—lI will call it a 50- 
_eent dollar just for convenience of expression—so that whether the 
- rates shall be made relatively between two points 45 cents on fresh 
» meat and 35 cents on live cattle, or whether it sould be 50 cents on 
_ the meat and 30 cents on the cattle, is a matter of political economy. 
. You can not base it on cost of service relatively, because it is difficult 
‘to find. The cost of service is only one of the elements that enters 
‘into it, and as to a particular commodity everybody knows you can 
not ascertain the cost of service. You may get the cost of your total 
‘service. Why should rates be made upon the per ton or per hundred 
pounds rather than upon the dollar’s worth of freight? That is 
largely a matter of political economy, and so we have the different 
classifications, used for various reasons, partly bulk, partly the large 
volume of the particular article, partly because of the value of it, 
and we fix it so that the traffic will at all events move. There is 
‘nothing worse than no traffic. The derth of traffic is the worst 
thing. 

It becomes a matter of political economy as to whether or not the 
‘rates from Galveston, Tex., shall be the same to Fort Worth that the 
‘are to Amarillo. There is a common-point system in Texas. It 
sounds awfully bad to state you will carry it 350 miles farther for the 
, same rate, say just twice as far, yet we never would have built up the 
| State of Texas if the Texas commission had not provided their 
, blanket rates, so the Interstate Commerce Commission decided with 
) reference to the lumber rates, in a long-fought-out blanket lumber 
| ease, and to-day all the yellow pine lumber in the district in Texas, 
| Louisiana, and Arkansas south of the Arkansas River have the same 
| rates from every point, we will say, to Chicago, whether it is 400 
| miles farther or not, by the route it may travel. That gives every- 
body access to the entire lumber fields to buy the lumber, and gives 
competition there. It gives the entire lumber district the oppor- 
‘tunity to ship to the market, so it is so largely a matter of political 
} economy that at least rates like Texas now has there ought to be 
| fixed by the Government itself for the interstate rates, and by the 
) State commissions for the State rates, and let them harmonize as 
\ nearly as possible, because conceivably you must secure in the aggre- 
| gate and in the end enough to make the railroad self-supporting. 
Mr. Sims. Do you think the State commissions and the Interstate 
‘Commerce Commission ought to initiate rates ? 

| Mr. Cowan. Make them just like the State commissions do to-day. 
Mr. Sms. Both initiate and make ? 

) Mr. Cowan. Yes; absolutely make them. That would give you 
a tariff that you could read while you live. I challenge the proposi- 
‘ tion that none of you gentlemen, and I take it you are far above the 
ordinary in intelligence, and particularly on this subject—I confess 
it as to myself—can not take Leland’s southwestern lines tariff and 
understand it and read and tell what the rates are—well, | will say 
in 90 days, maybe in 6 months, and you can not find a railroad agent 
‘can doit, They say they publish the rate. 


i 


















888 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


They are piled up, a trunk full or two, of these great big volumes, 
and every time you find a rate you find a reference to some applica- 
tion or some circular or some reference or some supplement. It is 
a very difficult thing and requires a vast lot of work. 

The States rates are very simple. Take up the printed volume of 
State rates, and you can see every commodity that is classified, 
whether as a commodity, it is named, you can trace it out, so you 
can with regard to the class rate very easily, because they are not 
trying to cover up something. : 

If you want to economize in railroad operation, dispense with about 
100,000 men, more or less, who are engaged in the endeavor, working 
shifts at night, to so frame a rate as to prevent the railroad doing 
what it ought to do and to collect as much as possible and show to 
the employers that their employment is indispensable. 

Mr. Dewar. Mr. Chairman, may I ask a question there ? 

The CHAIRMAN. Yes. 

Mr. Dewatt. Judge Cowan, if your suggestion was carried into: 
completion, to wit, that the Federal Government should control all 
interstate rates, and that the State authorities should control and 
make all intrastate rates, and the discriminations were still to exist, 
as exemplified by the Shreveport case, how would you remedy this 
question of discrimination ? | 

Mr. Cowan. Well, I think I have stated that. I would provide 
that where a discrimination is alleged in such a case that the com- 
mission shall specifically find with regard to that particular discrimima- 
tion and make its order applicable thereto and not attempt to affect. 
the rates of the whole State. Let it put it so specific that if you did 
go to court on it you would have something specific to charge. I say 
it would eliminate it if the Interstate Commerce Commission and the 
State commissions fixed all the rates, the discrimination would never 
come up; they would arrange it in advance; that is to say, they would 
have eliminated the chance of discrimination. 

I believe nearly everybody wants to avoid this unseemly discrimina- 
tion that sometimes seems to exist, not merely, however, so much. 
as is commonly talked about, but it does exist in certain cases. 

Mr. Dewar. Pardon me again. I do not just follow you, and J 
admit my inability to grasp how it would be eliminated. 

Mr. Cowan. Well, the law should provide the Interstate Commerce 
Commission when fixing rates, interstate, to apply in the State of 
Texas, we will say, or we will take the States of Texas, Louisiana, 
Arkansas, Oklahoma, if the Interstate Commerce Commission confers 
with the commissions to be affected, and that when they do confer 
that they provide a fair standard of interchangeable rates, as nearly 
as may be possible. They will undoubtedly come to an agreement 
substantially. If they do not, let the Interstate Commerce Com- 
mission’s judgment prevail where the rate materially affects interstate 
commerce through a State rate and you will have it all eliminated 
by the fact that your authorities of the law have put in the rate, not 
some particular railroad, | 

I think it might be worth while, if the committee feels that way 
about it, to call some of the interstate commissioners in regard to 
that, in regard to what they think about it, if you have not done 
so. I had a talk with Judge Prouty upon this subject at different 
times, and I think I can say—I am not authorized to say, but I 







| _—s«RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 889 


‘think I can say that in his opinion it is practicable for the rate- 
making power to be exercised direct by the Government as it is by 
the States. We never had any difficulty in exercising 1t in Texas, 
for the law provided the Texas commission make up all the rates, 
that the railroads have nothing to do with it. We would all be 
‘across the table from each other contending with the Interstate 
Commerce Commission and with the State commissions, perhaps, to 
get the rates changed; we would be on a common level, but the law 
will have thus made the rates, and that will eliminate more diffi- 
‘eulties than all other things put together in my opinion. 

Now you can not perhaps stop presently, in my judgment, the 
‘enactment of a law to turn these roads back to accomplish all that 
here, but ultimately it ought to be done. If you call on Judge 
‘Prouty I believe he can give you good reasons for it, although he 
may not desire to do it. Perhaps I should not say this. I do not 
‘think he has ever made any statement to the contrary, and has 
probably in public speeches indorsed that idea. ! 
| I think that is substantially all that I care to say to the com- 
‘mittee, except what may be placed in the brief. 

The CuarrmMan. Judge Cowan, you will incorporate in your hear- 
‘ings the amendments that were suggested in the course of your 
hearing, will you? 

Mr. Cowan. Yes, sir; I will have to do that with care, of course. 

_ The CuarrMan. You will correct your minutes as speedily as 
‘possible, so we may print them? 
| Mr. Cowan. Yes; i will endeavor to do that while I am in Wash- 
‘ington, in the next few days. 
Mr. Dentson. Following the line of the argument you have just 
‘heen presenting, Judge, upon what theory do you think that three 
commissioners, or more, sitting at Austin, are better prepared to 
fix railroad rates on transportation than the companies themselves 
who furnish transportation ? 

Mr. Cowan. They are not better prepared than the companies 
themselves, but the commission is fixing it from the public viewpoint 
and the benefit of the railroads as well, whereas the railroads are 
fixing it from the money-earning side only. That is why we have 
regulation at all, is the fear that the railroads might not be quite 
‘fair to the public. ; 
| Mr. Denison. But under your theory you do not have regulation, 
‘you have fixing absolutely; you make the rates. 

' Mr. Cowan. That is regulation because the commission is entirely 
‘open to the railroads. They hold their hearings every month, and the 
railroads appear and they present their claims to the Railroad Com- 
‘mission of Texas, often succeeding, make all their proposals on rates 
‘they desire just the same as now they can publish them, and they 
‘become rates. Under that system they present them and the com- 
Mission determines whether they will become rates or not. They 
stand on exactly the same footing with the public in that particular. 
Mr. Sms. And the common man can read them and know what 
they mean ? 7 . 

' Mr. Cowan. He can. They are plain. You can get one of the 
reports of the Texas commission itl you can tell what the rates are 
‘on anything almost. 

j 















890 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Denison._It is your theory that the Interstate Commerce 
Commission itself ought to fix all rates? 

Mr. Cowan. I think so. 

Mr. Denison. Do you think that is within the range of possibility? 

Mr. Cowan. Yes. 

Mr. Denison. One body of men, sitting in Washington, to fix the 
rates allover the United States? 

Mr. Cowan. Absolutely. Of course, I do not mean to say that 
when it comes to doing that thing that those of the commission who 
are set apart to do the particular work, and their assistants, should 
not open and hold their offices accessible to the people. I want the 
Government to get closer to the people, as far as I am concerned. 
Places like San Francisco, Chicago, some places in Texas—I will not 
name the cities in Texas, because they would get mad at me if I name 
one city and do not name all—Atlanta, New Orleans, Kansas City, 
St. Louis, Pittsburgh, Buffalo, perhaps, New York, Boston, and 
then they would have the benefit of the work of the State commis- 
sion and the benefit of getting the knowledge that is requisite. It 
would be perfectly easy to do, in my opinion. , 

Mr. Denison. You think the present Interstate Commerce Com- 
mission would be sitting all over different places and fixing rates 
and at the same time transacting its necessary business here in Wash- 
ington, do you? 

Mr. Cowan. I do not think there is any difficulty about doing that 
at all, because they will have to have a coterie of qualified men to 
compile from existing data in the main the rates. Mind you, when 
we went into the business in Texas we took the railroad tariffs them- 
selves and employed the best railroad traffic men that Judge Reagan 
could get to do it, and from time to time they formulated as many 
rates, about, as you would formulate in the United States, but it 
would not extend over as broad a territory. 

I do not think there is a great deal of merit in the uniformity ot 
rates, except where the conditions are likewise uniform, and I think 
they ought to be made to fit the conditions, and that can be better 
done by the States, and could be better done by securing men who 
were best acquainted with the subject in the different localities, 
which I have no doubt the commission will do. 

I desire to say td the committee, before closing, that I thank you 
very much for the courtesy you have extended, and furthermore tw 
say that we have continuously and from the beginning stood strongly 
for the Interstate Commerce Commission all the way through, anc 
I am not criticizing the commission here, except in the sense of 
saying the things which I think ought to be spoken out, and let us 
get to doing these things the best that we can, and to tell one another 
our failures, if we have got them. I thank the committee. 

Mr. Rowe will have quite some important matters to present to 
the committee, if the committee can now hear him. 

The Cuarrman. The committee appreciates the information yo 
have imparted, Judge Cowan. 1 





a RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 891 
SUPPLEMENTAL STATEMENT OF S. H. COWAN. 


Wasuineton, D. C., August 25, 1919. 
fon. Joun J. Escu, 
Chairman Committee on Interstate and Foreign Commerce. 


‘Dear Sir: In behalf of those I represent, in addition to what I have presented at 
ae hearings on H. R. 4378, August 18 and 19, I appeal to the committee to strike 
om the bill section 2 of this bill amending section 1 of the act to regulate commerce, 
nder the definition of the term “‘car service,” but really embracing the entire trans- 
ortation service and operation of locomotives, cars, trains, terminals, use of the 
tilroads and every right and duty of the railroad as to all service and the performance 
fit or use of its facilities for doing it. 

A careful reading of it shows that upon the mere whim of an agent of the Interstate 
commerce Commission, without notice or hearing, he may stop any train service, 
‘amsfer cars, locomotives from one place or road to another, fix the pay for it, direct 
1e use of terminals, give preference and priorities or establish embargoes at any 
‘me, anywhere; require permits to operate trains or move cars, subject to change any 
me for any reason or contrary to sound reason, subject to no supervision and thus 
ike away all the rights of shippers and liabilities of railroads. 

The commission can do all this by agents anywhere at any time without responsi- 
ility and the railroads must obey under heavy cumulative penalties, and do it 
romptly, with no recourse or delay. 

The commission could appoint a deaf, dumb, and blind man to operate an inter- 
xcking tower and kill a trainload of cattle or people as to that matter, and no lia- 
ility could possibly attach. 

This proposed amendment starts out with the mild and misleading term, ‘“‘car 
vice.’ It starts as easily to the unsuspecting victim as a bad habit or a Kansas 
yeione with the gentle breeze of spring laden with the odor of flowers, but ends in 
oo of irresponsibility; or, like the cyclone, with wreck and destruction in its 
ath. : 

| That, at the very outset, after naming it, the writer of the bill in parable, as it were, 
ea, with tongues of fire in effect says that the railroads when turned back to their 
wners must ‘‘furnish safe and adequate car service, ete.” {p. 6, line 11), and what is 

iat? Read the definition (lines 4 to 9, p. 6): 

“The term ‘car service’ in this act shall include the use, control, supply, movement. 
istribution, exchange, interchange, and return of locomotives, cars, and other vehicles 
sed in the transportation of property, and the supply, movement, and operation of 
‘ains by any carrier subject to this act.”’ 

a’ a8 a requires the railroads to establish and file reasonable rules (lines 

to 25, p. 6): : 
 eeat, shall be the duty of every carrier by railroad subject to this act to furnish safe 

id adequate car service and to establish, observe, and enforce just and reasonable 
les, regulations, and practices with respect to car service; and every unjust and un- 
yasonable rule, regulation, and practice with respect to car service is prohibited and 
eclared to be unlawful. 

“The commission is hereby authorized by general or special orders to require all 
umiers by railroad subject to this act, or any of them, to file with it from time to time 
ieir rules and regulations with respect to car service, and the commission may, in its 
‘iseretion, direct that the said rules and regulations shall be incorporated in their 
‘hedules showing rates, fares, and charges for transportation, and be subject to any 
‘all of.the provisions of this act relating thereto.”’ 

The commission is empowered on its own initiative with or without hearing to itself 
‘tablish rules and compensation for the use of those facilities, and fix penalties and 
metions (whatever that means—absolution, | suppose). 

_And then comes the storm, like the music of William Tell. 

‘This surrender of all the rights, the destruction of all privileges of ownership and 
eration by the railroad companies. The maelstrom of shippers’ rights, the catyclism 

pretended regulations in the following paragraph (pp. 7 and 8): 

Whenever the commission shall be of opinion that shortage of equipment, con- 
»stion of traffic, or other emergency requiring immediate action exists in any section 
the country, the commission shall have, and it is hereby given, authority, either 
don complaint or upon its own initiative without complaint, at once, if it so orders, 
ithout answer or other formal pleading by the interested carrier or carriers, and with 
‘without notice, hearing, or the making or filing of a report, according as the com- 
isston may determine, to suspend the operation of any or all rules, regulations, or 
‘actices then established with respect to car service for such time as may be deter- 
ined by the commission, and also authority to make such just and reasonable direc- 













892 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


tions with respect to car service and the interchange and use of locomotives, cars, and 
other vehicles, without regard to ownership, during such emergency as in its opinion 
will best promote the service in the interest of the public and the commerce of the 
people and also authority by order to require such joint or common use of termina); 
as in its opinion will best meet the emergency and serve the public interest, and upor 
such just and reasonable terms between the carriers as the commission may prescribe 
and also authority to give directions for preference or priority in transportation 
embargoes, or movement of traffic under permits, at such times and for such period: 
as it may determine, and to modify, change, suspend, or annul them.” 

Finally, after authorizing the commission to thus confiscate the property and estab 
lished business of the roads that have been turned back, without liability of thi 
Government for the acts of its agents the commission, it is to delegate all this power t 
agents or agencies whose directions become the rule of conduct co instanti and fo 
disobedience a penalty is imposed to be paid to the United States. Thus Congres 
will have delegated away all power both of the Government and the railroad corpor 
ations. 

The paragraph containing this remarkable proposal for enactment into law, is ai 
follows (pp. 8 and 9): 

“The directions of the commission as to car service may be made through and b} 
such agents or agencies as the commission shall designate and appoint for that purpose 
It shall be the duty of all carriers by railroad subject to this act, and of their officers 
agents, and employees, to obey strictly and conform promptly to such orders or dire¢ 
tions of the commission, and in case of failure or refusal on the part of any carrier 
receiver, or trustee to comply with any such order or direction such carrier, receiver, 0 
trustee shall be liable to a penalty of not less than $100 nor more than $500 for eac! 
such offense and $50 for each and every day of the continuance of such offense, whicl 
shall accrue to the United States and may be recovered in a civil action brought by 
the United States.’’ 

What is the use in transferring these powers to the commission which now ar 
exercised by the United States Railroad Administration. There are constantly thos 
conditions and emergencies somewhere in the United States, and at some time of th 
year nearly if not quite constantly in the territory in part that is now under one ¢ 
several regional directors, shat would call for such directors and their staffs, if ti 
commission is to execute this law, and be in a state of prepardness. Probably fo 
every terminal, for every shop for every division organization is essential to carry 1 
out. Where would the railroad company come in except to obey orders. 


STATEMENT OF MR. S. C. ROWE, OF FORT WORTH, TEX 
REPRESENTING THE CATTLE RAISERS’ ASSOCIATION 01 
TEXAS. | 


The CuarRMAN. You may proceed, Mr. Rowe. 

Mr. Rowe. The Cattle Raisers’ Association of Texas is a voluntar 
organization, having a membership of about 5,000 persons, firms ait 
corporations engaged in producing and raising and marketing liv 
stock. This membership is distributed over the States of Missouri 
Oklahoma, Texas, Colorado, and New Mexico. 

It so happens that Judge Cowan has so completely covered th 
material matters involved in this hearing, that it will become unneces 
sary for me to take up the time of this committee in useless reitera tior 
because in all material and essential points what he has said to tli 
committee embraces the joint opinions of both of us. However, ther 
are some matters not covered by him, one in particular which 
desire to present to the committee, and some of the matters whic 
were presented by Judge Cowan that I desire to briefly commer 
upon. 

"To begin with, while I hesitate to discuss the statement that t 
Chairman ascribed to Mr. Fulbright with reference to the enti 
satisfaction of the shippers of Texas as to the decision in the Shrev 
por case, it so happens that I sustain such a freindly relationwi 

im that I think it would not be improper to discuss that stateme 








RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 893 


_Mr. Fulbright and ‘myself had the honor, if it was an honor, of 
‘presenting the same railway lines in Texas, he representing the 
‘outh Texas-Frisco lines, and during that time I represented the 
‘orthern Texas lines, and we have discussed these matters very 
illy together, both having participated in the trial of the Shreveport 
ase, Mr. Fulbright for the railroads and I for the Cattle Raisers’ 
‘ssociation of Texas. Mr. Fulbright’s statement that the shippers 
ere satisfied was probably unhappily made. In our discussion of 
4s case, subsequent to the decision of it, he asserted the view, as 
id others there, a number of them, that inasmuch as the rates fixed 
y the decision on rehearing were so slightly above an increase which 
lof us considered proper at that time in the Texas rates, that it 
ere better to accept the decision of the commission than to keep 
jat case on ad infinitum, and the huge expense that the shippers 
ad to be subjected to constantly increased. Besides that considera- 
on was the recognized practical impossibility of appealing the case, 
je thing being, as has been suggested by Judge Cowan, that the 
»cord was so voluminous that no one concern was able to stand the 
‘xpense of paying for it, and of appealing the case; and then the war 
ume on with all its perplexities and problems. For all those reasons 
ambers of us decided that it was best to accept the rates as fixed 
y the Shreveport decision, but never at any.time expressing our- 
Ives as satisfied with the jurisdiction of the commission over all the 
ites in Texas. 

‘Tshall endeavor to not duplicate anything Judge Cowan has gone 
ter. However, with reference to the matter of the added para- 
‘aphs of section 13, shown on page 21, and which the judge suggested 
iat he was in favor of having stricken out of the pending bill, I will 
ate that I concur with him in that opinion. However, it may be 
iat the judge’s suggestion to have the Interstate Commerce Com- 
‘ission initiate rates as does the State-Commission of Texas at this 
‘me, might not meet with the approval of this committee and the 
yproval of Congress, and, therefore, I will present to this committee 
y views with reference to. that. 

I do not think that the jurisdiction of the Interstate Commerce 
)Mmission over State rates should be enlarged. Of course, there is 
uch argument to be presented in favor of the Interstate Commerce 
‘mmission having jurisdiction over all rates throughout the coun- 
y, both intrastate and interstate, as a theoretical proposition, but 
aen we consider the distance to the seat of Government and the 
mtrolling body, and the impracticability of settling the multi- 
dinous matters involved in the transportation of the country 
spectine the interests of those far-away communities, I do not 
ink that would be the proper system; especially would this be true 
) to a State as large and as far removed from the seat of Government 
Texas. A transportation condition that obtains in western Texas 
es not obtain in eastern Texas, perhaps, and that which obtains in 
uthern Texas does not obtain in the Panhandle, and it would be 
ry difficult, indeed, for a body situated in Washington to dispose 
, Matters relating to the transportation conditions of that State, 
id especially to dispose of them in as just a manner and as fairly 
‘d satisfactorily safeguard the interests of the shippers and the 
juroads as would a State railroad body. 


)  152894—19—vor. 157 

















894 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Sanvers of Indiana. Suppose you had a regional commission 

Mr. Rowe. That may be true in less degree of regional commissions 
Of course, the matter of distance away from the controlling bod 
would not furnish as strong an argument, against it, but it would b, 
there, and especially with reference to our State. 

It occurred to the executive committee of our association, befor 
whom this matter was discussed, and by whom it was considered 
that a possible solution to obviate these controversies over thi 
respective jurisdictions of the State commissions and the Interstat; 
Commerce Commission might result from Congress defining th 
jurisdiction of the Interstate Commerce Commission in respect t 
State rates, employing such language as would remove the conten 
tions and controversies over what that jurisdiction is or might b 
under certain conditions. In that connection it has occurred to u 
that were the jurisdiction of the Interstate Commerce Commissio) 
over State rates defined in such language as would make that juris 
diction certain—and the language of the Supreme Court in the dis 
position of the Shreveport case, or similar language, might be en1 
ployed, the conflicts and controversies might be avoided, and whe 
that is done we contend that the act should also include the pre 
vision that the decision of the Interstate Commerce Commissiol 
should be specific and definite as to the territory in which the foun 
discrimination operated. 

Take the Shreveport case. The commission in that case held tha 
the State rate and its operation upon interstate commerce was suc 
that it created a discrimination against Shreveport. The order wa 
not specific as to commodities or persons or territory, and upon tha 
decision the entire State of Texas was blanketed with rates fixed by 
the Federal body, with the exception of a few commodities mention 
by Judge Cowan. Had the decision of the commission been specifi 
as to the territory in which it found that discrimination operatiyé 
much of the harmful results and injustices and discrimination 
resulting therefrom would have been obviated. Not only did i 
operate as illustrated by Judge Cowan as to his shipment of bone 
that he mentioned, but I had called to my attention one, instane 
where a shipment of household goods, an emigrant’s outfit, movil 
from Austin, Tex., over the M., K. &.T. to Fort Worth, then over th 
Fort Worth & Rio Grande to Grandbury, the agent collecting th 
rates under the old Texas scale, misreading the tariff, or not bein 
able to read it, and as Judge Cowan suggested a moment ago. Tha 
consignment on arrival was marked “undercharged”’ and they calle 
on this man for an additional freight charge, which he, in his poverty 
in that particular instance, was unable to pay. Well, 1t never wa 
intended or even argued for one moment that there was any dis 
crimination against Shreveport by reason of the operation of th 
Texas commission rate on household goods between Texas point 
I just mentioned that to show the results that flowed from tli 
decision. | 

With reference to the matter of requiring a certificate from th 
Interstate Commerce Commission before lines are permitted f 
construct new lines, or extensions, or engage in transportatia? 
unless it be shown that it is necessary to the present or future publ 
convenience or necessity, we think it certainly should be left to 





RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 895 


State authorities to control such matters as that for all the reasons 
‘stated by Judge Cowan. 0 
_ The CHarrman. Suppose it was interstate, that the extension 
‘went into another State and the terminus was in the other State 2 
Mr. Rowe. Well, in that case it probably would be a proper 
exercise of the power, but the point I was trying to make was that. 
as to State lines, physically lying wholly within the State of Texas, 
that it should be left to the State authorities to say whether they 
should or should not extend, or should or should not consolidate. 
_ Isee no reason for this particular provision here in any part of the 
country, but there is no use going into any argument on that, because 
I could furnish no additional reasons than those already given by 
Judge Cowan, but certainly it should not operate in the undeveloped 
sections of the Nation. 
_ Take the State of Texas, for instance, and suppose that provision 
were now in effect. There is a strip of country between Llano and 
San Angelo, Tex., possibly 150 miles, and another between Brady, 
Tex., and San Antonio, Tex., a similar distance. If the enterprising 
sitizens of the town of Mason in Mason County, that has been within 
30 miles of a railroad for some 40 or 50 years, ever since the town was 
sstablished, were determined to build ‘a railroad in order to furnish 
them an outlet as well as an inlet for such commodities as they use 
ind dispose of, they would have to go to the Interstate Commerce 
Jommission at Washington for permission before they could do that, 
aotwithstanding the fact that the extension was needed and desired 
dy them. It might be answered to that argument that under those 
urcumstances the Interstate Commerce Commission would grant the 
ertificate and permit the building of the road, but we contend that, 
deing so far removed from these people, it would be practically 

mpossible to place the whole matter before the commission in such 2 
manner as could be done in Texas, where the people residing in that 
sommunity could appear before the State commission and secure a just 
letermination of that matter, notwithstanding the Interstate Com- 
‘herce Commission might desire and its purpose would be to give them 
_ full and fair hearing upon the matter. 

The Cuarrman. Are your views on that influenced by the fact that 
inder the laws of Texas no railroad can build a line in Texas or make 
n extension thereof unless it is a Texas corporation ? 

Mr. Rowe. Differently stated, Mr. Chairman, it is that no railroad 
‘an be constructed in Texas unless it is constructed within the State 
‘ntirely and under a Texas charter. 

| The Cuarrman. Does that influence your views with reference to 
his matter of extensions? 

Mr. Rowe. It certainly does, and I was coming to that. Now 
hose lines, physically lying within the State, being chartered under a 
“exas charter, authorized under the constitution and laws of Texas, 
| certainly occurs to me that State and its regulatory body should be 
iven control over the matter of extension of such lines, or the con- 
dlidation of one with another. 

The Cuarrman. No other State has a like statute, as I understand 2 
Mr. Rowe. I think, Mr. Chairman, as to that you are correct. 
‘The Cuarrman. I think there are no other’ States having like 
iatutes, 








’ 


896 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Rowr. And, furthermore, with us we recognize this, and this | 
should be given, we suggest, some consideration, that the State of 
Texas, in order to secure railroad facilities and transportation facil- 
ities, has given away millions of acres of land. Under those donations _ 
to railway companies many communities in Texas have secured and 
now enjoy railway facilities, and it would be peculiarly harsh and 
peculiarly unfortunate that communities such as that I have just 
mentioned, and the citizens residing therein, who have, through the 
State, contributed to the donation of those lands to other railway 
lines and other favored communities, should be compelled to come to 
the Interstate Commerce Commission at Washington to secure per- 
mission even for the building of an extension of an existing line, or a 
new line, with their own capital contributed by them, unless some 
urgent and great necessity existed for such legislation. We do not 
believe any such necessity exists at this time. 

Mr. Dentson. Whenever a railroad makes an extension which 
involves a large expenditure of capital funds, of course, it will have 
to adjust its rates or arrange its income of its whole line so as to pay 
that,expenditure. Do you not think that involves a question of inter- 
~ state interest? If the extension is going to be paid simply by revy- 
enues derived from that extension, then there would be no larger 
question involved, but these lines, the expenditures mvolved in t is 
extension, are to be paid from the revenues derived from the entire 
road or the system, and it may in the future involve a readjustment 
of the entire rates. 

Mr. Rowe. In other words, as I understand the question—I will 
answer your question first. The statement you made would be true 
viewed from the standpoint of the obvious purpose of the act, to) 
relieve communities and the public generally from the extra burden 
of railroad lines not necessary. As Judge Cowan stated, we know of 
no situation of that kind anywhere in the United States, and cer- 
tainly it could not arise in our State, and especially not in the unde- 
veloped West. In these sections there could hardly be any proposed 
extensions that would be unnecessary. 

Mr. Denison. For instance, take the Salt Lake cut-off. You are 
familiar with that, are you not? 

Mr. Rowe. I do not think I am. 

Mr. Rayspurn. Take a specific case, that Mr. Fullbright men- 
tioned. It has been said that was built for spite work, or something 
like that. Do you know anything about that? 

Mr. Rowe. i do not know or profess to be as familiar with the 
history of that railway line as Mr. Fullbright seems to have been and. 
is, but I have heard rumors that that line was not altogether essential 
and necessary, and Judge Cowan and I, in discussing that very prop- 
erty, were speaking of the fact that that is the only railroad line ever 
built in the State of Texas that we did not consider absolutely essen- 
tial, and it was essential in this particular, that had it not been for the 
Mexican War and the conditions resulting from that, that railway 
line would have become a link in the lines of Mr. Youcom’s system 
which he proposed to extend down from Texas into Mexico and into 
Central America, and which plans of Mr. Youcom would surely have 
been carried out but for the conditions arising in the Republic of 
Mexico, and that would have furnished a line of travel that would 
have been 200 or 300 miles shorter, would it not, Judge Cowan? 


i} 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 897 


_ Mr. Cowan. Three hundred miles shorter to the City of Mexico. 


Mr. Raysurn. I know; but the Trinity & Brazos Valley Railroad 


‘had been there a long time before we had any trouble with Mexico. 


Mr. Cowan. You see, the Rock Island, the Frisco, when they were 


‘together, built that line of railroad in order to have it for themselves, 


so.the traffic would be handled that way along the coast, not through 
Houston, to Tampico, thence to the City of Mexico. That was the 
scheme. 

Mr. Raysurn. That was the old dream, of course. 

Mr. Cowan. And the Trinity Valley was therefore at the time it 
was built necessary as an outlet to both of the two systems. 

Mr. Raysurn. Youcom had blown up several years before this 


Mexican trouble, had he not? His trouble with the Rock Island 


_had occurred before? 


_ Mr. Cowan. The Rock Island and the Frisco built that line, the 
idea being that it was to be the outlet to the Gulf, and in connection 


with the Gulf Coast Line for traffic coming from the North over the 


Rock Island, the Frisco, and the Fort Worth. 
Mr. Raysourn. I know one line up in our country that started from 


Hu hes, Minn., to the Gulf. 


. Cowan. But, then, this is an existing line of railroad. It might 


| have been better not to do it, but it is there. 


Mr. Rowe. To proceed, Mr. Chairman: If it were true that it were 
the custom of the country to indulge in building railway lines and 


| extensions unnecessary to serve the communities in which they are 


constructed, I can readily see where the interests of the public could 


call for the enactment of this character of legislation. However, I 


, 








know of no such conditions, and they certainly do not exist in Texas 


and the West. That being true, in our view, it would be a mistake 
to enact any legislation, not really demanded by the public interest, 


that could in its effect retard the growth and development of any 
part of the United States. 
The CHarrRMAN. You realize that quite a number of States have 
iven such powers to their commissions, in your State, in my own 
‘State, and Maryland, I am not so sure about Massachusetts; many 
States require certificates of necessity before building a new line of 
road. They seemingly had very good results. 
Mr. Rowe. That would be all right, perhaps, if the certificate 
issued was issued by the State regulatory body of that particular 
‘State. It might be all right to provide for the issuance of such a 
certificate by the Railroad Commission of Texas. I had not thought 
of that. But the point I was trying to make was that we, in the 


first place, did not think that the Interstate Commerce Commission, 


situated at Washington, should be given such authority over the 
construction of railway lines in the various States. 

| | Mr. Dewar. What would you say as to the regulatory power with 
reference to the issuance of stocks and bonds toward the raising of 
capital for these intrastate lines? Admittedly much of that capital 


‘ would be raised by the sale of stocks and by the issuance of bonds, 


and those stocks and bonds would, im all probability, be sold in the 
‘open market in other States than in the State of Texas. "Would you 
go so far as to say there should be no regulation by the Federal 
authority in reference thereto ? 


898 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Rowe. Well, I shall have to answer that question that I do 
not know. I am not sufficiently familiar with the method of hand- 
ling those matters to answer that question. 

Mr. Raysurn. That is exactly the position of the Texas railroads, 
because we have had control of the stocks and bonds after 20 years, 
and it has been very successful so far as we are concerned. 

Mr. Dewa ct. It works out all right there? 

Mr. Raysurn. Yes. 

Mr. Rowe. I thought he said the Interstate Commerce Commission 
is to have control over such stocks and bonds. 

Mr. Raysurn. Transfer that to the Interstate Commerce Com- 
mission, that is what I mean. 

Mr. Dewatr. This bill has in contemplation that very thing. 

Mr. Raysurn. The trouble is just this about Texas. If the 
other States that have railroads partly im Texas and partly in other 
States control their railroads as well as we think we control ours, we 
would be all right. The Texas end of the railroad is always a pretty 
good proposition, but what they get out of the railroads in Texas does 
not balance up the account. In some States, where they have no 
regulation, take the M. K. & T., the Texas end of it has always been a 
paying proposition, whereas the road is in a receivership part of the 
time. 

Mr. Dewatr. The thought in my mind was this: Admittedly 
many of these roads, which are clearly intrastate, particularly in the 
State of Texas, where you have 16,000 miles of railroad, or you did 
have in 1917, would be financed by capital raised in other States than 
Texas. Now the question is, do you think that under that condition, 
if it does exist and would exist, that there should be no control by 
some Federal authority as to the issuance of such securities and of 
such stock, that it should be wholly and solely the province of the 
State of Texas to determine? 

Mr. Rowe. I think it should be the province of the State of Texas 
to determine that. Other bonds are issued under the laws of the 
State of Texas and under its regulatory powers and are sold thrdugh- 
out the United States, and in much larger amounts than would ever 
reach the market through railroad construction, and I do not know 
of any great injury resulting from them, and conceive none could re- 
sult from it, and I do not think such powers should be vested in the 
Interstate Commerce Commission. | 

Mr. Denison. Let me put one question where I think conflict might 
arise. Suppose the M. K. & T. Railroad decided to increase its 
bonded indebtedness or capital issue and build a $10,000,000 depot 
in Fort Worth. I presume if it wanted to get the consent of the 
Texas commission to do that it could get it, yet it would have to pay 
for that by tolls collected from the people in Oklahoma and other 
States, and therefore the public, who support that railroad, would 
have such an interest all up and down its line throughout other 
States that it would seem to me that the Interstate Commerce Com- 
mission ought to have jurisdiction over a matter of that kind to say 
whether or not that is in the public’ interest, rather than the Texas 
commission. Do you not think so? 

Mr. Rows. No;I donot. In the first place, the M. K. & T. Rail-: 
way Co. of Texas is a Texas corporation, maintaining its lines under 


| RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 899 
he laws of the State, as it must m Texas, and operating under the 
‘exas commission’s tariffs. 

Mr. Denison. But it runs its road out into other States, does it not ? 
Mr. Rowe. No, the Missouri, Kansas & Texas comes down to the 
tate line and the Missouri, Kansas & Texas Railway Co. of Texas 
oes north to the State line. 

The CuarrmMan. That is true. of all the other roads also ? 

Mr. Rowsn. That is true of all the other roads save and except the 
qulf, Colorado & Santa Fe. 

Mr. Denison. Of course it engages in an interstate business 
-ecessarily, and therefore for all practical purposes it is subject, or 
hould be, to the Interstate Commerce Commission. 

Mr. Raypurn. You do not deny that the same people, partly the 
ame people, own the Missouri, Kansas & Texas of Texas and the 
fissouri, Kansas & Texas of other States ? 

Mr. Rowe. That is true, largely, of all those lines that operate in 
‘ne State under a particular name and under a Texas charter for the 
‘exas end. 

| Mr. Raysurn. The only reason for it being the M. K. & T. Railway 
f Texas is that our law makes it such, is it not ? 

Mr. Rowe. Certainly. But one reason why I would not think it 
roper to repose in the Interstate Commerce Commission any such 
uthority as that is the one I gave a while ago, is that that body is 
o far removed from that location down there. The Texas Commis- 
ion is better able to get an understanding of the circumstances and 
onditions surrounding Fort Worth and to thereby determine 
thether that depot is necessary than they could up here in Wash- 





a 
. Dentson. That is just the objection. They are too close to it. 
‘Mr. Rowe. And, fundamentally, we are opposed to putting every- 
hing in Washington and compelling our people to come up to 
Vashington to see whether they can get a stock pen built out on a 
ountry line to hold a car of cattle, and that is what it would finally 
ome to. 

Mr. Raysurn. I do not think so, but here is the proposition. If 
very State in the Union had as good a regulation of the issuance of 
ecurities as Texas, and a similar one, the railroads probably would 
ot find themselves in the condition they are now, and I do not 
hink any of the lines in Texas are so far as that is concerned. We 
‘an not pass a law here to cover Oklahoma, Kansas and Missouri. 

. Mr. Rowe. That is undeniably true, but of course we did not intend 
0 narrow our argument on the proposition down to the point where 
7@ were claiming special legislation. 
Mr. Rayzsurn. I understand, but I am saying the same conditions 
,0 not exist in the other States. The railroad situation that exists 
a Texas does not exist in other States, and the same laws do not hold. 
. Mr. Dewatr. Mr. Rayburn, could you not make the same condi- 
ions exist in every State in the Union if you regulated it by the 
‘ederal authority ? 
Mr. Rayzsurn. That is exactly what I am talking about, and _ it 
aatters not how good a law we may have in Texas to regulate the 
Securities of railroad companies, if some State that has a piece of a 
ne that runs into Texas is badly conducted and the railroad is allowed 
0 get in bad shape, then ours is going to get in bad shape too, and a 









rf 
‘% 


900 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


lot of our roads in Texas are milked dry by other ends that extend ou 
into other States. 

Mr. Rowe. Of course, as to the issuance of securities, and upon th. 
subject of securities my information is decidedly limited, I want t 
confess to this committee. There is much strength in the suggestio: 
you make as to that. | 

Mr. Raysurn. The Texas Railroad Commission values the prop 
erty, then on that valuation those stocks and bonds can not be issue: 
by that railroad company in excess of the values set upon the prop 
erty by the railroad commission, and that is pretty safe. 

Mr. Rowe. Certainly, that is the law. 

The CuarrMan. If that is the case, that would anticipate the cos 
of new construction ? : 

Mr. Cowan. They are not for sale, none are found for sale any 
where. They are all deposited in escrow. They are too good to sell 

Mr. Rowe. As I said in the beginning, much argument can b 
used in favor of placing all the control in Washington in the Inter 
state Commerce Commission over rates and everything else pertain 
ing to transportation in the country; but we have been unable t 
reach that pomt where we could agree that should be done, or tha 
it would be to the best interests of the country, and certainly we d 
not think it should be extended to cover the extension or the build 
ing of lines of railway wholly within the State of Texas, and, a 
stated, furthermore, that no necessity exists for any legislation tha 
might in its operation retard the progress and development of th 
country, or a large portion of the country. | 

With those desultory comments, that will complete what I hav 
to say with reference to the matters that Judge Cowan has mentioneé 

I shall now respectfully submit for the consideration of this con 
mittee a law, the omission of which from the legislation makin 
disposition of the railroads, will, in our opinion, endanger the succes 
of any plan which may be adopted by the Congress. 

The Cattle Raisers’ Association of Texas, at its annual conventio: 
at Dallas, Tex., March 8, 1919, passed by unanimous vote a resolu 
tion already incorporated in the record of the proceedings of thi 
committee (Part 1, p. 144), of which the following is a part: 

That this organizétion favors the return of the railroads to their owners as soon : 
adequate legislation properly safeguarding and protecting the rights of the peop. 
during the period of reconstruction and for the future can be enacted by the Congres 
and including in such legislation laws which will protect the people in and guarant¢ 
to them the uninterrupted operation of the transportation facilities of the Nation. 

We are aware that it has been suggested to this committee the 
little legislation is necessary in connection with the return of th 
railroads to private ownership. This may or may not be true. We 
however, submit that there is a necessity for legislation along tk 
lines which we here undertake to suggest, and we further sugges 
that, if this or other necessary legislation is postponed until att 
disposition is made of the railway by Congress, conditions may aris 
which might easily threaten the destruction of industry and commerce: 
If legislation is necessary at all, and we earnestly insist that it i 
now is the time to enact it. 

We assume that it will be readily conceded that by reason of tl 
carriers being engaged in a public business and of their performit 
a public service upon which all are dependent, the people are t 


ee 









P RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 901 
right entitled to the uninterrupted operation of such business. 
‘Anything which will impair its efficiency or which will interrupt or 
‘prevent its operation, either directly or indirectly, affects the interests 
‘of all the people. 
’ In this connection we might with propriety quote from the opinion 
of Chief Justice White, in the case of Wilson, U.S. District Attorney 
for the Western District of Missouri, v. New et al., receivers, 243 
U.S., 332, upholding the Adamson law. The Chief Justice states: 
That the business of common carriers by rail is in a sense a public business because 
of the interest of society in the continued operation and rightful conduct of such 
business and that the public interest begets the right of public regulation to the full 
extent necessary to secure and protect it, is settled by so many decisions, State and 
| Federal, and is illustrated by such a continuous exertion of State and legislative power 
‘as to leave no room for question on the subject. 
' Therefore, by reason of such interest, the people, as we have stated, 
have an inherent right to the continued and uninterrupted operation 
of railway lines. . lf this be true, then it follows that such a right 
should be adequately safeguarded and protected. 
| At the time of the enactment of the Adamson-law, prior thereto 
‘and since, there has existed and there now exists conditions which 
‘threaten the interruption of the operation of the railway lines and the 
‘enjoyment of the right inherent in the people; therefore the necessity 
for legislation. 
_ Controversies between employers and employees have become of 
jsuch frequent occurrence, involving, as they do, the threat and 
‘danger of suspension of operation of the railway lines with the 

Paclient paralysis of the transportation facilities of the Nation, that 
It is essential that some means be provided to avert the consequences 

of such a situation. : 

The precise form of this needed legislation is difficult of determina- 
tion. Broadly stated, however, we believe that there should be pro- 
vided a means whereby the rights and interests of the employees, as 
well as those of the employers, may be determined and protected 
when controversies arise between them, and which will at the same 
time protect the public in its right to the uninterrupted operation of 
the carriers’ business. 

This, we believe, can only be accomplished through the creation 
by law of a body or commission-withthe power-and authority to hear 
_and determine such controversies and to determine an 5 
or hours of service or the wages and hours of service which shall apply. 

By reason of the familiarity of the Interstate Commerce Commission 
with transportation problems and its intimate knowledge of all 
‘details connected with railroad operation, we incline to the opinion 
that this power should be vested in that body. 

__ Thus would there be provided a legal tribunal to which the em- 
ployee and the employer could resort for settlement of their differ- 
ences under orderly procedure, and which body when created would 
be of equal benefit to the employee, the employer, and to the public. 
‘We fail to see where the employee or the carrier could justly complain 
of such an extension of the regulatory power. : 
' The Interstate Commerce Commission, under the powers now en- | 
_Joyed by it under existing statutes, fixes the rates that the carriers | 
shall charge and that the public shall pay for its services in the trans- | 
portation of persons and property, and otherwise controls and regu- . 










902 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


lates the transportation business. Congress has heretofore legislated 
upon the matter of the number of hours that an employee shall be 
required to work in the service of carriers engaged in interstate com- 
merce, and it has likewise specified the character of contracts which 
shall be made between carrier and shipper. Such being the case, we 
think it but a proper exercise of the regulatory power inherent in 
Congress to create adequate and proper agencies through which the 
basis of wages and hours of service may be determined. ‘The correct- 
ness of this contention will more clearly appear when we consider that 
wages constitute a large percentage of the cost of operation of the 
transportation business, upon which cost of operation the bases of 
rates are in part determined; and, especially as controversies arising 
with relation thereto, create a constant menace to commerce and to 
society. 

While we shall not here attempt to give in detail all the provisions 
which should be included in the proposed legislation so as to make it 
effective, we will state some of the things which we believe should 
be embraced therein: 

First. Either the carrier or the employee should have the right to 
submit to the commission by petition the matter in controversy. 

Second. Provision should be made for a full and fair hearing by the 
commission of the matters in controversy between the carrier and 
the employee. 

Third. The decision of the commission should determine what 
constitutes a reasonable basis of wages or hours of service or basis of 
wages and hours of service, and should make it unlawful for the 
carrier to pay any different wages or exact any different hours of 
service thereafter tnan that. fixed by such decision, and a definite 
period should be provided, not to exceed two years, during which 
the same should apply. | 

Fourth. The decision of the commission upon the matter should 
be made final and binding, and we suggest, as a workable means of 
accomplishing this purpose, as well as a means of guaranteeing to 
the employee or the carrier the right of appeal, that a procedure be 
aye similar to that provided by the act of July 15, 1913, Revised 

tatutes 4612, page 894, relating to the awards of the Board of 
Mediation and Arbitration created by that act. Briefly stated, 
sections 7 and 8 of the act referred to provided for the filing of a 
certified copy of the award with the clerk of the United States dis- 
trict court of the district in which the controversy arose. Axter & 
specified time such award is entered of record as a judgment of said 
_ district court, and same becomes final and binding upon the parties 
unless it is excepted to by one of the parties on matters of law 
apparent upon the record; and, further, providing that when such 
exceptions are made and filed, in accordance with the provisions of 
the act, that appeal may be taken to the circuit court of appeals, 
the judgment of that court being final. 

Fifth. It should include a provision that nothing in the act should 
be construed to mean that any person would be compelled to work 
upon the basis of the wages and hours of service fixed by such decision. 

The foregoing embrace only some of the provisions which we 
suggest should be included in the legislation, and are set forth merel 
as a suggestion as to what might be embraced in the act to make it 
effective. 4 


| RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 903 
In order to secure the effective operation of the legislation which 
‘ye have here suggested, we have thought best to here submit in 
-eneral outline other legislation which should be enacted. 

' In this connection we suggest that there should be enacted laws 
jefining conspiracy against transportation of interstate commerce 
or against the operation of railroads or vessels or other means of 
‘ransportation of such commerce, and making such conspiracy a 
elony and providing a penalty therefor. 

_ Also, to make it a felony for any person to unlawfully interfere 
yith or prevent or attempt to prevent officers, agents, and employees 
if any railroad or transportation company within the act to regulate 
‘ommerce and engaged in interstate commerce, or any person or 
\gency engaged in such commerce, from the carrying on or perform- 
ng of transportation service. | 

Also, to authorize the Attorney General of the United States, 
vhere such offenses are committed or threatened or about to be 
‘ommitted, to restrain the same; to authorize and empower the judges 
f the courts in proper cases to issue such writs of injunction and 
0 impose penalties for contempt in cases of violation of any such 
rit so issued by such court. 

_ Also, making interference by threats, intimidation, or otherwise 
vith any officer of the court or person appointed to carry out the 
irders of such court, a penal offense and subject to prosecution in 
he district court where committed. 

Also, such other laws as shall insure the effectual operation of the 
egislation here proposed. 

Also, provisions repealing all laws in conflict with such act. 

We can not see why the employees of the carriers should object 
0 the Congress providing a means for the settlement of controversies 
ind for the determination of the basis of wages and hours of service 
$s suggested by us, inasmuch as they, if we correctly understand the 
ecord of the committee hearings and the history of the legislation, 
‘nyoked the aid of the Congress in enacting a law, the objects of 
| vhich were to fix the hours of service as well as the basis of wages, 

he same being commonly known as the Adamson bill. The pro- 
iosed act would give to the Interstate Commerce Commission, or 
uch other body as the Congress might create, the power to do noth- 
ng more than was done by Congress at the time of the passage of 
“hat act. Furthermore, it would afford a protection to the employee, 
ig well as to the carrier and the public, as has been suggested by us. 
) We might add that we are not here concerned with what the basis 
if the wages shall be, nor the hours of service, and are neither con- 
‘ending that wages should be higher or lower, or that hours of service 
hould be shorter or longer; but are alone concerned, as shippers 
\itilizing the transportation facilities of the country, in the enact- 
-oent of such legislation as will assure to us the uninterrupted func- 
\ioning of the same. 
In anticipation of the contention being made that Congress is 
vithout authority to enact the legislation here suggested, we respect- 
ully suggest that Chief Justice White in his opinion in the case 
eferred to above, in which he upheld the power of Congress to pass 
‘vhat is commonly known as the Adamson bill, upheld the power of 
Jongress in that act to fix wages as well as hours of service. 


U 
; 
























| 


. i 
uw, | 


904 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


After holding that the act in question, the Adamson bill, had fe 
one of its objects the fixing of the basis of wages, the Chief Justi 
states: | 


If the situation which we have described and with which the act of Congress dea 
be taken into view; that is, the dispute between the employers and employees as 
standard of wages, their failure to agree, the resulting absence of such standard, t] 
entire interruption of interstate commerce which was threatened, and the infini 
injury to the public which was imminent, it would seem inevitably to result that t] 
power to regulate necessarily obtained and was subject to be applied to the exte 
necessary to provide a remedy for the situation, which included the power to de 
with the dispute, to provide by appropriate action for a standard of wages to fill 1] 
want of one caused by the failure to exert the private right on the subject and to gi 
effect to appropriate legislation to the regulations thus adopted. 

This must be, unless it can be said that the right to so regulate as to save:and protd 
the public interest did not apply to a case where the destruction of the private rig! 
was imminent as the result of a dispute between the parties and their consequa 
failure to establish by private agreement the standard of wages which was essentig 
in other words, that the existence of the private’right and the public power to pr 
serve it was wholly under the control of the private right to establish a standard | 
agreement. 

Nor is it an answer to this view to suggest that the situation was one of emergen¢ 
and that emergency can not be made the source of power. The proposition begs tl 
question, since although an emergency may not call into life a power which has ney 
lived, nevertheless emergency may afford a reason for the exertion of a living pow 
already enjoyed. 

If acts which, if done, would interrupt if not destroy interstate commerce, me 
be by anticipation legislatively prevented, by the same token the power to regula 
may be exercised to guard against the cessations of interstate commerce threaten 
by a failure of employers and employees to agree as to standard of wages, such standa 
being an essential prerequisite to the uninterrupted flow of interstate commerce. 


The court here reviews the powers of Congress under regulator 
acts to fix rates governing interstate carriage, the power to contri 
the contract ap i of the carrier, in so far as the public intere 


requires such limitation, and then proceeds: 


Equally certain is it that the power has been exercised so as to deal not only wi 
the carrier, but with its servants and to regulate the relation of such servants, 
only with their employers but between themselves. Illustrations of the latter a 
afforded by the hours-of-service act, the safety-appliance act, and the employe 
liability act. . 

Clear also is it that an obligation rests upon a carrier to carry on its business and th 
conditions of cost and other obstacles afford no excuse and exempt from no respou 
bility which arises from a failure to do so and also that Government possesses t 
full regulatory power to compel performance of such duty. . 

In the presence of this vast body of acknowledged powers there would seem to 
no ground for disputing the power which was exercised in the act which is before 


We are at this time fact to face with a condition and not a theo 

That condition is one which, if the reasoning of Chief Justice Whi 
in the case above referred to has any persuasive force, calls for 4 
present enactment of legislation along the lines suggested. | 

But a few days ago numbers of employees of the carriers demand 
an increase of wages which they may or they may not be entitled 
receive—with that question we are not now concerned. But, ¢o 
currently with such demand for increased wages, the threat was ma 
in effect, that unless their demands were met the transportati 
facilities of the country would be tied up—with that we, as shippe 
are vitally concerned, because, while we are perfectly willing for t 
employees of the carriers to receive proper compensation for th 
services, we can not view a possible tying up of the transportati 
facilities of this Nation, with its resultant disastrous effects up 
commerce, industry, and the entire people, with anything but t 














RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 905 


avest concern. Therefore, our earnest desire to avert such an 
aergency and its ese ances by the creation of a means whereby 
may be prevented, and at the same time a means whereby justice 
ay be done to all concerned. If the demands of the employee 
e just, he certainly can have no objection to submitting them to 
1 impartial tribunal for determination. This is all that we ask 
Trough the enactment of this legislation that he be required to do. 
Now is the time to act, and not await the arrival of an emergency 
nilar to that which confronted the country at the time the Congress 
iacted the Adamson bill. 

We trust that the committee will give the matter here presented 
3 most serious consideration. 

‘The Cuarrman. You have not framed any legislation to carry out 
yur suggestions ? g 
‘Mr. Rowe. We have not at this time. 
The CuarrMan. Would it be possible for you to do that in the very 
sar future for the aid of the committee, in order to get your views in 
imerete form ? 

.Mr. Rowe. I should be glad to endeavor to do that. 

The CHaiRMAN. It is your theory that the public has the right to 
interrupted service because the roads were built under sovereignty 
‘the States in granting the right of eminent domain and that is 
ficient warrant for them to expect uninterrupted service. Is that 
yur view ? 

'Mr. Rowe. That is my view. 

‘The Cuarrman. Do you remember, at the time the Adamson bill 
as passed, the President sent a message to Congress in which he, 
‘commended that before there shall be a strike or a lockout there 
iall be an opportunity for the parties to be heard, pending which 
riod of hearing there should be no strike or lockout? 

Your recommendations, as I gather them, go further than that, do 
ey not? 
Mr. Rowe. They go further, because all effort at legislation here- 
fore, as we understand it, has been in the direction of arbitration 
y agreement, with an award of the arbitrating body or commission, 
hen found, being merely a recommendation or suggestion to the 
ities, but having no binding force whatever. | 

The Cuarrman. You probably are familiar with the testimony of 
le witnesses representing the various brotherhoods, to the effect that 
bor will never surrender its right to strike? 

‘Mr. Rowe. I am familiar with that, Mr. Chairman. 

The Cuarrman. Notwithstanding that attitude on the part of or- 
‘mized labor, you believe that the time is now ripe for Congress 
| legislate so that commerce shall not be interrupted ? 

‘Mr. Rown. That is our view of the situation. Of course, we recog- 
Ze the gravity or seriousness of that. In the first place, there is no 
jtempt in this suggested legislation to legislatively prohibit striking. 
his was intended by us merely as an act to provide means whereby 
te employers and the employees could have their differences and 
‘mtroversies adjudicated before an impartial tribunal under orderly . 
;rocedure, with no idea of inhibiting striking or leaving the service 
oluntarily in any manner. 












906 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


The CuarrMaAn. We have that machinery now, under the Newland 
Conciliation and Arbitration Act. | 

Mr. Rowe. Yes; but by the terms of that act, as I understand it 
only if they voluntarily submit themselves in the first place to thi 
arbitration board. In other words, if either one party or the othe 
refuses to submit to arbitration that ends the matter entirely. 

The CHairMAN. They have not availed themselves of that act i 
the last two or three years. Your idea would be to make it in 
way compulsory for these two parties to get together and submit thei 
differences to an arbitration bureau or commission ? 

Mr. Rowe. It would only be compulsory in the sense that it is nov 
compulsory for the dissatisfied shipper to file his complaint befor 
the Interstate Commerce Commission, with respect to any given rat 
of which he might desire to complain. In other words, a tribun: 
is furnished and the means is furnished to the shipper before whic 
and with the aid of which he can have his complaint as to the basi 
of the rate determined. 

The CuarrMAN. It is your plan that the adjudication should be b: 
the commission which has control over the rate ? 

Mr. Rowe. I did not fully catch your question, Mr. Chairman. 

The CHarrMan. It is your plan that the Interstate Commerc 
Commission should be the arbiter in these wage disputes ? 

Mr. Rowe. That is a mere suggestion; and that is our view, or m. 
present view, on account of their familiarity with conditions and ©: 
account of their work bringing them in direct and intimate contac 
with all the transportation problems of the country. 

The CoarrmMAN. There has been much said, probably not by your 
self, but by other witnesses, that the work of the Interstate Commerc 
Commission is now great; that handling these other matters woul 
sie to their labor; and your plan would still further increase tha 
abor. 

‘Mr. Rows. We had made no direct complaint as to that, howevet 
I do not know whether a complaint would justly lie or not; but that 1 
merely suggestive, that the Interstate Commerce Commission b 
given this power; or any other body that the Congress might desu’ 
to create. We have not in mind—I did not have in mind particu 
larly at the time I compiled this statement—the matter you jus 
mentioned. 

Mr. Watson. In the case of arbitration, if the employees were no 
satisfied, how would you continue the service? How are you goin 
to force the employees to continue work ? | 

Mr. Rowe. You can not legally force any man to work. 

Mr. Watson. Then, what is the use of an arbitration board ? 

Mr. Rowe. You can not force any man to work against his will fo 
any wage, but it was our judgment that this act, by making it coni 
pulsory on the ‘carriers to pay no different scale of wage than the, 
found to be reasonable in a given case, and to exact no differen 
hours of service, that that would make it binding and afford a remedy} 

Mr. Watson. Your thought was to have the continuous servic 
and not have strikes. What I want to know is how do you enforc: 
that continuous service? You would have to have police powe 
there is no other way to do it and you can not have the police powe 








RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 907 
Mr. Rowe. We think the other enactments suggested would 
probably cover 
/ Mr. Warson. But, after all, you will have to leave it to the whims 
of the employees, even with an arbitration board. 

| Mr. Rowe. I do not know. Of course, if the employees absolutely 
tefused to be governed by any legal instrumentality or authority 
‘that is created by the Congress or any State, they, ike any other men 
with that idea in view—if they have that idea in view, and I do not 
think they have—can not be controlled in any manner. 

Mr. Watson. You do not believe that the police power gives 
wuthority to force the employees to work ? 

Mr. Rowe. No; because it would be absolutely useless; it would 
‘be absolutely in violation of the Constitution. 

_ Mr. Watson. Then the legal authority you speak of would also be 
of no value in forcing the men to work. There is no law that we could 
‘pass that would force a man to work against his will. 

| Mr. Rowe. There is no law you can pass under the Constitution 
to do that. 

| Mr. Watson. Then arbitration, as I say, would be of very little 
‘value, except, probably, as a step forward, little by little; and you 
probably might gain something you otherwise would not. 

Mr. Rowe. This was not meant simply as an arbitration board but 
as a tribunal, whose judgment, followed out in the manner suggested, 
or in some other manner, would be effective and would be absolutely 
final. I do not believe that the employees of the country, if presented 
with proper and fair means of adjudication of their differences would 
. announce the fact that they did not intend to be governed by 
any such law. If such is their intent and purpose, and if they do 
mean to take such a position as that, being only a part of the people, 
and taking such action at the expense of all of the people, then, per- 
sonally, I] can state I favor any enactment in that case that will 
'Epyent their interfering with the operation of the railway lines of 
this country through strike, or interfering with other persons who 
want to work on those railway lines and who do not want to strike. 

Mr. Dewatt. Is not that the law now? 

Mr. Rowe. No, I think not. As I understand the law, as it 1s now, 
the United States courts are without power to issue injunctions against 
any interference with business unless the interference is of such a 
character that it constitutes violation of a law and is unlawful. Any 
}other means are perfectly right, and the court has no power of 
| 


| 








| 








injunction to restrain them. 

Mr. Warson. Then, as I understand it, you would favor giving 
\githority to arrest any man who was not willing to work, or who 
mecced to strike and prevent the operation of the service of the 
railway ? 

“Mr. Rows. We certainly do not favor any such act as that. 
| Mr. Watson. I thought you said you would be in favor of that. 
Mr. Rowe. No. I unfortunately was misunderstood. I prefaced 
my statement with the statement that I did not think that labor, 
that the employees of the railways were the character of men who 
hwould, when a fair tribunal was furnished and afforded, before which 
they could go and try out their differences, announce the fact that 
) they would not be governed by that law or the decisions of any tri- 
| bunal at all; and, if so, then I would, in that case personally favor a 





) 






908 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


aw that would prevent them from interfering with other people 
working on the railway lines who did want to perform the service. 

Mr. Watson. As Mr. Dewalt has said, I think that is the law now. 

Mr. Dewatr. Of course, you are familiar with the decision in the 
Adamson case, Wilson v. New, because you have referred to that case 
in your argument. If I remember some of the phraseology of that 
decision, Justice White goes so far as to describe the workmen upon 
the railroads as soldiers, particularly where the railroads are unde 
Government control and operation, and that if they do not obey 
orders, they are subject to similar regulations as soldiers in the Army, 
Do you remember that expression ? 

Mr. Rowe. I do not recall that expression. 

Mr. Dewar. Does not Justice White go so far as to say this: That 
‘where the parties either fail to arbitrate, or in fact do arbitrate, then, 
if they do arbitrate and fail to comply with the decisions of the 
arbitrator, that the Congress has the right to step in, as it did unde1 
the Adamson law, and say, ‘‘ We will fix the rate of wage.” Is not 
that so? 

Mr. Rowe. Yes, sir. 

Mr. Dewatr. Well, if that is so, then haven’t we got law enough 
now? If, under the decision of the Wilson v. New case, by Justice 
White, the Federal Government has the right to fix wages if there 
be dispute between employer and employee, if they can not agree 
then don’t we also have the right to say that you must work for those 
wages? Of course, we can not compel you to work, but this is a 
public utility and it carries the United States mails. Now, if you 
strike, you may quit work, of course; that is your inherent right, 
but you can not interfere with other people who are working o1 
attempting to work, and who are willing to work; and further than 
that, you can not induce them, by threats or intimidations, to cease 
work, because we fixed the wage, after you failed to agree, and some- 
body must do this work, and you are interfering with the carrying 0} 
the United States mails. Don’t you have a situation just as we hac 
in Mr. Cleveland’s administration, when he was President of the 
United States. He said: ‘‘You are refusing to allow the transport 
of the United States mails, and I am going to run these trains.” Anc 
he did run them, did he not? He ran them by calling out the troops 
of the State of Illinois, against the protest of the governor of Illinois 
If that is so, haven’t we got law enough there? Iam simply going on 
with this to show you that your argument is a good one, but possibly 
does not go far enough. 

In this very opinion, does not Justice McReynolds say, in his 
dissenting opinion, that the inevitable conclusion from the Wilson v, 
New case, which was the Adamson case, as we generally call it, 
is that Congress has a right to fix a minimum and maximum wage 
for these railroad employees and it has the right to compel compulsory 
arbitration. Now, if that is so, why do we need any more law? 

The CHarrMAN. You are now giving the view of Mr. Justice 
McReynolds ? | 

Mr. Dewatt. That is the view of Mr. Justice McReynolds. He 
does not like the decision and he dissents. I will just put it into the 
record. It is pretty interesting anyhow. 7 

Mr. Merritt. That is his dissenting opinion ? 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 909 


‘Mr. Dewatrt. Yes; I am reading now from page 388 of the Two 
hundred and forty-third United States Reports: 

Whatever else the act of September 3, 1916, may do, it certainly commands that 
during a minimum period of seven months interstate common carriers by railroads 
shall pay their employees engaged in operating trains for eight hours work a wage 
not less than the one then established for a standard day—generally 10 hours. 

I have not heretofore supposed that such action was a regulation of commerce within 
she fair intendment of those words as used in the Constitution, and the argument 
advanced in support of the contrary view is unsatisfactory to my mind. I can not, 
therefore, concur in the conclusion that it was within the power of Congress to enact 
the statute. 

But, considering the doctrine now affirmed by a majority of the court as established, 
t follows, as of course, that Congress has power to fix a maximum as wellasa minimum 
wage for trairimen, to require compulsory arbitration of labor disputes, which may 
eriously and directly jeopardize the movement of interstate traffic, and take measures 
ffectively to protect the free flow of such commerce against any combination, whether 
if operatives, owners, or strangers. 


Now, it seems to me that if that is the law we have got pretty near 
mough law on the subject, and all we have got to do is to bring 
iome of it into action. 

_ Mr. Denison. It does not say we have the law; it says we have the 
ower. 

Mr. Dewatr. Yes; I agree on that. 

Mr. Rows. We have the power, but we have not the law; and it 
vas to avert just such a situation as happened in President Cleveland’s 
idministration, which none of us want, that these suggestions were 
made, that is, afford by legal means, under orderly procedure, an 
ety for these people to secure their just rights and have an 
idjudication of their differences by a tribunal. 

Mr. Drewatr. The only reason I disagreed with you—well, I did 
10t disagree with you—but the only reason I differed with you was 
vhen you said we did not have any law to enforce such regulations 
is you have recommended by your proposed legislation, because I 
yelieve now that the course that Mr. Cleveland pursued at that time 
vas a legal course, because they ran the mails of the United States 
wer the transportation systems of the country, and I believe, too, 
t has been since confirmed by the United States Supreme Court, 
hat that is the very thing that can de done. So perhaps you ought 
0 go a little further, and instead of asking for compulsory arbitration, 
o as far as this law goes. 

Mr. Rowe. You misunderstood me. What I said was that we 
ould not by statute provide that a man should be compelled to 
vork for a given wage 
Mr. Dewatr. There is no doubt about that. 

_ Mr. Rowe. That would not be constitutional, and it is our opinion 
hat this suggested legislation, which is very incomplete, and which, 
‘tits best, is a mere suggestion upon our part, with proper law to 
irotect the people in the rights that we claim they have of uninter- 
upted operation, that that would furnish all that the shippers or the 
arriers or the employees could demand, because no man or no 
Aterest in this country should have anything but a fair, equal, and 
ust treatment. - 

Mr. Dewatrt. I admit that what I said might have been rather 
cademic; and what you said is probably more practical; and I think 
he chairman has made a very good suggestion, that you frame 
omething along, that line. 


152894—19—-vot 1 58 








910 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Winstow. As I understood you, you are in favor of givin 
some regulating tribunal the power of fixing hours and compensation 

Mr. Rowe. Not as a primary proposition. In looking over thi 
data that is prepared, I notice I have not mentioned one thing tha 
I possibly should have mentioned; and that was that that tribune 
should be created, that body or commission, or whatever it may b 
called, with power and authority, when controversies arise betwee 
employers and employees and such an emergency confronts th 
country as confronted it when the Adamson bill was aborning, wit 
power and authority to settle differences between the contendin 

arties—— 
K Mr. Winstow. That is, if they could? 

Mr. Rowe. Yes. 

Mr. Winstow. Did you not make some references to the im 
portance of having fair hours of labor and fair compensation, reasor 
able compensation, etc. ? 

Mr. Rowe. My statement, I believe, was to this effect: That w 
are in favor of any workman securing a just and reasonable basis « 
wage for the labor he performs. We are not presenting this propose 
measure under any complaint that wages have been too high ¢ 
suggestion that they were too low; but, agreeing at all times thr 
any workman, whether working for the carriers or anybody else, | 
entitled, as we are all entitled, to just and reasonable compensatio 
for his services; but, on account of the dangers inherent in leavin 
the matter as it is now, it is best to create and provide a tribun: 
which can settle controversies, because the contending parties Ca, 
never settle their own controversies, and the public suffers while the 
are unsettled. 

Mr. Winstow. I was led to believe that you have given a goo 
deal of thought to that subject, and, in view of the fact that we a1 
seeking the earliest possible legislation to settle this railroad que: 
tion, | was wondering if you or your friends had worked out an 
basis on which could be determined what a fair day’s pay would 
for the railroad men. 

Mr. Rowe. That we most assuredly have not done. I can not d 
it. This body that passes upon the controversy in determining wht 
is just compensation of the employees must take into consideratid 
many elements and conditions existent at that time, as well as th 
amount of manual labor that a given employee performs; and, ‘ 
course, it would be attempting an impossibility for us to undertak 
to establish such a basis. 

Mr. Wrinstow. We are now in the midst of very confusing cond 
tions. You will admit that? 

Mr. Rowe. That is conceded. 7 

Mr. Winstow. We are expected to pass a law which will soc 
become operative, and do you feel that any committee could dra 
up a provision of law, in the midst of the present conditions, whic 
could be put into execution with the idea of any considerable pe 
manency attached to the provision itself ? 

Mr. Rown. Well, I do not know how to answer that question. 

Mr. Wrnstow. That is a question that we have before us. 

Mr. Rowe. Personally, I had thought that it could. I do not s¢ 
why it could not be done now, as well as later on. Of course, there 
much merit in the suggestion that you wait before enacting this kir 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 91] 


a Statute until some time later, when due consideration and much 
nsideration could be given it. That might be better. I do not 
ofess to have made any great study of this matter. We were con- 
lering the situation here referred to by us as serious; but, not- 
‘thstanding that, we do not believe it best to continue Federal 
ieration, and believe it best to return the carriers to their private 
mership, if it is impossible now to enact this legislation, or that is 
e conceded fact, then, personally I would favor accepting the 
ternative of continuation of Federal control until conditions were 
ch that some legislation, proper and fair and just to all concerned, 
uld be enacted. 
Mr. Winstow. You will probably admit that the greatest difficulty 
all in framing up this law under which the railroads are to be 
ken back would arise from the extreme circumstances which 
tround all kinds of undertakings to-day ? 
Mr. Rowe. We must recognize that. It is a great difficulty. 
Mr. Winstow. Do you think it is going to be reasonably easy for 
yy Congress to pass a bill right now which will ultimately work out 
id be sound ? 
Mr. Rowe. Frankly, I do not think it can be easily done, to be 
rfectly frank about it. 
The Cuarrman. I think this is perhaps an appropriate place for 
e to offer communications just received from the Waco Chamber 
‘Commerce and from the Texas Industrial Traffic League. 
(The communications referred to follow:) 


LETTER FROM THE WAco CHAMBER OF COMMERCE. 


Waco, TEex., August 15, 1919. 
*.S. Davies WARFIELD, 
- President National Association of Owners of Railroad Securities, 
) Continental Building, Baltimore Md. 


Dear Sir: Your circular letter of August 8, enclosing a memorial to Congress, 
‘ich you requested us to sign. 
[ regret to advise that we can not consistently subscribe to what is generally known 
the Warfield plan, our principal objection to this plan being guaranteed earnings, 
‘ich we do not think proper. 
We believe that rates should be sufficiently renunerative to yield a fair return on 
yperties conservatively financed and managed, but it would be an undue burden on 
2 shippers of the country to guarantee a fair return on some railroad properties. 
We favor the Esch-Pomerene bill. 
Yours, truly, 








F. A. LEFFING WELL, 
Traffic Commissioner. 


| 
RESOLUTION OF THE TEXAS INDUSTRIAL TRAFFIC LEAGUE 
’ 






ORANGE, TEX., August 15, 1919. 
wm. JOHN J. Escu, 

! Chairman Committee on Foreign Commerce, 

Washington, D. C. 

aR Str: At a meeting of the Texas Industrial Traffic League held in Dallas on 
igust 11, the inclosed resolution relative to railroad legislation was unanimously 
opted. } 
This league, as you know, carries on its membership rolls practically all commercial 
Janizations of the State, as well as a large number of individual shipping and manu- 
, ‘turing concerns. 


912 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


The sentiment expressed is undoubtedly the sentiment of the public at large throug 
out this section, and it is our belief that the Texas Representatives in Congress w 
give a good account of themselves on this vitally important question. 

_ We will appreciate your support and assistance with all of your associates in Congr 
in carrying out the sentiments expressed in the resolutions. 

Yours, very truly, : 
Texas INDUSTRIAL TRAFFIC LEAGUR, 
H. 8. L’Hommeptiev, Secretary. . 


Resolved, That the Texas Industrial Traffic League does hereby express its disa 
roval of the so-called Plumb League Plan for the purchase of the railroad properti 
y the Federal Government and the operation of same by so-called tripartite boar 

as being contrary to the interest of the producers and consumers of America, and 
being destructive to American individual initiative. 

We believe such a plan will create a most dangerous political power, which w 
prove a heavy and unjust tax burden upon the agricultural and industrial intere: 
generally throughout the country. We feel that the experience we have had wi 
Government operation has demonstrated that in private, competitive operation 
the railroads of the country lies the only successful solution of the transportati 
problems now confronting us. 

We further condemn any and all plans submitted to Congress which advoca 
Government ownership or plans for guarantees by the Government, of the earnin 
of railroad properties, believing that such guarantees will inevitably lead to Go 
ernment ownership. 

We hereby express our appreciation of the patriotic, calm, and dispassionate stuc 
being given these questions by the present Congress, and our complete confidence 
its Members to handle the railroad question in a business-like, American way, havit 
due regard at all times for the interests of the great unorganized, consuming publ 
in spite of urgent demands by highly organized bodies representing special classes. 

As American citizens we deplore the use of such methods as are now being e 
ployed in an apparent effort to stampede our law-making bodies into experimen 
in Government ownership or socialistic schemes or schemes smacking of Bolshevisi 
and we rely upon our Representatives in Congress to ignore all veiled or indire 
threats of strikes, or revolutionary actions, when considering the question of prop 
legislation affecting transportation and to resent any suggestion in favor of class leg’ 
lation, whether coming as a mandate of employees or of capital. 


The CuarrmMan. The committee will adjourn until 10 o’clock ti 
morrow morning. 

(Whereupon, at 4.25 o’clock p. m., the committee adjourned unt 
Wednesday, August 20, 1919, at 10 o’clock a. m.) 


| PART 7. 
RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE, 
House oF REPRESENTATIVES, 


Tuesday, August 12, 1919. 
{TATEMENT OF MR. MARTIN S. DECKER, OF ALBANY, N. Y. 


The CuarrMAN. We will now hear from Mr. Decker, of the Public 
rvice Commission of New York State. 

‘Mr. Decker, will you please give your name, address, and whom 
yu represent ? 

Mr. Decker. Mr. Chairman and gentlemen of the committee, I am 
yt now public service commissioner. I served 20 years with the 
terstate Commerce Commission, from 1887 to 1907, as assistant 
eretary and chief examiner. In 1907 I was appointed to the 
iblic service commission of the second district of New York by 
ov. Hughes. I remained there two terms, until 1915. Since that 
ne I have been engaged in practice in regulation cases before State 
mmissions and the Jnterstate Commerce Commission. 

I am here to-day, I think, by invitation of the chairman of the 
mmittee for the special purpose to talk coucerning the so-called 
sch bill, House No. 4378. Itseems to me that this bill, as amending 
ecommerce act, is intended to provide suitable up-to-the-moment 
gulation for railroads of the United States, and the purpose of . 
ese hearings, so far as they concern that bill, is to determine any 
fects in that plan of regulation. 

If I may make a very short statement about the general attitude 
the public, I would like to do so. Neither existing law nor this 
ll provides for permanent Government ownership or operation, 
rect Government participation in management, regulation of 
yployees’ hours or wages, or division of excess railway profits with 
Uway employees. 

Tthink that nearly all of the people are now convinced, with opera- 
om of the roads during the war and up to the present time by the 
ernment, that continued Government operation of the roads, 
der any theory of ownership, lease or other control, would mean 
etched service, constant augmentation of unnecessary expenses, 
d enormous deficits to be met by general taxation. It follows that 
@ roads should go back to the companies, and that they should go 
ck completely, without the retention of Government control in 
y respect whatsoever, except as to rates, service and capitalization. 
ie Government should promptly pay what it owes to the companies 
der the war time Government contract obligations. 

‘When the companies again take possession of the roads, there 
ould be no restrictive laws or Government orders left in force 
uch would prevent the free exercise of judgment by the carriers 


913 


914 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


as to wages or prices paid for materials and supplies. The machine 
now established by law-for conciliation and arbitration as to wag 
should, of course, be retained or approved. In saying that I ¢ 
not refer to the methods used during Government operation. Wha. 
ever is good in those methods might, of course, be incorporated | 
the law. 

In other words, the roads should be as completely in the hands | 
the companies, for all operating purposes, as they were before tl 
ie Let us start this railroad game over again with a new pack 
cards. 

I shall not refer to the Plumb plan. It has been thoroughly di 
cussed pro and con. Let me say that I believe the general public w 
always support the railroad employees in demanding fair wages { 
fair service. When recently they so forcefully presented the alte 
native of reduced living costs or of increased pay, all classes of 0 
people, being similarly affected, echoed back the same thought, a1 
I believe all classes of people feel assured that somehow, now or lati 
the extravagant costs of living will be substantially reduced, but th 
is a wholly different story from this general subject of railway reg 
lation. 

With some exceptions the Esch bill, H. R. 4378, in my judgment, 
good. It is to those exceptions and some additions I wish to a 
attention. 

The first thing in the bill which strikes my attention 1s what 
eenerally referred to as ‘‘port-to-port rates.” It would be unwis 
I think, to subject carriage solely by water to the same regulati 
as is now provided for rail carriers, because: 

First. The State can grant no right of eminent domain upon t 
sea. God gave that grant to everybody. Nobody can secure ¢ 
clusive rights to use the great water areas of the earth. 

Second. It would be unjust to place rate restrictions upon este 
lished water lines and leave free from those restrictions the vess 
commonly designated as tramps, or which may be specially charter‘ 

Third. It would shackle sea and river commerce if every ves 
were prohibited from plying between the ports of the United Stw 
unless it adhered to a particular previously published schedule 
rates. The ship must get a cargo under varying conditions of tra 
and its capacity is fixed. The unit of ship capacity is the size of 
hold. The unit of railroad capacity is the railroad car. The sl 
may hold 12,000 tons; the car rarely exceeds 50 tons. It is genera 
necessary for the ship to have a full cargo, or approximately 1 
and she rarely sails in ballast, except for short distances, to a profita 
loading point. 

Fourth. The people are entitled to the use of the water routes, ! 
merely for actual shipping purposes, but as alternative routes in ¢0 
petition with rail lines. This has long been the National and St 
‘policy. Rate restrictions on port-to-port rates would transform 
Erie Canal into a waterway for motor boats and the Great Lakes L 
yachting ponds, except railroad-controlled vessels or those used se] 
to haul the freight of private companies, and the sea traffic betw 
Atlantic and Pacific ports would, in great measure at least, be t 
which the railroads could not or would not care to handle. 






| RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 910 
_ Fifth. Rate restrictions upon water lines used in conjunction with 
sail lines for through shipments constitute a wholly different matter. 
They have long been properly the subject of through rate regulation. 
~ Twill speak of some of the jurisdictional provisions in the Esch bill. 

' Lines lying wholly within a State and not engaged in interstate 
sommerce should not be drawn wholly into the jurisdiction of the 
yommerce act, even by general implication. This applies to the 
jJectric lines and short railroad lines as well. To the extent only that 
railroad is engaged in interstate commerce should it be subject to 
federal jurisdiction. 

The amendments of sections 1 and 13 of the interstate commerce 

act, as contained in the Esch bill, read together, wholly reverse the 
‘anguage of the present commerce act, and only except such State 
vailroad rates as may not, in the judgment of the commission, con- 
‘stitute an undue preference between persons or localities, or an undue 
purden upon interstate or foreign commerce. 
I think the present law is sufficient, as it has been construed by the 
Supreme Court in the Shreveport and other cases, to cover any ques- 
‘ion of undue burden or undue preference. I shall not stop to elabo- 
‘sate, though I could talk half an hour on that subject; but, under the 
Jecisions of the Supreme Court in those cases, the Interstate Com- 
merce Commission has had no difficulty in removing, or having 
removed, through conference with the State commissions, any dis- 
parities which might create undue burdens upon interstate com- 
‘merce. I know of no complaint against the extent of the present 
authority. 

T think it would be dangerous, as a result, to put mto the law an 
vfirmative power which is already there by implication under the 
Jecisions of the courts in construing the present commerce act, 

Regulation has been growing. ‘Lhe relations between State com- 
missions and the Federal commission have been growing very much 
sloser, more harmonious in every way, and there is a great national 





4. 


issociation, of which I have had the honor to be president twice, 
which has had a very salutary influence, through its discussions and 
actions, upon uniformity in a-great many matters of regulation, and it 
has also brought these commissions together in the consideration of 
tates. Very few schedules of State rates are to-day made by State 
legislatures, very few whole schedules are made by State commissions. 
The practice has been to handle rates in the States in the same manner 
that the Interstate Commerce Commission does; that is to say, upon 
somplaint or upon investigation instituted on motion of the com- 
‘Mission, and the character of those investigations in the States has 
‘become very thorough. They are no longer guesses. They are well 


‘worked out, and there is a tendency on the part of the State commis- 
sions, constantly being encouraged in the national association, to 
yield their views to the Interstate Commerce Commission, and some- 
‘times to get the Interstate Commerce Commission to yield its view. 
_ We have a dual form of government here, a precious heritage from 
‘our ancestors. We sought not to interfere with that unnecessarily. 
We should take fine care to keep to our moorings, and especially in 
ithese troublous days. 

‘The amendment in the Esch bill as to service, section 2 of the bill, 
to my mind, is admirable to the extent that it goes. My judgment is 
that it might be improved so as to provide explicitly and beyond 











916 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


question for remedying the delays in interstate transportation, not 
only in emergency situations, but at all times. 

The people interested in the movement of commerce in this country 
are quite as much, I think more, interested in the prompt delivery of 
their goods as they are in the amount of transportation charges which 
they should pay. These delays have a very serious effect upon the 
prosperity of the shipper or the consignee. It touches their very 
business, and their profits, when shipments are delayed and they can 
not carry out previously made contracts, or deliver according to 
previous purchases. 3 

The pooling and common terminal provisions of the bill will, T 
believe, prove very helpful to the carriers and the public. We have 
had an illustration in war times of common arrangements between 
the carriers, which under pooling would be done by contract, subject 
to careful surervision by the Interstate Commerce Commission; and 
I do not believe that the competitive situation between the roads 
would be materially affected, particularly if the percentage of pooled 
traffic which any particular road in the pool is to get will be subject to 
change according to the amount that it actually does carry in a given 
period. 

t also think the priority and embargo clause is admirable, but 
should be little necessity, either for priority privileges or embargoes in 
peace time. 

Along with having property transported promptly, it is equally im- 
portant to have the equipment ready for loading and transportation 
actually commenced. There ought to be adequate service in all re- 
spects and at all times. There ought to be enough equipment pro- 
vided so that, though it is held idle in dull times, it will be there in 
times of heavy traffic. The paramount service of the public is the first 
consideration in railroad operation, and i have never had occasion to 
change my view that the service should be upon a high standard 
and that the rates should be fixed according to that high standard, and 
not adjusted to some skimpy low standard. 

Referring now to the certificates of public convenience and neces- 
sity, which are provided for in the bill: No objection can be advanced 
to the provision for certificates of public convenience and necessity 
for extensions, possibly not for new roads, since this provision 1s 
apparently not subject to the construction that it excludes like cer- 
tificates required by the States. | do not read any exclusion in your 
bill, Mr. Chairman. [ff it does so read, or if it should be hereafter so 
construed, then [ think it is highly objectionable, since it would over- 
ride the often construed and now well settled laws governing the 
incorporation of railroads, the location of their routes, the acquisition 
of property, the right of eminent domain, the rights of citizens along 
the proposed line, the time of construction of the road, and many 
other matters, all quite vital in the exercise of inherent State sover- 
elenty. 

Ai Denison. Suppose the two conflict, which should be supreme? 

Mr. Decker. They ought not to conflict; they ought only to go 
when both agree, because it is vital that in the construction of new 
lines, and the consturction of extensions, which in many States mean 
new lines in law—it is vital that the State sovereignty should be 
given its opportunity for exercise. It is the State sovereignty which 
necessarily must be invoked. 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 917 


The regulation of capitalization, proposed section 20—a—section 
7 of the bill—in my judgment, should exclude from its provisions 
ll electric railroads and steam railroads which physically are located 
vholly with in a single State. It would otherwise cause many of 
hese roads, especially the electric lines, which as a rule are only 
ery incidentally engaged in interstate commerce if at all, to retire, 
f they are so engaged, from carrying interstate commerce. Com- 
yared with their State traffic, these electric roads carry only a very 
mall percentage of interstate traffic. Most of them do not carry 
my. With Federal regulation of their securities there would aiways 
’e some question as to the validity of capital issues of an electric 
oad which is only carrying State traffic, but which might incidentally 
arry some United States mail, or, perchance happen to take some 
ie from another road that might technically be called interstate 
raffic. 

The commission will have quite enough to do in handling the 
apitalization of the large railroads. The small roads should not 
ye subjected to the expense and delays incidental to applications for 
sapital purposes to a distant Federal commission. 

The use of the words ‘“‘compatible with the public interest’’—I 
juote those words from subdivision A 

The CHAIRMAN (interposing). That is of section 20—a ? 

_Mr. Decker. Twenty—a, yes—seems improper in this connection. 
Che paragraph reads: 


| Unless it is for some lawful purpose within its corporate powers— 





Referring to the company, and then goes on— 


md compatible with the public interest, necessary or appropriate for or consistent 
vith proper performance by it of service to the public as a common carrier, and which 
vill not impair its ability to perform that service. 


Now, it seems to me that if it is for a lawful purpose within its 
orporate powers, it goes without saying that it ought to be com- 
yatible with the public interest. But I would like to make my sug- 
restion a little broader. The New York law enumerates the purposes 
or which stock, bonds, and other evidences of debt may be issued by 
sarriers—broad, general purposes. Such enumeration has been found 
0 cover all proper corporate purposes during an experience of more 
han a dozen years, and I now merely want to suggest that that 
Jaragraph might be reformed to put in it some such enumeration as 
1as stood the test in such States as New York, with much advantage 
10 this part of the bill. 
' I am also inclined to the view that new roads, which are neces- 
sarily incorporated under State laws, should have their capitaliza- 
jlon issues for the purposes of organization, rights of way, and con- 
Mtruction purposes excepted from the provisions of this act. 
i No asec can be a carrier of interstate commerce until it comes into 
yperation, nor can the company formed to construct the road be 
subject to the act until it comes into operation. The bill, however, 
‘speaks of a road subject to the act—neither the road nor the company 
san be subject to the act until it begins furnishing transportation. 
' There are various matters involved in this capitilization regulation 
which I should be glad to take up with Chairman Esch at a later time, 
‘fhe so desires. One suggestion is whether a certificate of publicity, 
with statement of purposes of the issues of bonds or stock described 


918 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


in the certificate of publicity, and with appropriate penalties for 
failure to adhere to those purposes in expending the proceeds of capital 
issues, would not be sufficient in connection with the checking up of 
the expenditure of such proceeds by the Commerce Commission. 

Now, that is a thought I am putting in your minds. 

The Coarrpman. Was that not practically what the Hadley Com- 
mission recommended ? 

Mr. Decker. Yes; but I thmk whatever the Hadley Commission 
recommended, I do not recall it just now as to its details, but of this 
much I am sure, that the recommendations by the Hadley Com- 
mission could be improved upon in the light of experience developed 
in the regulation of capitalization in such important States as New 
York, Massachusetts, Wisconsin, etc., so that the company would 
have to adhere to the declared purpose; and that after all is the main 
thing to do, to see that the moneys derived from the sale of securities 
are expended for a proper capital purpose. 

To that there will also have to be some exceptions, just as there are 
now in the New York law, that no such certificate of publicity shall 
provide for the issuance of stock or bonds for purposes which are 
chargeable to operating expenses or to income; and that is a specially 
vital provision in regard to proposed issues of securities as a reim- 
bursement for previously expended moneys. 

The commission has to investigate and determine that no part of 
the purposes mentioned in the application is a matter chargeable to 
operating expenses or income. There is a variety of those things. 
They have been worked out, and if it is thought worth while I can 
furnish a form which will cover the scheme on the line of certificates 
of publicity, with safeguards and all that. 

I do not think anybody objects seriously to the Federal regulation 
of railway capitalization for roads actually and largely engaged m 
interstate commerce, with the modifications which I have expressed, 
particularly when those lines or systems physically cross State lines. 
Nearly everybody favors it. I have pomted out some exceptions 
which seem to me to be necessary, and there are some minor changes 
also that I think would be advisable. 

Now, I want to make a suggestion. Jam not here advocating any- 
thing, but there have been so many discussions over Government aid 
that I think something may be said for the thought I have in mind. 

Almost invariably a railway bond, when issued and sold to in- 
vestors, takes on a par value in the hands of the holder. Nearly 
every railway bond is a good security, even though there be default 
in interest payments in some times of stress. Reorganization in the 
great majority of cases results in full protection of the bond holder. 
The great trouble has been in securing a sale price of bonds at par. 
Very often they are sold considerably below par. This is not, in my 
judgment, the fault of bankers, who after all must sell the bonds i 
competition with offered securities presenting more attractive 
returns, including high dividend industrial stocks, and also in com- 
petition with the speculative proclivities of so many investors, and i 
competition with Government demands, domestic and foreign. 

Much has been said before this committee about Government aid. 
Personally I do not think there should be Government aid without 
adequate security. These roads, though in private ownership, are 
operated in the service of the whole people under strict regulation 


t RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 919 


‘as to such service and their rates of compensation. In law they 
are devoted to a public use. Congress has established a successful 
farm loan bureau. The chief purpose is to secure lower interest 
rates to the farmers. 

__ Now I believe there is enough wisdom in those who are thoroughly 
conversant with financial situations and safeguards to prepare a 
railway loan bureau scheme and make it effective. There is a great 
deal in that. The farm loan bonds sell to-day above par. . 

The CHarRMAN. They are exempt from taxation though ? 

Mr. Decker. All right. You might deem it advisable to make 
these free from taxation, and you may wish to vary the interest rate, 
but with the Government behind the railway loan bonds, they would 

_be par, they would sell for par, no matter what speculators did with 
them afterwards. 

If there is to be Federal regulation of capitalization it ought to be 
reasonably thorough and effective. It presents a distinct class of 
work. About one-half the time of the New York commission is 
taken up with this branch of work. It is my suggestion that this 
capitalization would fully occupy the time of three able interstate 
commerce commissioners, and that the work should be placed under 
the exclusive supervision of three additional commissioners, who 
should have no other duties. 

I do not believe in handling capitalization by bureau clerks. I 
know it is wrong; my experience has demonstrated that. The 
responsible commissioner ‘has got to finally pass upon those matters 
in an intelligent and comprehensive way. I do not believe the present 
number of interstate commerce commissioners would have the time 
to devote to this great mass of work which would come upon that 
commission if this amendment is passed, and I do not think the three 
additional commissioners should participate in the other work of the 
commission. ‘This is a distinct branch. 

I am of the opinion that there should be provision made for regional 
commissioners, perhaps six in number. They should receive the 
same salary and have the same terms as the Interstate Commerce 
Commissioners. They should hear the cases in their respective ter- 
ritories, perhaps be subject to temporary transfer to another ter- 
ritory by order of the Interstate Commerce Commission. They 
should render decisions, subject to review and revision by the Inter- 
state Commerce Commission on notice by either party to the case. 
I think this would be much more satisfactory than the present 
method of taking testimony by examiners, who have no powers 
except to take such testimony as may be offered. Why, they take 
testimony before those examiners by the bushel, and under the 
present system that can not be avoided. 

These regional commissioners, having authority and _responsi- 
bility, would settle or otherwise promptly dispose of -half or more 
of the cases without the necessity of any action by the Interstate 
Commerce Commission sitting in Washington. I consider it very 
‘important as relieving the commission and as improving the service 
in that respect. 

The Crarrman. Do you favor that as against regional commissions ? 

Mr. Decker. Yes; I am favoring regional commissioners. | 

The CuarrmMan. I understood you to say regional commissioners, 

not commissions. | 


920 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Decker. I would say six regional commissioners, and let them 
be subject to review by the main body in Washington. I do not 
believe in independent commissions sitting in different parts of the 
country and having different policies. New York has had an unsatis- 
factory experience in that respect. There are two commissions, one 
in the city, which has about half the population of New York State, 
and one up-State. To take five men for one section and five for 
another, and give them the same powers, it is inevitable that there 
will be conflicting interpretations of the law, conflicting advocacies 
of principles, independent actions in regard to prescribing accounts, 
and altogether most unsatisfactory results. 

Everybody concedes that the railways should earn a fair return. 
I think everybody concedes that. It is in ascertaining the fair 
return that we come to a division of minds. Nobody seems to know 
just how this should be brought about. 

Let me say that the first great essential in railway operation is. 
adequate service at all times. To render such adequate service at. 
all times involves the keeping of large quantities of equipment in 
dul] times. James J. Hill realized this when, in a time of great 
equipment shortage, he said that the railroads needed a fabulous sum 
to spend for equipment and extensions which under existing condi- 
tions was unobtainable. It is clear that the railways, to discharge 
- their public obligations must have liberal treatment in rate regula- 
tion. The law should authorize a special capitalization for the 
acquisition and holding of reserve equipment in times of heavy traffic 
demands. This could well be carried jointly by the railways under 
an equipment pooling method or by a joint association. We know _ 
that the railways need very large additions to the net revenue they 
obtained in the prewar period if good service is to be supplied. They 
did not have sufficient equipment at the beginning of the war; they 
had not had the money, and it was the principal cause, if not the 
sole cause, for taking these roads over for Government operation 
and use. The companies could not furnish the additional required 
service in that critical period. 

I have no confidence that the valuation of our railway properties. 
can ever be progressed fast enough to catch up with the procession 
of events. If ever completed it will be so stale and subject to so 
much amendment and varied application that it will constitute no 
fair basis of rate making. The better guide for railways would be 
the needs of the service, and reference to the general financial require- 
ments of the roads from time to time. If we know now that the 
prewar railway returns were insufficient we could easily approve trial 
increases and require trial decreases as cost conditions are modified. 
Personally I think very few roads, as they stand to-day, are over- 
capitalized. 

The Erie road used to be called a horrible example. That road 
has made so many contributions from income to the capital account. 
in the past dozen years, paying, of course, no dividends, that it 
may be said to have practically changed the water in its capitalization 
into actual tangible property. 

We know that roads like the New York Central and Pennsylvania. 
are not overcapitalized. The commissioners who have dealt with 
those roads know that they are not overcapitalized. I know that. 
the New York Central line from New York to Albany alone, on the- 


i 


east side of the Hudson River, with all its great terminal properties 
in New York and its three and four tracks to Albany and its Al 


| 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 991 


3 ban 
‘terminal—I know you could not reproduce that property to-day for 
the total capitalization of the New York Central, before it took in 


the Lake Shore. I make that statement advisedly, and I am sure 
itcan be proven. It would take 10 years to build it, in the first place. 


I think a system of Federal loans on railway properties, such as 
T have already suggested (although I am not wedded to the form, 
‘but I think there should be ample security), with liberal treatment 
in the amount of allowable gross revenue, would together, in a very 
short period of years, bring these great public utilities into a pros- 
perous situation. We have got to get them prosperous before we 


ean reduce their rates. 


The Cuarrman. The committee would like to ask a few questions. 

You referred to the first section of the pending bill, with reference 
to traffic wholly water borne? 

Mr. Decker. Yes. 

The CuatrmMan. And thought that might not be advisable, possibly, 
on port to port traffic. 

r. Decker. Yes. 

The CuarrMan. Is it your opinion that this bill, as drawn, would 
give the Interstate Commerce Commission any control over port to 
port traffic on the Erie Barge Canal, wholly within the State ? 

Mr. Decker. If that traffic came over the Lakes I would say yes. 

The CHarrMan. Oh, that impresses it with an interstate character, 
and there is no doubt that jurisdiction would abide in the commis- 
sion; but would the commission under this act or bill have any control 
over port to port rates on the Erie Barge Canal within the State ? 

Mr. Drecxsr. I should say not. 

a CHAIRMAN. So that there ought to be no alarm with regard 
to that? 

Mr. Decker. But a very large part of the Erie Canal traffic will 
be, under its enlarged form—the canal has been enlarged, you 
know—tfreight consigned from some lake port. 

The CHarrmMan. That being the case, the jurisdiction already exists 


in the commissioners to suggest where is it lake and where not? 


a Decker. Yes, where it is lake and where not. That is another 
thing. 
The CHairnMAN. This would cover the lake and barge. 


_ Mr. Decker. This would cover the lake and barge, and I think 


| 
. 


" 





| 


that is wrong. 

The CHatrrMan. That is what you object to? 

Mr. Decker. I do, just the same as I object to coastwise traffic 
between New York and San Francisco being regulated. 

The CuarRMANn. How can we coordinate water-and-rail transporta- 
tion unless we give it to some central body, whether the Shipping 
Board or the Interstate Commerce Commission ? 

Mr. Decker. Well, I do not think we need take the Shipping Board 
control of water rates seriously. They have not undertaken to handle 
them. If there were only established lines running between places, 
that would be one thing, but a very great part of water-borne traffic 
is carried by the vessel which is stopping there occasionally, which 
has no fixed route. 

The CHarrMan. You mean the tramp ? 


922 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Decker. The tramp, and sometimes vessels specially chartered. 

The CuarrMan. Do the liners or the line ships protest against being 
put under the Interstate Commerce. Commission where the tramp 
is not? 

Mr. Decker. I think they do, but I have no knowledge of that. [I 
am speaking really from the public standpoint. 

The CHarrMan. In the Shipping Board act they eliminate prac- 
tically the tramp from the operation of that act? 

Mr. Decxer. Yes; I think so. 

The CHAatRMAN. Would it be your idea that this bill should also 
eliminate the tramp ? 

Mr. Decker. I think it should eliminate the tramp, and I think 
it should eliminate the established line vessels as well, from port to 

ort. 
z The CHarrMAN. In coastwise trade? 

Mr. Decker. In coastwise or river trade. 

The CuarrMaNn. Is that because, if put under the commission, and 
this act, there would not be any flexibility in the rates? 

Mr. Dreckrr. Yes. : 

The CuarrMaNn. In an emergency the commission can allow less 
than 30 days’ notice. 

Mr. Decker. There is not time. These water freights are quoted 
on the boards of trade, especially in Chicago—they are made as 
quick as that [snapping fingers], these contracts. Now, if you have 
got to go through merely the form of getting permission, then it is of 
no value to have it at all, if the permission is going to come. But 
there is not time. You can not doit. It does not work right. It 
takes too Jong to get action. 

The CuarrMan. Well, if that is true, how are you going to coordi- 
_ nate the rail traffic, for instance, with the coastwise ? 

Mr. Decker. You do not have to coordinate them. 

The CHarrman. They do not have to coordinate ? 

Mr. Decker. No. 

The CuHarrMan. How will you regulate competition between them 
then ? 

Mr. Decker. Where there is competition between the water and 
rail lines, I think the people are entitled to have that competition 
unregulated. 

The CHarRMAN. Unregulated ? 

Mr. Decker. Yes. Mind you, a water line taking a shipment to 
go over its line and then over a rail line, or vice versa, under a through 
rate, or under a combination of rates with the water line, a part of 
which is filed with the commission by the water carrier to apply 
on the water and rail basis, is entirely practicable, and is done and 
has been done for years. 

The CHarkMAN. You would prefer that we keep the existing juris- 
dictions of State and Federal commissions in all matters where there 
is a dispute as between interstate and intrastate rates, and not 
accept the proposition that we have put in this bill giving the Inter- 
state Commerce Commission control over the intrastate rates when 
it is an undue burden on interstate commerce ? 

Mr. Decker. Yes. 

The CuairMANn. Or is discriminatory ? 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 923 


Mr. Decker. Yes; I think it is entirely advisable. It is advisable 
rom the standpoint of harmony, if nothing else. The State com- 
aissions exercise not a little jurisdiction but a very large jurisdiction 
vithin their borders. | 
_ The CuarrmaNn. Is this doing any more than putting into statute 
orm the decision of the Supreme Court in the Shreveport case ? 
Mr. Decker. I think it is widening it out some, and under the 
tatute would widen it out considerably, and it is putting, in a general 
vay, all this State traffic, by statute, under the control of the Inter- 
tate Commerce Commission whenever it wishes to exercise it.. Now, 
rou know you can get up a variety of claims to show that there is an 
nterference with an interstate rate of transportation by a State rate. 
You can go on from your Shreveport illustration and your Fargo 
lemonstration and make out from time to time that a rate which 
vyould seem quite separate from any interstate proposition would 
ievertheless by some peculiar circumstances be thought to interfere 
n some incidental way with interstate traffic. Now, I do not think 
ve ought to define those things. I would like to have the situation 
is the Supreme Court has thought wise to determine it, first in the 
Shreveport case, and let it stand. The law has been construed, and 
he Interstate Commerce Commission has been acting under that 
aw, and it seems to me that that is enough; and it would promote 
‘elations between the two governments. 
The CuarrmMan. That provision in this bill with reference to a joint 
sitting of the State and interstate bodies, and closing up a case on a 
single record, was recommended by the State commissioners as early 
is 1917 and reiterated in 1918. 

Mr. Decker. So far as that goes, I do not think they recommended 
shat that should be done whenever the lawfulness of a rate made by 
1 State is drawn in question or brought in issue, because it may be 
srought in issue in an incidental way. 

Next, whatever may be the results of the Supreme Court decisions— 
und I am speaking from the standpomt of wisdom again—lI do not 
think that an administrative body like the Interstate Commerce 
Jommission ought to pass and enter orders upon what is a purely 
judicial question—whether a State-made rate constitutes an undue 
preference or an undue burden upon interstate commerce. That is 
2 judicial question, pure and simple. 

‘This is the first instance in my experience where a purely judicial 
question is proposed for determination and order by the Interstate 
Commerce Commission or by any State commission. The powers 
sxercised by either can be those only which may be delegated by the 
legislative body. It is not proposed to make the commission a court. 

The Cuarrman. You made suggestions with reference to following 
the farm-loan-bank plan in aid of common carriers ? 

Mr. Decker. I did not mean to say the plan. I mean the idea. 

The CuarrmMan. Well, the idea back of it. 

Mr. Decker. Yes. 

The CHarrRMAN. You also made some suggestion with reference to 
a provision with reference to certificates of convenience and necessity. 
Mr. Decker. Yes. 

The CuarrMan. Would you put your ideas in the form of amend- 
ments, so that they could be considered by the committee ? 


924 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Decker. So far as the public convenience and necessity 
certificates are concerned, I do not read your amendments as exclud 
ing the stated action. 

The Cuarrman. No; I think you are right about that. 

Mr. Decker. As to the farm-loan plan, I would be quite willing 
sketch an idea of the utilization of some such plan along secure lines 
I would be very glad to prepare it, Mr. Chairman. 

The CuarrMAN. Would you develop also, in the form of a sectior 
or a proviso, your idea as to the regional commissioners ? 

Mr. Decker. Yes; I will. 

The CuarrMan, I think that is all. 

Do you want to ask anything, Judge Sims? 

Mr. Sims. Yes; I wanted to ask a few questions, Mr. Chairman, bu’ 
I did not intend to be first after yourself. 

The CyairMan. Go ahead. 

Mr. Srmus. Who is this gentleman ? 

The CuarrMan. That is Mr. Decker. Mr. Decker is one who ver} 
largely aided in the drafting of the legislation which culminated ir 
the Hepburn Act. 

Mr. Smus. You are a veteran, then, Mr. Decker? 

Mr. Decker. I am sorry to say I am. 

Mr. Sms. I mean you are a veteran in legislation. What do you 
mean by the farm loan idea, if put in operation with reference to rail: 
road financing, that is in your mind? In what way? Do you mean 
to have securities issued by it and sold and guaranteed by the Goy- 
ernment of the United States ? 

Mr. Decker. Sure, taking their guarantees from the farmers 01 
from the railroads. | 

Mr. Sts. I know; I am only asking for information. I do not 
understand the Government guarantees the farm loans. 

Mr. Decker. Well, whatever it does, they are very successful. 

Mr. Sims. I do not understand that they guarantee them or the 
farm loan banks, either. 

ain Decker. They have the guaranty of the Government, haven't 
they ? 

Mr. Srus. I think the Government has loaned them some money, 
and that is what I wanted to get at, your idea as to what you mean. 

Mr. Decker. Mind you, now, I have tried to distinguish between 
the farm loan bank bond and bonds which might be issued by a rail- 
road loan bank, because it would be a very different proposition; but 
if the Government can stand behind the farm loans, I do not see 
why the Government can not stand behind the railway loan. 

Mr. Sims. I do not understand that it does stand behind the farm 
loans. That is why I was trying to get at your actual meaning with 
reference to Government aid, regarding a Federal railroad loan board, 
or securities issued by it. I do not understand that if I buy a farm 
loan bond the Government necessarily is behind that bond, but all 
the associations in that farm loan section; in other words, all the 
mortgages that are taken are responsible for the farm loan bond as 
issued upon the basis of these farm loan mortgages. 

Mr. Droxer. I think that would be practically the same thing, 
would it not? 

Mr. Sims. Then you mean, if I understand you, that the railroads 
shall be organized into associations, and the railroads borrowing 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 925 


‘noney from this association and making a mortgage on them, that 
hen that bond will be sold ? 

» Mr. Decker. Yes. 

_Mr. Sms. Is it your idea that that bond is to be free from all 

‘axation, like the farm loan bond is? 

_ Mr. Decker. Perhaps not. 

' Mr. Sims. Then where would the credit come in, unless you can 
tive that form of credit which makes more desirable market condi- 
ions or surroundings or qualities ? 

Mr. Decker. Well, Judge Sims, it is a little hard to describe it, 
mut wherever the Government does make an issue, whether it is 
yehind it or not, it has got an additional value. 
| Mr. Smus. In the way of the Government indorsement as to the 
etn and necessity of the issue ? 

/ Mr. Decker. Yes; and more ways than that. 

Mr. Situs. Why do not the provisions of the Esch bill requiring 
sertificates of necessity and convenience—why does not that give it 
Ii that you describe and carry out your idea of Government indorse- 
nent of a railroad loan ? 

Mr. Decker. Well, in a way, regulation of capitalization does 
rove the saleability of the security, but it does not go quite far 
mough. 

_ Mr. Sms. But, if I understand you, you do not propose to exempt 
‘he bonds of your railroad loan board from taxation of any kind. 

_ Mr. Decker. I do not decide that question. 

_ Mr. Sms. I beg your pardon ? 

Mr. Decxer. I do not decide that point. 

Mr. Sms. But what do you advocate, Mr. Decker ? 

_ Mr. Decker. I say that the idea of the farm-loan bureau may be 
implified or contracted to help out the railways of the United States 
n selling bonds which they desire to sell, at a better price than they 

ire able to get to-day or have been able to get in the past. 

Mr. Sims. Well, I see no objection to your proposition at all, if you 
lo not make the Government hold the bag—that is, be actually or 
oractically responsible for it, or guarantee the loan itself. 

_ Mr. Decker. Well, that is an idea I have reserved. I have not 

yvorked out the details, and I saidso. I do say that, it being a public 
atility—farmers are not, but they are a great aid to the people, of 
sourse—that it being a public utility, if it is possible to devise such 

i scheme, and if it is fair, it ought to be done, in order to save great 

liscounts on bond issues of railways. 

Mr. Siws. Regardless of the taxing power of the several taxing 
‘urisdictions—State, municipal, and Federal? 
| Mr. Decker. Oh, yes. 

_ Mr. Sms. Now, I am honestly of the opinion, yet I may be wrong 
bout it, that the market value of the farm-loan bond to-day, com- 
dared with other bonds not tax exempt, is due almost altogether to 
je tax-exempt feature of the farm-loan bonds; and unless railroad 
Yonds should enjoy the same exemption from taxation of every kind 
that the farm-loan bond does, then I do not see any benefit to arise 

‘rom it—I mean an equal benefit. 

_ Mr. Decker. I think under the same plan—I think a farm-loan 

Dond is 4 per cent, is it not? 


152894—19—vo1L 1——59 








926 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Sms. Five. 

Mr. Decker. Five per cent ? 

Mr. Suus. I do not mean the bond; the farm loan is 5, and th 
bond, I believe, is, as you say, 4; but the bond is tax free, and th 
loan is tax free, as I recall it. 

Mr. Decker. I think that a bond of a Government issue of 5 px 
cent and not tax free would sell freely at par. 

Mr. Sms. A bond? 

Mr. Decker. Yes. 

Mr. Sims. Do you believe in bond issues as a method of sustainin 
the credit of railroad companies, instead of stocks and bonds? 

Mr. Decker. Well, I did not mean all bonds. I did mean stock 
and bonds. 

Mr. Sts. What per cent in bonds do you propose to issue in prc 
portion to the value of the property ? 

Mr. Decker. I would have it connected up with the work of th 
Interstate Commerce Commission in capitalization. 

Mr. Sims. I know, but you are a practical man What percent 
age—half, 60 per cent, or what per cent of the value of the railroa 
company auld you permit to be mortgaged to secure bonds? 

r. Decker. I would go as low as one-fourth of the stock, if 
had to. 

Mr. Sms. That is 75 per cent? 

Mr. Decker. Yes. 

Mr. Smus. And one-fourth of stock? 

Mr. Drecxsr. Yes. 

Mr. Sms. Your suggestion, then, would be that your stock woul 
be made practically worth nothing, hardly—not much beyond cor 
trol value, would it? 

Mr. Decker. Yes, sir; much more. Worth par at time of issue 

Mr. Sims. If the earnings of the road need to be only high enoug! 
so far as capitalization returns are concerned, to cover a 4 per cet 
bond on 75 per cent of its value, how much dividends would yo 
permit to be paid on the stock? 

Mr. Decker. All that is earned. 

Mr. Sims. But what are you going to do by way of limiting the 
earnings, by way of rates? 

Mr. Decker. Let them issue dividends as much as they please, a 
long as you do not regulate their rates. If you do regulate their rate: 
that is not your measure of determining what would be the amoun 
of ey the mere fact that they paid some dividends on som 
stocks. 

Mr. Sms. You know there are several plans here—I do not kno 
whether there are several, but there is one, I know, that proposes tha 
weak roads shall be fed by the strong roads to some extent indirectly - 
would that not reduce the stock earnings of the strong road ? 

Mr. Decker. I have not advocated any such theory myself. 

Mr. Sis. I do not understand that you have; but, as a practic 
eel hat have you to say about the practical operation of any su¢ 
theory ? 

Mr. Droxer. I do not believe in it. 

Mr. Sms. And the reason you do not believe in it is you do no 
think that it is just or best in the public interest? 





RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 927 


_ Mr. Decker. I do not believe any one railroad property ought to 
ye penalized in behalf of any other railroad property. 

_ Mr. Sms. Does not that mean, when applied practically, that you 
jake from the prosperous road that which under the law and under 
rood morals it is entitled to, and give it to an unprosperous road ? 

| Mr. Decker. I will say anything you say on that subject. I do 
i0t believe in it. 

Mr. Sms. I am asking a question. 

Mr. Decker. | say I agree to anything you say on that subject, 
yecause I do not believe in it. 

‘Mr. Sims. Then, you have not indorsed any plan that directly or 
ndirectly involves a depletion of the strong in order to build up the 
veak, which would only last as long as the depletion of the strong 
sontinued in effect ? 

_Mr. Deoxer. I do not believe in leveling up the advantages or 
wr disadvantages, prosperity and poverty, as between these railroads. 

Mr. Sus. In an arbitrary and unnatural way ? 

_Mr. Decker. I do not believe in it. 
' Mr. Sms. Would not the weak road thereby get an unearned incre- 
nent from such a plan as that? 

Mr. Decker. I have puzzled a long time in my life to determine 
i of the meaning of ‘‘unearned increment,” so I do not want to say 
t that way. 

Mr. Sms. I tell you frankly, but it may be due to the fact that I 
Jeem to understand it better, that, as between what is called the plan 
yresented by the railroad executives, who are not altogether stock 
x bond owners, as distinguished from the capitalists, and the plan 
yut forth by the capitalists—and when I say ‘‘capitalists’’ I mean 
ihose who own railroad capital, stock, and bonds—known as the 
Warfield plan—as between the two, they may be both bad. 

_ Mr. Decker. They may be both bad, undoubtedly. 

Mr. Sms. But, as between the two, I certainly would think the 
‘ailroad executives’ plans are preferable. 

Mr. Decker. Yes. | 3 : 

Mr. Srus. Now, I may be wrong, and I am willing to be corrected, 
ind you, not being in either plan or interested in either plan, only 
nN a public spirited way, and also perfectly free to say which is the 
vorst and which is the better; and, as to special features, I thought 
that perhaps you might be able to enlighten me on that subject. _ 
Mr. Decker. I had rather you would ask me about the special 
eatures, rather than take the plan as a whole. 

_ Mr. Sims. Well, as I said, just now, I am inclined to the railroad 
‘sxecutives, as a choice between it and the chamber of commerce plan, 
‘he Warfield plan, the New England plan, or the Amster plan, or any 
dlan that is based upon fundamentals—and the reason I ask is, | am 
itarting, perhaps, not as an unprejudiced juror in this connection. 
. may have had a better opportunity to know what is the intention 
and purpose of the executives’ plan than the others, because it has 
een before us longer. It was, in effect, before us during the hearings 
ot the joint Senate and House subcommittees. Papi 

_ Now, the best plan we can formulate may not meet the situation. 
We do not know that the future will develop, but, as between the 
olan entirely upon private ownership and operation, and who are to 
lepend for their money upon either unguaranteed mortgages, un- 


928 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


guaranteed returns by the Government—lI start in choosing the lesse 
evil, and I did not know but that you might be able to ad me alo: 
that line to some extent, if not fully. You spoke of the New Yor 
Central being not overcapitalized. Do you mean in the volume o 
outstanding bonds and outstanding stocks? Is that what you mea 
by overcapitalized ? 

Mr. Decker. I do. 

Mr. Srus. Don’t you think that the New York Central Lines ar 
overbonded, as compared to its outstanding stock capital ? 

Mr. Decker. I do not. 

Mr. Sims. Why is its stock selling below par and its bonds not? 
Mr. Decker. Because it is not getting enough returns. 

Mr. Sims. Well, if it is not overcapitalized, it ought to hay 
enough, it being one of the best systems of roads in the United States 

Mr. Decker. So it ought; I agree with you. - 

Mr. Sms. It ought to have in comparison with any other roa 
operated under like circumstances and conditions ? 

Mr. Decker. Maybe so. 

Mr. Sims. And yet the stock of the finest railroad in the Unite 
States is below par and the stocks of other roads, notably the Unio 
Pacific, are above par, all operating under the same regulatory powel 
all operating under the same standard of reasonable rates. Hoy 
are you going to level up between the New York Central and th 
Union Pacific ? 

Mr. Decker. You know the Union Pacific pays higher dividend 
than the New York Central pays, don’t you? 

Mr. Sms. Yes. It pays dividends decidedly ‘higher, because 1 
earns them and it is entitled to them, and its stock is not below par 

Mr. Decker. The stock is above par to-day. 

Mr.-Sms. Certainly it is. 

Mr. Decker. It was 126 yesterday. 

Mr. Sms. Are you in favor of taking the earnings away from th 
Union Pacific and giving them to the New York Central in order tha 
its stock may be at a par? 

Mr. Decker. Not the slightest in the world. 

Mr. Sims. Don’t you think such a thing would be almost an out 
rage ¢ 

ee Decker. I think it would be a crime. 

Mr. Sms. That is a better expression. That is stronger. Bu 
any kind of a plan that proposes to take a well-managed, well-locate 
public service utility and scramble with all others the systems 0 
which are not to a great extent serving the public, for some reasd 
or other, the result would be that the service in the whole of th 
United States might upon an average be better in returns, but? 
would only be better to the extent of losses upon the good roads i 
favor of the weak ? 

Mr. Decker. Yes. 

Mr. Smus. Now, I want to ask you, Mr. Decker, whether or not 
with the amendments which you have suggested to the Esch bil 
that if the bill passed in that form it would be harmless. 

Mr. Decker. Harmless to what ? 

Mr. Sims. To the interests it is intended to apply to, to the pub 
interests. 

Mr. Decker. I think it is a just bill, with those amendments, 





! 









RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 929 


| Mr. Sms. What I mean by “‘harmless” is this, that if it does not 
|) any good, it won’t make conditions worse? In other words, that 
|e railroads and the public will not be worse served under that bill 
en they are now being served ? 

|.Mr. Decker. They will not be worse served, no; they will be very 
‘uch better served, the public will. 

‘Mr. Sms. Then-do you think that the earnings and credit, of the 
ads will be served or conserved ? 

‘Mr. Decker. Very much. 

Mr. Sims. Now, I want to ask you, between any of the plans that 
‘we been suggested, as amendments to the existing law, and the 
sch bill, with the amendments suggested by you, which of the two 
) you consider the most advisable, as a practical man ? 

‘Mr. Decker. The existing law, modified by the Esch. bill, with the 
‘mendments I have suggested. 

Mr. Sims. You prefer that to any other plan proposed ? 

‘Mr. Decker. Any other. 

‘Mr. Sims. That is all T wish to ask. 

| Mr. Watson. You made a statement with regard to a plan whereby 
ae Government would loan money to the railroads. I want to 
iow why you suggested it is necessary for a Government to loan 
coney to railroads. 

‘Mr. Decker. I was merely deploring the fact that excellent rail- 
ad bond securities do not ordinarily sell for par in the markets of 
ie world; and they ought to. 

‘Mr. Watson. Would you have the Government guarantee the 
rmeipal and the interest ? 

Mr. Decker. I will tell you frankly that I would like to see some 
an worked out whereby, with the regulation of rates and the regu- 
tion of capitalization by Government authority, there would be 
me provision in law which is operative to sell the securities of the 
ilroads on a par basis. 

Mr. Watson. And should guarantee the principal and interest ? 
“Mr. Decker. I will not go so far now, but I want some plan or 
her whereby a perfectly good railroad bond does not sell as low, 
a. please, as 80—and I have had that happen. 

. Watson. Would you sell bonds to build railroads? And 
ould you sell bonds to take up bonds that have matured ? 
»Mr. Decxrer. Even bonds to make improvements on established 
vads; it does not make any difference; and it is not the fault of the 
Jancial interests at all. It is because, with the returns of the rail- 
sads, with the regulation to which they are subjected—and I do 
‘yt object to it now; I am for it; I am an old regulator—the returns 
1 the balance sheets of these railroads are not sufficient to attract 
pital to invest in them, either in their bonds or their stock. That 
4s been the constant complaint for years; and it has caused a great 
al of bond discounting. 
Mr. Watson. If the Government should sell the bonds, it would 
>t change the balance sheet, would it ? 
‘Mr. Decker. Pardon me. Bond discounts are piled on to the 
icks of those carriers. They must be amortized under the account- 
grules, and they thereby charge the income. The bonds must get, 
ider the accounting rule, to a par basis by amortization of the 
scounts. 

















' 


930 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Watson. How are you going to better the balance sheet unlegs 
you have the receipts to do so? 

Mr. Decker. They do it out of income. 

Mr. Watson. If the Government sells bonds, it does not change the 
balance sheets ? : 

Mr. Decker. There will not be discount to amortize if we bring in 
some basis on which these bonds can be sold under Government 
egis at par. 

Mr. Watson. I understand that: you are going to put a suggestion 
in the record ? 
Mr. Decker. Yes, sir; that is all it is. It is a suggestion for the 
record. 
Mr. Dentson. Have you read or familiarized yourself with the 
Sims bill ? | 
Mr. Decker. I just skimmed through it, but I can not say that I 
am familiar with it. 

_Mr. Denison. You do not care to express any view on that? 

Mr. Decker. No; I donot. Ihad rather write you about it, after 
I have studied it. 

Mr. Denison. Do you think there ought to be an amortization of 
railroad indebtedness in any way ? 

Mr. Decker. Ideally speaking, there ought to be, and there is 
to-day a good deal.of amortization of railroad indebtedness. There 
are sinking fund provisions in many railroad mortgages. 

Mr. Denison. Are they carried out ? 

Mr. Decker. Oh, yes; surely they are. | 

Mr. Denison. Is there any railroad now that owes less than it has 
heretofore ? 

Mr. Decxer. What is that? | 

Mr. Denison. Are there any of the railroads that are reducing their 
indebtedness to any material extent ? 

Mr. Decxrr. They are doing it, in so far as the mortgages go. 
They are doing it by investing surplus in property without capitaliza- 
tion, because that increases the security. It means, therefore, that, 
relatively speaking, the debt is thereby amortized to some extent-- 
to a considerable extent. 

Mr. Denison. It may be amortized in value, but it is not amortized 
in amount. 3 

Mr. Decker. No; but if there is a million dollar mortgage upon 8 
million dollars worth of property, that is one thing; and if, later on, 
that million dollar mortgage is applied, by its after-acquired property 
clause, to two million dollars worth of property, relatively there is an 
amortization. 

Mr. Dentson. I know, but that is not ordinarily understood as 
amortization, is it in financial circles ? 

Mr. Decker. Oh, no. That is not direct amortization; but it has 
the same effect upon the whole property. 

Mr. Dentson. What I wanted to get your opinion on is whether o1 
not you thought it was the proper general policy to amortize the rail- 
road indebtedness out of the profits. 

Mr. Decker. I am going to be right frank with you. 

Mr. Denison. That is what I want you to be. 

Mr. Decker. I think, ideally speaking, there ought to be a syster 
of nO ae the debt of every railroad in the country, but you car 
not do it. : 










RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 931 


| Mr. Denison. Well, that is what I wanted to get at. 

‘Mr. Decker. And bring it about in that same way that you would 
‘nortize the mortgage on your houss, if you had one, and which it 
ould be prudent for you to do. They just can not do it. 

’ Mr. Denison. Let me ask you this question, if you please. Do you 
unk that railroads ought to be permitted to invest income in 
‘ctensions ? 

| Mr. Decker. Why not? 

Mr. Dentson. Well, I am asking you. 

| Mr. Decker. I mean yes; therefore I say ‘‘why not?’? Why 
jould not they invest them in extensions—improvements, you mean ? 
think that is the highest service they can render. They might better 
‘spend it in improvements and betterments than to pay it out in 
itvidends, unless they ought to pay it out in dividends. 

. Mr. Denison. But there is still another alternative and that is to 
jjust rates so that there would not be a sufficient income to have a 
ind for that purpose. 

Mr. Decker. Let me say that the public-service commissions law 
ft New York specifically provides that there shall be a fair return upon 
ne value of the property devoted to public use, and, in addition 
jereto, a suitable allowance for surplus and contingencies. 








Mr. Dentson. Do you call extensions contingencies, Mr. Decker 
ithin the meaning of that law? 
Mr. Decker. Surplus is usable for extensions until the proper time 
omes in the necessities of the corporation to capitalize the expend- 
mre for those extensions. No railroad, no public utility, and no 
rivate company can get along without taking a portion of each pros- 
erous year’s business into surplus and not spending it for dividends. 

‘hey would be on the rocks. | 
Mr. Srms. Let me ask one question in that connection: What is 
he reason it is not moral, just, right, and economical to require the 
tockholder, instead of drawing out a dividend, to apply it to the 
vayment of the encumbrance on his property, just ike you would 
‘equire a farmer or anybody else to do? Why should you not 
mortize the bonds out of dividends, or what otherwise would be 
ividends, as long as you mortgage the property ? 
_ Mr. Decker. Well, the idea is that the property should pay a 
air return upon the investment. 

Mr. Smrs. You still have the net investment, with the mortgage 
yaid off. You would still have a right to have a fair return upon it, 
wut why not pay what you owe before going out and spending what 
‘ou make ?- 

Mr. Decker. Now, Judge Sims, nobody would invest in a stock 
ssue if he had to confront that situation. 

Mr. Stus. He would invest in the bonds, if you have the property 
‘0 secure it with earnings. 

Mr. Decker. But nobody would invest in the stock. 

- Mr. Stms. As nobody has ever tried that, how do you know they 
‘vould not? 

Mr. Decker. It is perfectly apparent on its face. I am not 
roing out and invest a hundred dollars in a share of stock that is 
jot going to pay me anything for a while, when I can invest 10 in 
jomething that will pay me a return right along. 

Mr. Srus. You invested in the beginning under the idea that it 
vas going to pay; but suppose, as it is in the present case, or suppose 








932 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. — . 


that it represents a lot of stock issued years and years ago u { 
railroads that are going concerns, not new developments, but they 
are below par and are paying some dividends. y should they 
receive any dividend until they are entitled to it over and above 
these other charges ? 

Mr. Decker. I really do not know what the rights of the stock- 
holders may be | 

Mr. Sus. I do not know either, but I say why should they receive 
a dividend 

Mr. Decker. I say, theoretically, if that stock is fairly issued or 
represents the equity fairly in the property which should earn a 
return, that they ought to have their return; provided the company 
has enough revenue in a given year, after making contributions to 
surplus and for contingencies, to pay a dividend, they ought to have 
it. 

Mr. Sims. Of course they ought to have what they are entitled to. 
They ought to have a fair earning upon the value of the property 
devoted to public use; but if they get that fair earning, and they owe 
money, why don’t they apply it on what they owe before they apply 
it to luxurious expenditures, or even to necessities ? 

Mr. Decker. In the first place the stockholder does not owe the 
debt of the company at all. 

Mr. Stms. He does not owe it? 

Mr. Decker. No; the company owes it.. The stockholder does 
not owe it. 

Mr. Sms. The stock isn’t a debt at all, but the bonds 

Mr. Decker. I say the stockholder don’t owe the bonds. 

Mr. Sims. But doesn’t the stockholder authorize the issuance of 
the bonds ? 

Mr. Decker. Yes; he may. , 

Mr. Sms. It is a debt which he authorizes, but he demands his 
annual dividend regardless of the payment of the debt, which was | 
made for his benefit. What would you think of a farmer who would 
never pay off his mortgage, but would continue to demand the 
increased earnings out of his land; would only pay the interest on 
what he owes and keep the balance instead of applying it on the 
mortgage debt ? 

Mr. Decker. The eastern farmer is never in such a position. 

Mr. Sims. I know; but I say, what would you think of a farmer 
that would pursue such a policy as that, hoping some day or other 
that the enhanced value of the farm would enable him to pay off 
his mortgage by making another one ? ; 

Mr. Decker. The man who owns property tries to get all the rent 
he can for it. 

Mr. Sms. Of course; that would apply to anything. I am speak- 
ing of the doctrine of not paying debts before spending for other 
purposes. 

Mr. Decxer. It is impossible to pass an opinion upon an individual 
case. 

Mr. Sims. I know. I am speaking of a farmer who followed such 
a policy. He would always be in debt and never be regarded as 
prosperous. 

Now, the New York Central ought to pay its debts—pay its bonds—- 
instead of paying dividends on stock until it has reduced its indebted- 
ness and wiped it out. Your idea is that it is only worth the equity 




















+ 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 933 


| bo the stockholders; that is, the difference between the bonded 
‘indebtedness and the fair value of the property that they are entitled 


5 


‘to make earnings on. Why don’t they wipe off their mortgage by 
‘foregoing dividends ? 
Mr. Decxer. I am strongly of the opinion, without knowing any- 
thing about it, of course, that the New York Central would be very 
glad indeed to reduce its bonded indebtedness if it had enough 
surplus money. 

“Mr. Sms. Is it paying dividends ? 

Mr. Decker. It pays a dividend of about 5 per cent now. 

es Simms. Has it not issued a large volume of debentures at 6 per 
cent ¢ 
_ Mr. Decker. Debentures are not dividends. 

Mr. Stms. What are they ? 

Mr. Decker. Why, they are simply promises to pay. 

_ Mr. Sms. They are nothing but notes, not secured by a mortgage. 
Isay, why not pay these debentures and have that much interest or 
that much accumulation to pay on the stock? 

| Mr. Decker. If they had the money they ought to have 
' Mr. Sms. In other words, the New York Central, according to 
your standard, is not a successful road and it has no right to ask 
the Union Pacific to carry any of its burdens because the Union 
Pacific is a successful road. 

Mr. Decker. I am not saying that at all. I say just the opposite. 

Mr. Sms. I mean in effect. _ 

Mr. Decker. No, sir. The New York Central is a very successful 
road. 

Mr. Sims. Then it ought not to have stock that is not worth par 
in the market in its own city and State, where it operates and where 
everybody knows what it is. 

_ Mr. Decker. It got par for its stock. There has not been a dollar 
of New York Central stock issued in the last 10 or 12 years, to my 
knowledge, that was not issued at par. 

Mr. Sms. Issued at par on the market? 

Mr. Decker. Sold for par. 

Mr. Stus. Did the company receive 100 cents on the dollar—l 
mean in money ? 

Mr. Decker. Yes, in money. 

Mr. Sims. Then, what is it borrowing money at 6 per cent for? 

What is it issuing debentures at 6 per cent for nothing more than par, 
if it could get par for its stock on the open market ? 
Mr. Decker. There is a certain amount of stock which can be 
‘issued from time to time which will be taken at par. If you go over 
that you have difficulty in disposing of it. Debentures are term obli- 
‘gations that are issued to cover an exigency. There was a financial 
exigency in 1914, and it was getting pretty serious. The New York 
Central came to us and got authority to issue those debentures. 

Mr. Sims. And they run for how long? 

Mr. Decker. I have forgotten now. 

_ Mr. Sims. For 100 years, was it not? 
Mr. Decker. No. 
Mr. Sms. With the privilege of converting them into common 
“stock at any time the holders thought proper ? 
Mr. Decker. Yes, sir. 

























h 


—— 


934 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Sims. If the stock was worth par, why didn’t they issue it 
instead of debentures and then provide that the debentures might 
be redeemed in stock at any time the holders of the debentures pre- 
ferred stock to their debentures ? 

Mr. Decker. So many things come up in the life of a very great 
railroad that can not even be recalled now, which govern the policies 
of directors. This is the biggest business on earth. Something must 
be allowed for the wisdom, and, I think, for the honest action of the 
men who are running this great business and who run it so well. As 
between a stock which is paying 5 or 6 per cent and the issuance of a 
6 per cent debenture it would be a pretty serious thing if the public- 
service commission, or the Interstate Commerce Commission, when 
it gets the authority, to say no, you shall not issue debentures, but 
you can issue stock. I doubt very much whether Congress could give 
the Interstate Commerce Commission power, constitutionally, to sa 
that a proper corporate purpose, containing no element of fraud, 
should not be carried out without the approval of the commission. 

Mr. Smus. How much above par did the New York Central give 
for the last installment of Lake Shore stock that it bought? 

Mr. Decker. I can not remember. 

Mr. Stws. You were commissioner in New York at that time, were 
you not? 

Mr. Decker. Yes; and passed on it. 

Mr. Sms. You do not tell me that you do not know how much 
above par the New York Central paid for the last Lake Shore stock — 
it purchased ? 

Mr. Decker. I can not remember well enough to say. 

Mr. Smus. Well, give it to me approximately. 

Mr. Decker. I would say 200. 

Mr. Sms. Don’t you know it was more than that? 

Mr. Decker. I am not sure, but I would say 200 because you are 
making me guess. 

Mr. Stmus. You ought to be able to guess with a good deal of cer- 
tainty. ‘ 

Mr. Decker. No; I can not. 

Mr. Sms. Why on earth did they issue their debentures on a sol-_ 
vent concern bearing 6 per cent in order to buy stock, which was 
nothing but stock, at 200 in another company ? | 

Mr. Decker. It was a mighty good purchase. 

Mr. Situs. The stock was worth it, was it not? 

Mr. Decker. The stock was worth it. 

Mr. Sims. If the Lake Shore had mortgaged itself like the New York 
Central, would it have been worth that amount? 

Mr. Decker. I do not know. 

Mr. Sms. That is it. : 

Mr. Decxer. I think I have heard an Interstate Commerce Com- 
missioner say that the Lake Shore used to earn enough to buy a 
respectable railroad every year. 

Mr. Sims. They did not cut down the rates so as to keep them from 
making earnings upon a fair value of the property, did shoes 

Mr. Decker. No; but there was no complaint about the general 
reasonableness of those rates, either. 

Mr. Sims. Not at all, and that road did fine; but other roads at 
reasonable rates are coming here and begging Congress to make the 
strong roads take care of them. 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 935 





_ Mr. Decker. I agree with you 
Mr. Sms. And indirectly they want the United States Government 
‘to put its credit and solvency behind the weak roads. The idea of 
a policy of that kind ever being approved by anybody or anything 
‘is what I am trying to get at. | 
. Mr. Decxer. I have given the reasons for my advocacy of trying 
‘to prevent these large discounts of railroad bonds. I am not wedded 
to the idea, but I just throw it in as an idea. 

Mr. Stiness. Judge Sims, Mr. Denison had not finished. 

Mr. Sms. Oh, I beg your pardon, I thought he had concluded. 

Mr. Denison. I have just one further question, I think. I do 
‘not think the chairman asked you to embody your idea of regional 
ie Dac into the form of an amendment. 





Mr. Decker. Yes; he did. 

Mr. Denison. Do you think we should have regional commis- 
sioners instead of regional commissions ? 

Mr. Decker. Yes; regional commissioners. 
Mr. Denison. Six in number? 
Mr. Decker. I think six corresponds to the traffic territories, that 


is all. 
_ Mr. Denison. Appointed just the same as the present commission ? 
Mr. Decker. Yes; and give them authority to go right somewhere 
‘near the location of the complainant, and hear his case, and hear it 


eermally too, if they can. 
| 
| 





Mr. Denison. And decide it? 

Mr. Decxer. Decide it and settle it. I, and other commissioners 
of New York, have had great success in settling these cases around 
the table, without spending a long time and a lot of ink in the process. 
Mr. Sanpers of indiana. This Esch bill provides for the fixing of 

minimum rates ? 
Mr. Decker. Yes. 





Mr. Sanpers of Indiana. Does that meet with your approval? _ 
| Mr. Decker. As long ago as the sixth annual report—lI think It 1s 
the sixth—of the Interstate Commerce Commission it advocated that 
: power be given the commission to fix minimum rates; that is, with 
reference to the levelling of discriminations. I favored it then, and 
‘do so now. | 
Mr. Sanvers of Indiana. You have suggested certain amendments, 
which may or may not be adopted. Assuming that the Esch bill 
should pass with its principal provisions, which give the Interstate 
Commerce Commission jurisdiction with reference to the issuance of 
securities, which give that commission jurisdiction with reference to 
‘minimum rates, which give that commission the power to determine 
whether or not an improvement shall be made, which give to that 
commission the power to require the transfer of equipment from one 
carrier to another, and compel, with proper compensation, one carrier, 
‘under certain conditions, to furnish its equipment to another, and in 
other respects practically gives that commission complete regulation 
! of railroads. Don’t you think if that were the situation, we really 
‘are confronted with the necessity of unifying the control of the rates 
of all of these carriers, irrespective of whether they are interstate or 
_ Intrastate ? 
Mr. Decker. I do not think so; no. fe 

/ Mr. Sanpers of Indiana. Do you not think it presents quite a 
different question than is presented under present law ? 








936 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Dreoxer. I beg your pardon. 

Mr. SanpErRs of Indiana. Do you not think it presents quite a 
different question from the question presented by the present law? 
Mr. Decker. No; I do not think so, substantially. 

Mr. Sanpers of Indiana. I mean by that, if the Interstate Com- 
merce Commission has the power to*fix a minimum rate with respect 
to interstate movements, doesn’t that necessarily make it more 
important to have the same sort of rate for a State movement ? 

Mr. Decker. No; I do not think so, because in these progressive 
days that sort of thing will be worked out with a few compromises, 
Take the State of New York. The only road from Buffalo to New 
York that is wholly within the State is the New York Central main 
line. it has another line, the West Shore, which runs through New 
Jersey to get to New York. The Lackawanna, the Erie, the Lehigh 
Valley, and the Pennsylvania all run through different’ States to get 
to New York. Of necessity, any minimum rate application which 
may be applied by the Interstate Commerce Commission there will 
have to be applied or worked out on a basis for the New York Central 
You can not get away from it. 

Mr. Sanpers of Indiana. Well, if a governmental tribunal is going 
to determine whether a certain railroad is going to issue certain 
securities, and determine whether or not they shall expend them for 
certain purposes, in order to determine that question, would it not 
logically follow that they would have to know what the returns were 
going to be to that railroad ? 

ary Decker. Why, they do know. They are all in published 
tariffs. 

Mr. Sanpers of Indiana. Yes; but a State commission may fix a 
passenger rate or a freight rate for an intrastate shipment that 
would entirely upset it, might it not? 

Mr. Decker. That used to be so, but that is no longer so. 

Mr. Sanprers of Indiana. Don’t you think, with the power to 
establish minimum rates, if unified control is not given to the Inter- 
state Commerce Commission that we will have numerous cases like 
the Shreveport case ? 

Mr. Decker. No; because if you do, you have the authority 
now—— 

Mr. Sanpers of Indiana. Yes; we have the authority, but it is a 
roundabout method of getting to it. 

Mr. Ducxsr. It seems to be pretty effective so far. They have 
cleaned up every case that has been tried. 

Mr. Sanpers of Indiana. Yes; but that is quite a different pro- 
cedure than if the Interstate Commerce Commission had original 
jurisdiction. 

Mr. Decker. Do you think, if I may ask one question, that the 
Interstate Commerce Commission could constitutionally be given 
absolute jurisdiction of the State rates, of a State rate that does not 
interfere with the interstate rate ? 

Mr. Sanvers of Indiana. Yes. 

Mr. Decker. You think they could be given that? 

Mr. Sanpers of Indiana. Yes. 

Mr. Decker. I do not think so. 

Mr. Sanpers of Indiana. Answering that question, I think the 
power of Congress to regulate commerce is absolute and that it can 
use any means which is proper and necessary in carrying out that 





f 
} 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 937 


ower, just the same as if the State lines did not exist or the same as 


aif any State tribunal or State legislature had not acted and then that 


when it comes in conflict with any act of the State legislature or any 
act of any body created by the State legislature, the State legislature 


act must fall. I think, therefore, Congress has complete power, if 
it is necessary and proper and appropriate, to legislate with reference 
to rates, and to legislate with reference to capital issues and equip- 
ment, if necessary, in carrying out that power; that Congress has 
complete jurisdiction and complete constitutional power to pass 
such necessary legislation. 

Mr. Decker. I do not read any of the court’s decisions that way. 
IT read the Supreme Court decisions as going so far as interference— 


and that means direct interference with the interstate rate or inter- 


state commerce—but otherwise I think there is a distinct affirma- 
tion of the separate power of the State over rates within the State. 

Mr. Sanvers of Indiana. There certainly is, so long as the powers 
of Congress lie dormant. Of course, I recognize that is not a univer- 
sally recognized construction of our constitutional power. | 

Mr. Decker. Yes. 7 

Mr. Sanvers of Indiana. But you asked me for my opinion and I 
gave it to you. 

Mr. THom. Mr. Chairman, may I ask Mr. Decker a question ? 

The CHatrMan. Yes, Mr. Thom. 

Mr. THom. Suppose, Mr. Decker, that the State rates in Indiana 
were 25 per cent higher than the State rates in Illinois; suppose a 
railroad ran across the State of Indiana and the State of Illinois; 


that the national standard of what the facilities of transportation 


ought to be was at a certain height to which the State rates of Indiana 
contributed their just proportion but to which the State rates of 
Ilinois failed to contribute their proportion by this 25. per cent. 
Now if Congress could not regulate the rates in both of those States, 
would not this result follow? Either that Congress must surrender 
its standard of interstate facility in favor of what Illinois required, 


or put that burden on interstate commerce to sustain it at that 
height, and would not the people of Indiana, who want the national 


standard, be prejudiced by the Illinois standard ? 

Mr. Decker. I suppose I can answer that question without its 
being reput. The amount which the Indiana and Illinois rates pro- 
duced would first have to come into that problem because it is not 
the paper rates showing higher or lower percentages, but it is the 
result of application of those rates to the traffic operations which 
must be considered. That is one thing. The next thing is, while 
there may be some relation between the State rates as directly 
affecting interstate commerce, that would first have to be applied 
to Illinois, without taking into consideration the results from the 
Indiana schedule, which is a State schedule. Now, there is so much 
to be determined, that I can not answer that question directly. 

The Cuarrman. There do not appear to be any further questions. 
I think the committee is under obligations to Judge Decker for the 
information he has given us, and if he will be kind enough to incor- 
porate in his part of the hearing the amendments he has suggested, 
the committee will be gratified. At this pot the committee will 
recess until 10 o’clock to-morrow morning. 


938 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


AMENDMENTS TO H. R. 4378 SUGGESTED BY MARTIN S. DECKER, 


ALBANY, N. Y., September 4, 1919. 


My Dear Mr. Escu: Conforming to the request which you made 
at the hearing, I am inclosing my suggested amendments to H. R. 
4378. Ishall have to take a little more time to work out the details 
of my idea as to secured Government loans to railway companies. 


Very truly, yours, 
M.S. DEcKER. 


Hon. Joun J. Escou, 
Chairman Committee on Interstate and Foreign Commerce, 
House of Representatives, Washington, D. C. 


Strike out from page 2, lines 24 and 25, committee print, the following: “‘except as 
expressly provided in section 13 thereof.” 

On page 7 after line 7 insert as a new paragraph the following: 

“The commission shall have, and it is hereby given, authority after hearing, either 
upon complaint, or upon its own motion, to determine whether safe or adequate 
service has been denied in the receiving, forwarding and delivery of passengers or 
property because of unreasonable delay of transportation by any common carrier or 
carriers subject to the provisions of this act as to specified passengers or specified ship- 
ments of property, as the result of practices by such carrier or carriers or otherwise, 
and to issue order to such carrier or carriers directing it or them to correct its service 
in accordance with such determination. In such order or a separate order the com- 
mission may also direct reparation to be made by such carrier or carriers to complain- 
ing parties upon proof of loss or special damage from any such unreasonable delay in 
transportation, and such reparation order shall issue in accordance with the provisions 
of section 16 of this act.’’ 
_ On page 8, line 8, after the word ‘‘them” strike out the period and insert a semi- 

colon, and add the following: ‘‘but no embargo, preference, or priority of shipment 
shall be made effective except that it shall affirmatively appear to the commission 
on showing submitted by the carrier, that unusual and abnormal congested conditions 
of transportation exist without possibility of immediate remedy by the affected carrier 
or carriers, and that immediate steps will be taken by such carrier or carriers to pro- 
vide additional facilities or improvement of lines or terminals to the end that such 
existing unusual and abnormal congested conditions shall not occur under like pres- 
sure of traffic in the future.”’ 

Page 9, line 19, add the following: ‘‘ Provided that this requirement shall not be 
construed to supersede any similar requirements in the laws of any State.”’ 

Page 20, strike out lines 22, 23, 24. 

Strike out all of page 21. 

Strike out first five lines of page 22. fe 

Page 29, line 5, after the word ‘‘act”” insert the following: ‘‘which owns or operates 
a line or lines not wholly located within one State of the United States.”’ 

Page 29, strike out lines 13 to 18, inclusive, and insert in lieu thereof the following: 
‘‘Unless such issue be within its corporate powers and for one or more of the following 
purposes: 

“The acquisition of property, the construction, completion, extension or improve- 
ment of its facilities, or for the improvement or maintenance of its service or for the 
discharge or lawful refunding of its obligations or for the reimbursement of moneys 
actually expended from income or from any other moneys in the treasury of the cor- 
poration not secured by or obtained from the issue of stocks, bonds, notes or other 
evidence of indebtedness of such corporation, within five years next prior to the 
filing of an application with the commission for the required authorization, for any 
of the aforesaid purposes except maintenance of service and except replacements 
cases where the applicant shall have kept its accounts and vouchers of such expend! 
ture in such manner as to enable the commission to ascertain the amount of moneys 
so expended and the purposes for which such expenditure was made; provided and 
not otherwise that there shall have been secured from the commission an order author- 
izing such issue, and the amount thereof and stating the purposes to which the issue 
or proceeds thereof are to be applied, and that, in the opinion of the commission, the 
money, property or labor to be procured or paid for by the issue of such stock, bonds, 
notes or other evidence of indebtedness, is or has been reasonably required for th 
purposes specified in the order, and that except as otherwise permitted in the order 
In the case of bonds, notes, and other evidence of indebtedness, such purposes are not, 


‘fT 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 939 


. in whole or in part, reasonably chargeable to operating expenses ortoincome. Nothing 
herein contained shall prohibit the commission from giving its consent to the issue 
_ of bonds, notes or other evidence of indebtedness for the reimbursement of moneys 
heretofore actually expended from income for any of the aforesaid purposes, except 
" maintenance of service and replacements, prior to five years next preceding the filing 
of an application therefor, if in the judgment of the commission such consent should 
be granted; provided application for such consent shall be made prior to January 1, 
1922. For the purpose of enabling it to determine whether it should issue such an 
order, the commission shall make such inquiry or investigation, hold such hearings 
and examine such witnesses, books, papers, documents or contracts as it may deem 
of importance in enabling it to reach a determination. Such corporation shall not 
without the consent of the commission apply said issue or any proceeds thereof to 
any purpose not specified in such order: Provided, however, That the commission 
shall have no power to authorize the capitalization of any franchise to be a corporation 
_ or to authorize the capitalization of any franchise or the right to own, operate or enjoy 
any franchise whatsoever in excess of the amount (exclusive of any tax or annual 
charge) actually paid to the State or to a political subdivision thereof as the considera- 
tion for the grant of such franchise or right; nor shall the capital stock of a corporation 
formed by the merger or consolidation of two or more other corporations, exceed the 
sum of the capital stock of the corporations so consolidated, at the par value thereof, 
or such sum and any additional sum actually paid in cash; nor shall any contract for 
' consolidation or lease be capitalized in the stock of any corporation whatever; nor 
shall any corporation hereafter issue any bonds against or as a lien upon any contract 
for consolidation or merger.”’ 

Page 29, strike out lines 19 to 24, inclusive. 

Page 30, strike out lines 1 and 2. 

Add to section 20a (sec. 17 of this bill), the following: 

___ “The Interstate Commerce Commission is hereby further enlarged by the addition 
of three commissioners with terms of seven years each, except that the terms of those 

first appointed shall expire on January 1, 1924, 1925, and 1926, respectively. The 

_ appointment, qualifications, and compensation of such additional commissioners shall 
be the same as those now prescribed by law for the other members of the Interstate 
Commerce Commission. The three additional commissioners hereby designated shall 
have exclusive jurisdiction of all matters arising under section 20a of this act, and they 
shall have no other powers or duties under this act: Provided, That, upon the duly 
recorded majority vote of the 10 members of the commission, other matters within the 
jurisdiction of the commission having general relation to the securities of common 
carriers or their accounts and records, may be transferred to the exclusive jurisdiction 
of said three additional commissioners. The other members of the commission, 
seven in number, shall have and retain exclusive jurisdiction of all other matters 
coming within the operation of this act: Provided, further, That said three additional 
commissioners shall have all powers now possessed by the commission to designate, 
employ, and fix the compensation of such officers and other employees a& they may 
deem necessary to the proper performance of their duties.”’ 

(The foregoing could be added to section 24 of the present act, instead of 20a). 

Add to section 24 of the act. 

“The Interstate Commerce Commission is hereby further enlarged by the addition 
of six regional commissioners, to be appointed by the President by and with the 
advice and consent of the Senate, with terms and compensation the same as now 
provided by law for Interstate Commerce Commissioners. Within 30 days after 
approval of this act the Interstate Commerce Commission shall certify to the President 
a defined division of the United States (lying between the Atlantic and Pacific Oceans) 
into six transportation regions, and thereupon a regional Interstate Commerce Com- 
Missioner shall be appointed for each of such regions. Each regional commissioner 

shall be a resident of the region to which he shall be appointed. The Interstate 
Commerce Commission shall prescribe rules of practice and procedure in cases and 
proceedings before the regional commissioners. The regional commissioners shall 
within their respective territories have and exercise the powers conferred by law upon 
the Interstate Commerce Commission, including the decision of cases and issuance of 
orders. Any party to a case or proceeding before a regional commissioner may appeal 
from any decision or order of a regional commissioner to the Interstate Commerce 
Commission, by filing notice of such appeal with the commission and with the regional 
commissioner within 20 days after service of the decision or order of the regional com- 
Missioner, and by service of such notice of appeal upon any adverse party to the case 
or proceeding. Upon such appeal the record of the case or proceeding shall be forth- 
with transmitted to the Interstate Commerce Commission, and thereupon the com- 
Mission shall review the matter both as to the findings of fact and conclusions of law 





940 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


and render its decision within 90 days after submission of the matter on appeal. 
Nothing in this section shall be deemed to prohibit the hearing of cases or investiga- 
tions in any region directly by one or more members of the Interstate Commerce 
Commission sitting alone or with the regional commissioner, but all such cases shall be 
decided by the commissioners hearing them, as if they were heard by a regional 
commissioner, and be subject to appeal in the same manner. A regional commissioner 
may also, if so directed, hold hearings in cases involving the issuance of securities, 
but in such cases the regional commissioner shall merely make report to the Interstate 
Commerce Commission, securities division, in the manner and form required by such 
division. Complaints arising in any region shall be filed with the regional commis- 
sioner who shall direct the manner of service and time for filing answer, if any be 
required, and such regional commissioner shall notify the Interstate Commerce Com- 
mission of the pendency of the proceeding. It shall be the duty of a regional com- 
missioner to act promptly upon all informal complaints and endeavor to secure prompt 
settlement of all meritorious cases, and likewise in formal cases the regional commis- 
sioner shall proceed with a main view to the direct and early disposition of the matters 
involved without unnecessary expense to the parties involved. Whenever the 
commission shall direct, a case or proceeding may be heard by two or more regional 
commissioners. When necessary to the proper dispatch of pending proceedings, the 
commission shall have authority to assign cases arising in one region to the regional 
commissioner of another region, or to require a regional commissioner temporarily to 
sit or otherwise act in any designated region. All investigations shall be conducted, 
all cases shall be heard, and all testimony in such cases or investigations shall be 
taken, by the regional commissioners or by members of the Interstate Commerce 
Commission. Cases or proceedings may be heard in the first instance by five or more 
members of the Interstate Commerce Commission at Washington or elsewhere and in 
such cases no appeal may be taken to the Interstate Commerce Commission.’ 


(Whereupon at 5 o’clock p. m. an adjournment was taken until 
to-morrow, Wednesday, August 13, 1919, at 10 o’clock a. m.) 


CoMMITTEE ON INTERSTATE AND FOREIGN COMMERCE, 
HovssE oF REPRESENTATIVES, 
Wednesday, August 13, 1919. 
The committee met at 10 o’clock a. m., Hon. John J. Esch (chair- 
man), presiding. 
The CHarrman. We have present this morning Mr. Gilham, 
traffic manager, of Macon, Ga., who will present his testimony. 


STATEMENT OF MR. BENJAMIN GILHAM, TRAFFIC MANAGER, 
MACON CHAMBER OF COMMERCE, MACON, GA. 


The Cuarrman. Mr. Gilham, give your name, address, and whom 
you represent. 

Mr. Grruam. My name is Benjamin Gilham; represent the Macon 
Chamber of Commerce, Macon, Ga. 

Mr. Chairman and gentlemen, judging from the press dispatches 
in these late days the conservative position that we are taking on 
behalf of the shippers whom we répresent may appear as some 
diversion at least. : 

I will first give you an account of my humbleness. I began life 
by practicing law, afterwards going with the railroads and going 
through all of the various departments of the railway service; going 
through the hard mill and through the executive offices and all those 
things, and finally coming out and devoting myself to commercial 
service, going into the employ of the Macon Chamber of Commerce 
some 10 years ago. Iam still with the Macon Chamber of Commerce. 

We think that Congress should separate itself from the so-called 
plans, except so far as they seem logically to fit the urgent needs 0 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 941 


‘our transportation lines as we know them to stand. The public 
‘mind has been greatly upset, and all due to the results of being at 
war, and quite naturally the public mind sees things with a diseased 
vision. The ways and structures of carriers have not materially 
changed, the equipment and facilities are intact and in fair shape, and 
the real owners of these railroads seem ready and anxious to have 
them returned, and when we sober our thoughts to the real situation 
it 1s not so serious as some seem to regard it. From the beginning 
of these propositions, as to how railroads should be returned, it was 
our view that we should keep away from legislation in the process 
of returning them and save the agonies we have recently observed, 
to exercise under mature care and when the situation assumes a 
calmness. Those interested in possessing, those interested in operat- 
‘ing, and those interested in laboring for these great properties have 
come ay here in fervor and earnestness and presented plans, each 
featured by some scheme to derive a greater wealth, more freedom 
‘in directing them, and more money for services. 
_ There is nothing wrong in showing to you these reminders of selfish- 
ness and these conflicting plans, but I suspect that it is your wish 
to straighten out present difficulties, and nearly as you can by 
legislation get back to something like prewar conditions, and then 
‘commence to weigh these plans and cure all the evils that have 
‘been mentioned, if they should be found real and creating injustices 
to any or all of the forces involved in the several plans. I do not 
wish to ridicule any plan submitted to you. The people I represent 
are business people and they are opposed to Government ownership 
and operation of railroads, believing that enterprise must keep fully 
humanized to do its best: for the public. Our railroads were not 
taken over to convince the people that Government ownership was 
the way to get the best result of them, but to effect.a riddance of 
contrary methods of meeting an emergency, and assure the boys in 
Khaki that their needs would have the first attention as long as it 
was necessary. All this is past, and the hour is drawing near when 
by the limitations of law the railroads must be returned to their 
owners. In this bill, as proposed, everything that seems necessary 
is proposed. I have never imagined that Congressmen could be 
stampeded or influenced to separate by parties on a purely business 
matter. ‘Ihe people have a right to expect something better. 

One of the salient points in connection with the return of the rail- 
roads, to our mind, and one of the most important features is the 
Matter of credits. In appearing before the Interstate Commerce 
Commission and several State commissions prior to the war, we could 
not help but hear occasionally, in considering matters connected 
with the question as to whether higher rates should be given or not, 
that those commissions had made the conclusion for themselves that 
higher rates were necessary in order to save the railroad properties. 
This would have been done, I think, in the course of a short time, had 
there been no war. I believe that there would have been some 
readjustments by which the carriers would have been given a sub- 
Stantial increase, although at the time these things were occurring 
the 15 per cent advance had been denied the railroads. But it was 
perfectly apparent to all the tribunals having jurisdiction over the 
Matter of rates that there should be some slight increase to meet 


152894—19—voL 1—_—_60 





the new conditions coming about, seeing as they did that the maj 
tenance of ways and structures were not being kept up to the stan 
ard, that the facilities, generally, were becoming impaired frot 
neglect or other causes, and that the car supply was diminishing al 
the while; if not diminishing, failing to meet the requirements 
commerce. 

The matter of credits, which I should say comprehends al 
thing connected with the financial situation of the railroads, as I say 
was under the eye of the various tribunals and doubtless Congress, too 

We think that the Esch-Pomerene bill carries with it a promis 
to do exactly what the railroads need to have done for.them—to hay 
the responsibility of knowing about and authorizing bond issues 
capitalization for extensions, betterments, and additions, all place 
under the supervision of the Interstate Commerce Commission. 

The Interstate Commerce Commission can not help but see tha 
the matter of capitalization and the funded debt, the necessary 
capital for expenditures for various reasons, involving all that wouk 
make the railroads meet the growing commerce of the country, is 
factor in making rates. There is not any doubt in my mind but wha 
the Interstate Commerce Commission could, with the authority thu 
given them, go on and make rates which would take care of the prop 
erties, pay the employees of the roads, maintain the properties in: 
proper way, increase facilities and equipment, and leave a fair incom 
to the owners of the railroads. I know that all railroads are no 
capitalized alike. I realize that there is a wide range as to the cos 
per mile, and many other things that will become troublesome i 
arriving at just exactly what rates will make a proper income; but t 
my mind that can be arranged, and the Interstate Commerce Com 
mission, with the power and authority. vested in it, under the pro 
posed amendment of the present bill would be able to go into al 
those matters by separate departments and obtain the truth abou 
the matters, and make it a factor in developing rates which woul 
take care of the railroads. 

Some experience on a district freight traffic committee, and work 
ing at present, as I am, under the United States Railroad Adminis 
tration as a representative of the shippers 

The CHAIRMAN (interposing). Are you a member of your distrié 
freight traffic committee ? 

Mr. Gitman. Yes; | am a member of the Atlanta district freigh 
committee. I accepted that position with a good deal of doubt as t 
whether or not it would be practicable to do any public service sucl 
as was held out to be possible, but since then I have come to thi 
conclusion that these district committees, when properly functioning 
would be the very best medium which could be devised for initiatin; 
rates. Asa matter of course, these district committees, I am inferring 
would be under the Interstate Commerce Commission. I would sug 
gest this plan as doubtless one of the most economical and one 0 
the most practicable plans for initiating rates in a satisfactory form— 
and I mean by that, satisfactory to all parties concerned—would bi 
for the railroads to be represented, the shippers to be represented, ant 
the Interstate Commerce Commission to be represented by al 
attorney examiner; and I would suggest the attorney examiner & 
chairman, so that in these districts, which usually are composed of on 
or more States, or parts of two States, or something of that kind, the; 


9492 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 





A 
\ 


> 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 943 


would have the power and authority to summon witnesses and compel 
their attendance, so that whenever a rate was adjusted as proper 
under either a new, or some increase in rates, or any adjustment 
whatever, these committees could better get at the truth and the 
necessity surrounding each one of these cases than any other plan I 


_ can think of. They would be in session all the while. They would 


issue their docket notices in the form they are now issued by the 
several freight traffic committees, and the shippers would have 
notice, and the railroads, as a matter of course, would have notice, 
and these parties could come up and let them know their views, and 
upon this the committee could make its recommendations to the 


Interstate Commerce Commission for its approval or disapproval, 


according to the necessities involved. 

I believe that this would prove the most satisfactory method for 
initiating rates that could be devised. It seems to be working 
admirably already with the United States Railroad Administration. 
It is one of the things developed by the United States Railroad 
Administration in its machinery that is popular, and getting to be 
more so as these committees are better organized and better function- 
ing in carrying on this service. 

here can be no objection—at least the people in Macon find no 
objection—to extending the power and authority of the Interstate 
Commerce Commission in the matter of supervision over water rates. 
We believe that it is necessary for the welfare of water carriers them- 
selves that they should have the protection, and not only the protec- 
tion, but the help and the assistance which would be given them by 
the Interstate Commerce Commission in making successful the opera- 





tions of these river navigation companies. 


Many of them have gone to failure simply because they ran away 
with themselves. Usually, not being directly responsible to anyone 
as to the matter of rates, they have been in the hands of people who 
knew nothing about them, on a good many occasions. JI happen to 


_be personally acquainted with some of those occasions myself, and 


they have gone to ruin for that reason, either making their rates so 


_ridicuously low in order to get some traffic that they could not make 


a living on, and thereby swamping their companies, or they would 
make their rates unreasonable in some other form and make them so 
fluctuating as to keep the public guessing about what their rules and 
regulations were. 

I think there should be some standard rule and some rate regulation 
applied to navigation companies, whether coastwise, inland river, or 
otherwise—at least, all that could properly come under the jurisdic- 
tion of a national tribunal, such as the Interstate Commerce Com- 
mission, and that should be immediately put into the transportation 
law. , 

They have jurisdiction now, as we all know, when they are doing a 
joint business with railroads, and I think the joint business would 
undergo improvement if they had the same protection and were re- 

uired to do the same things that the railroads who work jointly with 


_ them are required to do in the matter of accounting, rates, and so 


' 


forth. Of course, the joint rates have to be published and have to 


be approved by the commission, but then the commission, I am sure, 
have never been so careful about the water end of the rates as they 
have been about the rail part of it, because the rail rates are better 
established. 


944 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


The Macon Chamber of Commerce has given consideration to this 
very question. Macon itself is located on a navigable river. There 
is navigation going on there in some form all the while. It was 
formerly their opinion that the Interstate Commerce Commission 
should have nothing to do with water rates, but since a few failures, 
such as we could inform ourselves about, have occurred there, they 
see the need of some regulatory tribunal having charge of that in the 
same manner and to the same extent as the railroads. 

I am not clear as to whether the amendment proposed, particularly 
as to the first section, involves motor-truck service or, not. 

The CuarrMAN. It was not intended to cover that service. 

Mr. Grtuam. I might suggest to the committee, however, that there 
are a number of companies doing both an interstate and an intrastate 
business, and as the Government has made an appropriation and the 
hard surface highway work is being carried on already for paving 
many miles of highway, these motor companies are taking up the 
service, and you would be surprised to know just exactly the volume 
of freight they carry and the speed with which they do it, and the 
safety connected with that whole service. 

IT-am sure you are familiar with the fact that 10 or 12 lines are 
operating, or will operate, out of the city of Indianapolis in all 
directions for distances ranging from 50 to 200 miles. 

As a matter of course, I have always thought about the motor 
truck service as being a farm-to-the-market service. I am sure that 
the gentlemen of the committee have looked at it in just that form. 
I have never felt it could have a very great influence as an interstate 
carrier or as an intrastate carrier, but the time is about on us when 
it is going to grow into an immense business, and not only an immense 
business but a very profitable business. 

I think some regulation is going to be necessary. It may not be 
necessary at this time, but I would not be surprised if Congress did 
not have occasion to look into that before a very great time, because 
this is going to be a tremendous public service. 

We have demonstrated by a motor truck demonstration running 
three trains in three directions at Macon, over dirt roads, that they 
could carry 300 tons a distance of 40 miles and come back before 
sundown on the same day. 

The CaatrMANn. Will you speak a little louder, Mr. Gilham. 

Mr. Grruam. I say we demonstrated at Macon that motor trucks 
could even use ordinary dirt roads to very great advantage. We had 
trucks running out of Macon in three different directions, the roads 
being of different character and about the same distance, 40 miles, 
leaving Macon at 10 o’clock and coming back at 6 o’clock, and by 
that time everything had reported in and cleared its traffic, which 
shows that it can be done very easily. 

Mr. Sanpers of Indiana. What did it show in reference to the cost 
of such transportation ? 

Mr. Giruam. So far as the cost is concerned it showed on this 
occasion, which was really done with a view, at the time, of showing 
just exactly how cheap it could be done, that for the distance of 40 
miles the service was done at a cost of 5 cents per ton per mile. [ 
had charge of this proposition myself and worked it out. 

Mr. Sanvers of Indiana. How does that compare with the railroad 
rate there ? 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 945 


Mr. Giruam. Well, the railroad rate to these points on like traffic 
would have been on a number of classes of freight a little higher and 
on some a little bit lower; there was not very much difference. The 
thing that is going to make the service attractive is this: The grocer 
delivers his goods 40 miles distant about 24 hours ahead of the rail- 
road, because instead of taking them to the depot and billing them 
out this afternoon or to-night to be delivered at these points to-mor- 
row, he delivers them there at 10 o’clock in the morning. 

Mr. Sanpers of Indiana. And it is a little easier to get to the 

different industries ? 
_ Mr. Girmam. Sure. As I said, the Government has made appro- 
priations for the upkeep of the rivers and they are now extending 
that service to the highways. Unquestionably there is going to be 
necessity for some supervision. 

_ The fourth section of the law is not involved in the Esch-Pomerene 
bill. I think, perhaps, that is being carried on under what is known 
as the Poindexter amendment, and we had the honor of saying some- 
thing before that committee some time recently. I took the position 
then, and I repeat it now, that I think that substantially the last 
word has been said so far as the fourth section of the act to regulate 
commerce is concerned. If people could get this idea into their minds 
as firmly as I think they should, that the water transportation busi- 
hess was going on a long while before there were any rail lines and 
that these commercial points that amounted to anything at all up 
to about 1835 and from then on to 1850 were all points on rivers and 
were going from one water-served point to another. In other words, 
one continuous water line between the larger markets, and that the 
rail lines all through the Southeast were built to compete with those 
propositions, there is not any way in the world that I can see to get 
away from that situation to-day unless we tear up the railroads and 
rebuild them, which would really amount to tearing up some com- 
munities, we might say, who have made investment based on the 
advantage of location. 

I have believed all the time that the intermountain country which 
‘undoubtedly must eventually secure special relief in order to obtain 
the equal transportation service that is given in other sections where 
it has been forced, will demand some special legislation and I 
believe that that territory could, when the Interstate Commerce 
‘Commission has been given all the authority which the Esch-Pomerene 
‘bill proposed to give it, so far as capitalization, car service, and the 
other features carried with it are concerned, I believe that the situa-_ 
‘tion can be controlled and the people in the intermountain territory 
be served as economically and on as fair a basis as has been given in 
any other territory in the country due to natural causes. Asamatter 
of course, we can not expect nature to be as bountiful in one place as 
it is in another. I have always felt that it evens up some way or 
another and that where we have an advantage we also have a disad- 
vantage—that it is the same with them and that our opportunities 
»when we figure them down to the last analysis are really about the 
same, but this probably would not be true in connection with trans- 
portation advantages. 

Mr. Sims. You stated whom you represented and the position you 
occupy, but I did not catch it. 

| . GirHAM. I am speaking here as traffic manager for the Macon 
Chamber of Commerce. 





946 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Sims. The St. Louis Traffic Club on July 26 issued a statement 
which, among other things, deals with the rigid fourth section, and 
it being a traffic club, but not in the intermountain territory, but on 
one of the largest rivers in the United States, I thought, if you did 
not object, that it might go in and be printed in connection with 
your statement on the subject. I do not know whether you have 
seen it or not, and, of course, I would not ask you to so do unless it 
was agreeable. 

Mr. Gituam. The fourth-section matter 

Mr. Sims (interposing). It deals with other matters, but I have 
reference only to the fourth section. I would not ask you to do so 
until you have seen it. 

The CHarrman. We have all received copies of that, and my idea 
was that we would have one whole installment of the hearings de- 
voted to those matters. 

Mr. Sims. Inasmuch as he was dealing with the matter as a traffic 
manager and this comes from a traffic club 

The CuarrMan (interposing). It might not meet with his approval. 

Mr. Sms. I said that I would not ask it until he had seen it. 

Mr. Giruam. If the chairman will permit, I would not like to go | 
into the fourth section unless it was specially desired. That is a 
very technical and very complex proposition. 

Mr. Sims. At the suggestion of the chairman I withdraw the 
request. 

Mr. Gituam. Now, as to lines transmitting intelligence. I have 
about made up my mind that that is not a proper thing to bring up — 
here. I do believe that some legislation more than that which now 
exists should be had with respect to lines transmitting intelligence, 
more particularly the telegraph lines. I am sure that each of you 
are familiar with the finely printed contract on the reverse side of 
the telegraph blanks that you use, and which limits the liability of 
the telegraph company to the price of the message, it matters not 
how much damage is done by nondelivery or error or anything else 
that they may do, if the message is not repeated. As a matter of 
course, | am ready to admit that the Interstate Commerce Commis- 
sion has decided that different scales of rates can be charged for 
different lines of service, but I myself regard the telegraph lines 
something like the telephone lines. You desire a message sent in a 
certain standard way, and the sender of a message, when he writes a 
telegram, which is nearly always done hurriedly and without con- 
sidering what is on the back of the telegraph blank, he expects the 
service to go in proper form. So far as the people of Macon are con- 
cerned if it requires more to perform a certain standard service—l 
mean a higher rate—we are ready to pay it, but we believe that the — 
public is considerably injured by this very slight liability for error, 
undelivery, ete. 

Mr. Dentson. Do the courts hold those contracts as binding ? 

Mr. Grruam. I do not think the courts have really passed on that. 
I think that we would have some common-law rights, regardless of the 
language of these contracts, but under the present act to regulate 
commerce they can charge different prices and say, ‘‘This is an un- 
repeated message.’’ I know of cases myself where it has cost the 
shippers, for instance, a considerable sum of money because they 
transmitted the wrong word and the shippers had no claim, so far as 








| 
t Fa 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 947 


ey could see, for this, after going into the matter; in fact; they sub- 
itted it to the Interstate Commerce Commission—because they had 
e right to have the message repeated and they did not know at that 
ne that it was even necessary to repeat a message in order to get 
through in proper form. 
Mr. Sanpers of Indiana. Do the courts hold that you can make an 
yeement beforehand to release any corporation on account of 
mages if there is real negligence on the part of the company ? 
Mr. Grrwam. If there is real negligence it can be done. It is 
ually always at the other end of the line, in California or somewhere 
ie by the sender, and he probably might get some redress for dam- 
es. I think he would under the common law. 
‘Mr. Sanvers of Indiana. If there is no negligence and it rests 
arely on the matter of the contract, I suppose you could not pre- 
‘nt them from contracting to release them from liability ? 
Mr. Grruam. The sender of the message, as the Interstate Com- 
‘'arce Commission expressed it in 44 I. C. C.—I do not now remember 
e page—he signs a contract that when he sends a message out on 
'e unrepeated scale he will not hold the company liable for any- 
ing at all. 
‘Mr. SANDERS of Indiana. You do not recollect what the details 
sre, whether it was to the effect that such a contract was binding 
whether it was against public policy ? 
‘Mr. Giruam. They did not pass on the damage part of it, as a 
itter of course, but they said they had the right to charge a different 
ule for different grades of service. I do not think there should be 
t one grade of service over telegraph‘lines any more than there is 
er the telephone. I think it should be perfect. 
‘Mr. Sanpers of Indiana. You think all the messages should be 
| seated back ? 
‘Mr. Giruam. I mean that the telegraph companies should take 
jatever precaution is necessary for sending a message in a certain 
ndard and safe way so that the sender will not have any damage 
quarrel about or any trouble. Of course, there would be errors, 
t the telegraph company should be responsible for them where they 
sate damage. I think something should be inserted in the act 
ally which will bring all kinds of service just exactly in that form, 
different grades of service. I have always been opposed to all 
‘ease rights of railroads, because I have never seen a shipper—I 
‘ve more shippers come to me who have been damaged under release 
es than any other class of people. They do not understand it. 
‘ey did not intend to pay a part of the rate themselves and there- 
e have a less right to collect damages out of the railroad. They 
<e the cheaper rate, but never go into the detail of it and there 1s 
vays some trouble afterwards. | 
\fhe CuatrmMaN. (his bill authorizes the commission to classify 
‘egrams as, for insturce, night or day telegrams, and that would be 
lowed possibly by a different rate for the night as compared with 
day messages, and is not a different rate justified ? 
Mr. Ginuam. Well, I can see very well, Mr. Chairman, how there 
juld be a different rate justified; that is, a day from a night mes- 
ize. A night message is sent at leisure. There is no hurry and no 
\wding of business to that. A great many offices employ operators 
/10 stay there and some of them do not have that amusement that 

















948 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


the sending of a night message would give them in a great many 
cases, except seldom, and others have plenty of business. It is the 
opportunity that they have to send these messages at leisure which 
gives them a right to charge a lower rate. In fact, they should have 
a different rate for that kind of service, for the day telegram, the 
night letter, or things like that; but I think that the actual service, 
which is transmitting the message itself, should be done under certain 
standard rules by which the sender and the receiver. of a message 
would have absolute assurance, so far as that could be had, that he 
was getting the proper message or sending the proper Message. 

The shippers of the Macon Chamber of Commerce have always 
believed, as I stated at the outset, that the rate tribunal should 
always have supervision over capital issues, Of course, this brings 
us down to what we might have to do in case of rate making by State 
commissions and the Interstate Commerce Commission, where the 
capital issues and the expenditure accounts of an intrastate line, at 
least lines which the intrastate authorities would be dealing with, fixed 
by the Interstate Commerce Commission, one having the exercise of 
power over the financial part of the business and the other over the 
rate making, and therefore the income. We believe that the Inter- 
state Commerce Commission should have a supervisiou over the intra- 
state rates just as far as they may affect interstate rates by compari- 
son or by actual construction, I mean in making up the imterstate 
rates either as portionals or locals or any other form that rates are 
known to work into interstate rates. I believe, myself, that the 
State commission can better be trusted with the supervision of the 
short lines wholly within the State than any other body or tribunal 
that could be devised. Usually these commissioners are familiar with 
all the facts from the beginning to the end on these little short lines 
and they know what they need. I have never yet known a commis- 
sion to refuse te give them practically everything they wanted m 
order to keep alive. Some of them have suspended operations m 
Georgia recently, but simply because they refused to do what the 
State commission wanted them to do. 

In fact, they enjoined the State commission from enforcing its 
order, simply they did not see any possibility of making revenue 
except at a very exorbitant rate, due to the poor engineering, I 
suppose, in the beginning. Now, they have served their purposes. 
They were built in one case to relieve a mining establishment, a 
pyrites mine—I have in mind this one instance—the pyrites was 
exhausted and the railroad was there and there was nothing else in 
the world on that line that could be developed to keep that railroad. 
alive. There was first a brickyard that was attempted and aban- 
doned. In a great many cases there are lines that were built to haul 
out lumber. First, they were built as tram roads, and then they 
issued bonds under the old unrestricted conditions. The bonds are 
out and the railroad attempts to run to pay fixed charges and im a 
ereat many cases they are being able to do so. We have a number 
of lines in Georgia—I guess there are plenty of others all over the 
country—and we call them ‘‘stepchildren” when we want to name 
them. They are kicked about and are not treated right, we all say, 
by the larger lines who connect them. They will not let them have 
any cars, they will not help them along, because they do not consider 
them safe enought to send a car out on them, and there is always 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 949 


‘doubt abour getting the equipment back when they turn it over at 
‘the junction, how long they will keep it for other purposes. They 
have difficulties and they ought to go out of business, but some of 
them will not. 
__ Mr. Sanpers of Indiana. Are these ‘‘stepchildren” any relation 
‘to the ‘‘weak sisters”’ ? 

Mr. GirHam. I think so. I think probably they are. 
_ Now, as to the classification upon which all rate scales are devised. 
It is our view that the classification could be taken care of in the same 
way as we suggest as to the manner of initiating rates—that is, by 
leaving the classification in the hands of either a district or territorial 
‘committee, under the supervision of the Interstate Commerce Commis- 
sion. The classification, as we all know, is tending toward uniform- 
‘ity, and at present any consolidated classification would probably go 
a long way toward bringing uniformity throughout the entire country 
‘when it is made effective and published. Such changes as may be 
necessary from time to time ought to be gone over, with the shippers 
‘and the carriers in particular, before they become effective, to be 
litigated about in the form they are at that time. 
__ I believe that the litigation carried on through the Interstate 
: Commerce Commission in the way of complaints as to unreasonable 
‘rates and classifications and the suspension of rates that have been 
‘published before the shippers were asked about them or given any 
‘chance to express themselves, I believe that part of the business 
‘would be reduced 50 per cent, so that the shipper, under the plan I 
| have suggested, would have an opportunity in the very first instance 
to make whatever objection he had, the objections would be matters 
| of record, and the Interstate Commerce Commission would see them, 
| 





without having to come to Washington from all over the country 
to make defense of his cause, whateverit might be. 

I am not going to undertake to go into further detail or to make 
any further comment on the Esch-Pomerene bill. It is no use to 
read it over to the committee. They are all familiar with every word. 
As a matter of fact, minor changes will probably suggest themselves 
(as the bill comes under discussion, but we think that with the enact- 

ment of these amendments to the Esch-Pomerene bill that the Gov- 
‘ernment can then turn the railroads back to the owners to be oper- 
cated and the Interstate Commerce Commission, as a matter of fact, 
}would go immediately to work and do whatever is necessary to be 
;done with respect to the revenues to meet the operating expenses, 
and that whatever legislation seems to be good, of all these plans 
submitted to you recently, could be made matters of interested study, 
yand when things were getting back to a more normal condition, why, 
| Congress could take up these matters and submit them to the people 
in the form that they usually submit them and find the expression that 
‘would enable them to see what the people wanted or what the rail- 
, oads wanted. 

* I believed that from the beginning, when the security owners 
ythemselves, the railroad executives and others, began to submit 
!plans which took care of ‘‘us,’’ and had the opportunity for taking 
‘care of some one else, possibly there would be other forces coming 
along to submit some plans that would suit them. Now, the shippers 
)have not submitted any plan that we would call a shippers’ plan, but 
‘it ought to be remembered that the shipper takes care of the railroad. 
















950 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


There would not be anything for the security owners, the brother- 
hoods, or anyone else to quarrel about if the shipper does not function 
all right in his affairs, and he is entitled to first consideration. He is 
the party that hires, and out of his pockets come all the money for 
the things that these various prople are wanting for themselves and 
for their happiness and protection. Now, the shipper is the least 
excited of any force that is connected with transportation. The 
shipper is anxious that things should get back to the normal con- 
dition. The shipper has been paying a higher rate for less service 
for many months, and he has been doing that with a great deal of 
patience. I find them everywhere really anxious and praying that 
Congress will get busy and adjourn politics, if that should be found 
necessary, and, in fact, adjourn everything else, and turn the railroads 
back to their owners, and then turn somebody loose on the owners 
to make them give us the service that they did before the war on 
a normal regular basis. I say that because commerce has been 
suffering terribly throughout the whole country. We expected it 
to suffer, and we did not kick at not getting freight delivered during 
the war, because we knew what the railroads had to do. The people, 
therefore, would smile, or, at least, the shippers would, when they did 
not get what they were looking for, simply because they knew that 
all of the energies of the transportation companies were being devoted 
to the winning of the war. The shipper was helping in other ways at 
the same time, or, at least, they were in my section. 

Now, we think that the Esch-Pomerene bill contains all that it is 
practicable to consider in the way of changes under conditions exist- 
ing at this time. Transportation conditions will never become fixed. 
We all know this, and whatever is done can not therefore be perma- 
nent. This basic law ought to be and doubtless will be changed 
with great care. All the forces connected with transportation seem 
to be excited except the shippers. They have to take care of the 
railroads. At greater cost and with less service for many months 
their vision seems less diseased and narrowed than all others. Labor 
unions do not consult them, and when some movement is on to burden 
them by making way for higher cost they are not invited into council. 
When the other forces get their needs and desires attended to, the 
shippers are called up and told that good citizenship and patriotism 
demand that they quietly yield, and some have gone to failure from 
this like lambs to the slaughter. This watered stock, admittedly — 
pumped in by frenzied financiers, was all done before.they knew it, and 
millions of shippers have ended life’s pilgrimage leaving to those follow- 
ing this burden, and you seldom hear a complaint from shippers on this 
account. Shippers desire that men hired by carriers which, serve 
the public be paid in accordance with the real worth and the respon- 
sibility they assume when entering the service. A poorly paid man 
is a burden upon them, and likewise the man who receives more than 
a just wage. A just and reasonable rate for freight, they well under- 
stand, is that rate which will enable the carrier to pay men enough 
to live on and save something, and enough to preserve the property 
and keep it in a safe and serviceable condition and leave something ° 
for the owners. 

Some minor changes will doubtless occur to you as proper and 
necessary as the Esch-Pomerene bill goes under discussion, but it 
should be enacted without material change, is our view, and fitted 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 951 


jo the present act as amended in the usual manner and the railroads 
med back to their owners. This will be giving them back in better 
m than they were in when received, and if the owners, executives, 
yor forces, and shippers find conditions and circumstances changing 
d outdistancing legislation, some of the plans submitted might 
ike interesting studies. At the present time, and stil without 
ing disrespectful to any, we would say railroad ownership, control, 
d operation has been overplanned. We all understand that trans- 
rtation conditions never become fixed, and what you shall do 
out them now will last but a short period. Any one of: the several 
mms submitted would undoubtedly get beyond recognition in a 
rprisingly short space of time, for any one of the several forces by 
sh arbitrary methods as the forces sometimes employ may spoil 
erything. Our candid opinion is these amendments offered under 
2 Esch-Pomerene bill will make the present law so nearly fit all 
juirements, that some of the plans submitted will vanish entirely. 
e would be grossly misrepresenting the forces on whose behalf we 
pear, if we failed to ask that you keep us off the operating table 
til we can be opened by prayer, if you will not wait until we have 
‘overed from previous carvings. The idea we desire to bring is 
ut the people that dwell in and ‘‘around the heart of Georgia” are 
mting to slip back into former tranquil conditions. A few radicals 
ve wandered into our section, but the great majority are ‘‘calm 
d serene” and have been all through these trying times, and our 
arts have been too firmly set upon saving what our forefathers 
ve us, and our brave and victorious boys have just saved us, to 
llingly engage in following up schemes and plans which we regard 
some respects as contrary to the public interests and out of time. 
is should not suggest to you that we are not progressive, but 
idence of our honest fears that the vision of some citizens may be 
eased, and that the prevalence of unusual situations growing 
t of excited exercise of our national mightiness to save liberty is 
out to send us beyond it and into pits left open by those who first 
iaulted it. 

We well know that in order to make a quick and substantial return 
former tranquil and prospeous life the men from all the forces 
resented in these discussioms must at the same moment and with 
}same faith and cheerfulness place something on the altar. We 
1not get back to the ‘‘house of our fathers” and be recognized 
hout some such process. If men will but start up with faith and 
née precious sacrifice, as happened to Abraham of old, God Almighty 
Tstart up the other side with a ram and we will all come back with 
‘re than we had to start with. 

The Coarrman. We generally have an executive session at a quarter 
12 o'clock, and we have 20 minutes remaining for examination 

. Gilham, you expressed the view that the traffic that is wholly 
ter borne ought to be retained in the terms of the bill? 

Mr. Giruam. Yes, sir. 

The Cuarrman. You think that the traffic that is wholly water 
me should be under the jurisdiction of the Interstate Commerce 
‘Mmission to, as you say, save it against itself? 

Mr. GirnaAm. That was my idea precisely. 

The Coarrman. Was not one of the main reasons why we took up 
Jeral control to prevent wasteful rate making on the part of com- 
N carriers by rail ? 





, ‘i 


™ 


952 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Gituam. I think so. 

The CuarrMan. Then you believe that there is:a like necessity for 
Federal regulation as to water carriers from port to port and coast- 
wise ? | 

Mr. Gituam. Undoubtedly. 

The CHairmMaNn. You stated that you believed we should retain the 
provision as to district traffic commissions 4 

Mr. GirnaAm. That is not provided in the bill. 

The CuarrmMan. But you made that recommendation ? , 

Mr. Grruam. I made that as a suggestion growing out of experience. 

The CHarrMAaNn. Commissioner Clark, when he was before us, ree- 
ommended that we retain those district traffic commissions for the 
period of at least during readjustment in order to prevent the com- 
mission from being flooded by complaints. 

Mr. GitHamM. Yes, sir. 

The CuarrMAN. Would that be sufficient, in your mind, for the 
retention of this plan of district traffic commissions ? 

Mr. Gruam. Yes; I thinkso. I think they would work admirably 
if they. were as permanent as anything should be with respect to 
transportation. I believe that they should be on the work all the 
time, not only through the period of readjustment through which 
we must certainly immediately go, but afterwards, transportaion 
conditions, of course, not being static. As a matter of fact, they 
would become more valuable and experienced as they lived longer. 

The CHarrman. Commissioner Clark*suggested that the distriet 
traffic commissioners should be named by the Interstate Commerce 
Commission; do you agree to that? 

Mr. Girnam. I have no objection to that. I believe, however, 
that there should be this much direction given, that the railroads 
and the shippers should be represented in equal strength as nearly 
as can be done, as is the present rule under the Railroad Admin 
istration. 

The CuairMAN. I have no doubt that they would be given repre- 
sentation, but as it is now, on the committee of which you are ¢ 
member, are not a majority representatives of the carriers ? 

Mr. GrtHam. No, sir. 

The CzarrMAN. That is true all over the United States. Do you 
believe that if these commissions were made permanent the majority) 
should be of the carriers ? 

Mr. Gitnam. No, sir; I do not. I think there should be equa 
representation. I believe that the carriers would be better satisfiec 
themselves with that sort of proposition, because the makiny of : 
rate structure would be more satisfactory if it could be said by then 
that this thing was discussed by both the shippers and carriers, 0 
by gentlemen representing both equally. 

The CuarrMAN. Your idea is to give these district traffic commis 
sions the initiation of rates ? 

Mr. GitHaM. Yes, sir. | 

The Cuarrman. Taking it away from the carrier, as it is under th 
existing law, and giving it to the commissions ? | 

Mr. Giruam. I had this in mind, that, as a matter of fact, th 
carriers make representations to the railroad representatives of thi 
committee of what they desire. He brings it before this committe 
and dockets it, and then the shippers and railroads’ representative 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 953 


pass upon it, just the same as would be the case if I came up with a 
proposition from a shipper wanting a rate to move a certain com- 
modity right now. I would take it up as a shipper’s representative, 
and we would discuss it there, and, more often than otherwise, the 
hel if justified, will doubtless give me what I desire for the 
shipper 

The CuHarrmMan. That commission, after its consideration, trans- 
mits it to the commission here 

Mr. GityAm (interposing). For approval. 

The CHarrMAN (continuing). For suspension or action under other 
powers granted to it. 
| Mr. GitHam. Yes, sir. 

The CuarrMAn. Do you believe that this system of preserving the 
district traffic commissions would be preferable to the creation of 
regions or commission for regions ? 

Mr. Giruam. Well, the regions, so far as I can see just now, Mr. 
Chairman, involve too much territory. In other words, these com- 
‘missions would be done away with by the regional methods. As 
stated, it seems that a great deal more business could be done by the 
regional arrangement—that is, with a commissioner in each region, 
and that is being done now in a consolidated way. There would be 
no necessity for it if these district committees were at work, because 
we would do all that could be done within the region by working in 
our different localities. The plan at the present time is that if any 
freight originates at any point within certain parts of South Carolina 
and Georgia, the Atlanta district traffic committee has jurisdiction 
of it, and it takes jurisdiction of that matter, no matter where the 
destination is. If the Richmond committee over here has freight 
originating there and coming into Georgia, they Have jurisdiction over 
that; so that these different propositions would lap into each other, 
and every district would be closely related to every other district. 
Those matters would come to the Interstate Commerce Commission 
Just in the form of a recommendation, with a full report of each hear- 
ing. In taking evidence and holding hearings on formal complaints 
or hearings on suspensions, it would be of great convenience to liti- 
gants and shippers generally to have regional commissions; but the 
fen I am suggesting, I believe, would finally work down litigation 
by 50 per cent, so that there would not be so much litigation. 

The CHarrMAN. Would it greatly lessen the work of the commis- 
sion here ? 

Mr. GirHAm. Oh, indeed, it would. In my opinion, it would 
decrease it wonderfully. 
~The Coarrman. How many district traffic commissions are there 
in the United States under Federal control ? : 

Mr. Gituam. I can not now remember, but I am sure there are 
‘about 30. 

_ Mr. Denison. Under the plan proposed, when would the rate be 
put into effect ? 

. Mr. Girnam. As soon as the commission approved it. 

Mr. Denison. Do you mean that it would be put into effect as soon 
‘as the district commission approved it ? 

. Mr. Grmuam. No, sir. Here was the idea I had: When the district 
committee approves it, or any district committee makes its report, 1t 
sends its report through, whatever the report may be. It may be 


| 





i 








itl 


954. RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


half and half; the shippers might object and the railroads might n 
but it would go to the Interstate Commerce Commission and tl 
would look into the merits of the matter as they would be shown 
the records. Then, they would either approve or disapprove. I 
was approved, as a matter of course, the carriers would have 
day’s notice if it were an emergency, or 30 days’ notice with the us 
way to publish the tariff. | 

Mr. Denison According to that plan, the rate would not go h 
effect until finally adjusted ? 

Mr. Girnam. Until approved by the Interstate Commerce Co 
mission. 

Mr. Denison. Suppose that might take six months. The ¢o 
mission might be so busy that they could not give it attenti 
Don’t you think that it ought to be allowed to go into effect as soon 
the district commission passed upon it, with the right of review e 
suspension by the Interstate Commerce Commission? What do 4 
think about that? 

Mr. Gituam. I would not make the proposition as strong and s 
stantial as I would like to see it. I would like to see them appr 
the rate before it went into effect. Then, as a matter of course 
would be the subject of future complaints. 

Mr. Denison. The ‘idea that I had in mind was that while ft 
might be a desirable thing, as a matter of practice would it not pr 
to be unworkable because of the immense amount of work that 
commission would have to do, with consequent delays ? 

Mr. Giuuam. I think that with the very substantial decrease in 
litigation that would be forced by this arrangement, the commiss 
would have ample time to look over the records of each partie 
matter. The Interstate Commerce Commission in setting u 
district traffic committees, if they were so authorized, would proba 
give them some powers such as you have suggested, so that in cert 
cases their recommendations would be approved as authority 
issuing rates. 

Mr. Swrrr. Have you formulated any amendments to the bill 

Mr. Gituam. No, sir; I have not. 

Mr. Sweet. Along the line of the initiation of rates ? 

Mr. Gituam. No, sir; I have not. I have been giving this mat 
a great deal of thought during the several months of my service 
the freight-traffic committee. 'The members of the committee bi 
discussed among themselves the practicability of this system with 
ever coming to any conclusion about it at all, because we were do 
it informally at leisure moments. But after the experience I hi 
had, and with the very convenient way that the shippers have 
to come in and state their views to us and that the railroads’ re} 
sentatives have to drop in and state their views, we having the op} 
tunity to see them face to face and they the opportuinty to dese: 
their separate enterprises and their ideas, 1 should say that 4 
would be the proper thing to do before the rate was put into efi 
so that it would not be the subject of complaint. After talking 4 
way about it if I concluded to make a suggestion to this commit 
in the matter of initiating rates, which is certainly the most import 
part of the transportation system, I would do so, and I think ¢ 
would be an admirable method. . B 

Mr. Sweet. You believe that the shipper should have somethi 
to say about the initiation of rates 








RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 955 


Mr. Gituam. Yes, sir; I think they should. I think that there 
_ would be a great many breaches of harmony, litigation, and expense 
in coming here before the Interstate Commerce Commission that 
could be saved by giving the interested parties a chance to say some- 
thing in the first instance and then shut up—that is, to be satisfied 
as between themselves at the time that they had had a fair chance 
to lay whatever objections they might have before the commission 
_and to have them heard and properly acted upon. 
Mr. Sweet. I would like to have you formulate some amendments 

along that line to the bill and submit them with your statement. 
~ Mr. Grrxam. I will do so. | 

Mr. Sms. All that I want to ask you is this: Either with or with- 
out amendment along the line of your suggestions, do you think, in 
_ view of the present conditions, with the time within which we have 
~ to act, or the time that we ought to act, that it would be wise to pass 
the Esch bill ? 

___ Mr. Girnam. I think so. I think the amendments proposed in 
this Esch bill are necessary amendments. I think some of those 
_ amendments were found to be necessary before the railroads went 
into Government ownership; but, in the process of returning them, the 
idea seems to be that the forces have been coming here before 
you to get some assurance for themselves. 1 think the railroads 
should be given back in such form as would assure the owners thereof 
_ that they were going to have more credit than they had under former 
_ conditions. 

Mr. Srus. Do you suggest a specific amendment along that line? 

Mr. Gituam. I do. I think that should be done. 

Mr. Sims. I tried to pay as close attention as I could, but I may 
have missed some of your statement. I mean, have you formulated 
_ an amendment to the Esch bill which you think would furnish all the 
credit the railroads would need when turned back under the Esch 
bill? Have you formulated such an amendment specifically ? 

Mr. Gituam. No, sir; I have not. 

‘Mr. Simms. You simply suggest that for consideration ? 

Mr. Giruam. I suggest that if the Interstate Commerce Commission 
was given the power to have supervision and authority over the 
issuance of the financial affairs—I will use that expression as one 
expression to cover funded debt, capitalization, and all those things— 
on that basis they could build a rate which would take care of the 
Investors. 

Mr. Sirus. In other words, the commissions could take care of that 
by providing rates, rules, Annee and practices which would 
enable them to live through what we call the readjustment period. 
’~ Mr. Gira. Yes. 
Mr. Sms. But that would not involve a Government guaranty or 
- arate guaranty specifically provided for in the bill. 
Mr. Gituam. No, sir; I think a Government guaranty about as 
Vicious as some other propositions. 
| Mr. Sis. Now, as a practical traffic man, I appreciate your 
Opportunities to know what you are speaking about. Do you believe 
that bankruptcy, receivership, wreck, and ruin would follow the 
railroads if the Esch bill, as its general outlines purport, and with the 
amendments that have been proposed by practical men—do you 
believe that would wreck the existing corporations ? 


956 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Girnam. Not at all. 

Mr. Suus. Or that the commissions, either national or State, would 
not authorize reasonably protective rates? 

Mr. Giruam. Oh, indeed, they will. I do not anticipate a thing 


else, but that if the responsibility is cast upon the Interstate Com- 
merce Commission to care for the roads in the proper form; that is, 
so far as capital issues, the rates, and the car service are concerned, ] 
believe the responsibility will be cared for and all of this unrest wil. 
be at an end. I believe it will finally adjust itself. 

Mr. Sims. And upon the enactment of that bill, if it were in opera 
tion, it would not preclude Congress from considering any of thes 
several proposed plans in a fundamental way, or prevent such legis 
lation as Congress might afterwards see proper to enact, or none at al 
if they saw fit; that is, the Esch bull does not prevent furthe: 
consideration of these fundamental plans which have beer offered o: 
as many as commend themselves to Congress. 

Mr. Gituam. No, sir. 

Mr. Sms. In other words, it is not necessary to do all the thing 
that these other plans provide in advance of returning the railroad 
to their owners under the provisions of the Esch bill? 

Mr. Grrmam.-I do not believe the situation could wait to give th 
various plans the mature consideration they ought to have befor 
enactment into law. I think that the various plans submitted her 
ought to have at some future time consideration, and will doubtles 
get it. Iam sure they will, in some form or other. 

Mr. Warson. Mr. Gilham, you alluded to motor trucks. Betwee 
New York and Philadelphia there is the Lincoln Highway, which is. 
very hard-surfaced road, and during the war there was a motor true 
service started, and now there seems to be a continuous run of cars 
night and day, between New York and Philadelphia, naturall 
carrying hundreds of thousands of tons of freight every month, Di 
I understand you to say that you favor having such rates controlle 
by the Interstate Commerce Commission ¢ 

Mr. Giruam. I made a suggestion about that, Mr. Watson, but 
am not sure but what I am a little premature about it. As you sa) 
there are a number of these truck lines doing an immense busines: 
To give you an idea as to what consideration the people down wit 
us at Macon are giving them, we had our railroad shopmen out on 
strike there, and the people immediately took an mventory of th 
trucks. They had plenty of trucks to haul 300 tons of freight fe 
100 miles every day, and they did not seem to be worried about | 
much at all. | 

Mr. Watson. Within probably 20 or 30 miles of Philadelphi 
most of the local freight now is carried by automobiles which w: 
formerly carried by rail; probably 70 per cent, within a short distan< 
of Philadelphia is. being conveyed by automobile. The char: 
between New York and Philadelphia for a 5-ton truck is $100, and 
have talked to a number of shippers, and they inform me that thé 
would rather pay $100 than go to the expense of loading at one et 
and unloading at the other, especially when they get quicker servic 
and this service is from 10 to 12 hours between New York a: 
Philadelphia. It seems to me that automobile transportation 
erowing so rapidly that the rates must be regulated somehow _ 
fairness to the railroad companies, and if you regulate such rate 


| RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 957 
then you will have to have regional commissioners, because there 
will be such numerous cases to be presented. 

Mr. Grruam. I fully agree with you. I think it is inevitable that 
‘some regulatory treatment must be given them. 

The CHarrMan. If there are no other questions, Mr. Gilham, the 
‘committee desires to thank you for your attendance and for pre- 
senting your statement here. 

Mr. Giruam. I thank you, Mr. Chairman. 

(The committee thereupon went into executive session, after which 
it adjourned until Thursday, August 14, 1919, at 10 o’clock a. m.) 
| Macon CHAMBER OF COMMERCE, 
August 20, 1919, 
' Hon. Joun J. Escu, 


Charman Committee on Interstate and Foreign Commerce, 
: Washington, D. C. 

My Dear Mr. Escu: Inclosed find proposed amendment as to power of Interstate 
- Commerce Commission to fix all rates, fares, rules, etc., and providing for regional, 
territorial, district, or special committees. 
} As to motor-vehicle transportation being generally carried on throughout the 
country, © shall not offer any amendment, leaving that matter for such consideration 
as the committee may think proper. 
Yours, very truly, BENJAMIN GILHAM, 





Traffic Manager. 
(The proposed amendment is as follows:) 


That the power and authority to name just and reasonable rates, fares, charges, 
‘| rules, and regulations for each and every common carrier subject to ne act shall be 
vested in the Interstate Commerce Commission. The commission shall have the 
| right to establish regional, territorial, district, or special freight rate and traffic com- 





mittees and to assign duties of each and prescribe rules to govern same, delegating 

to such committees the power to initiate, revise, modify, cancel, or otherwise act 

With respect to any rate, fare, charge, rule, contract of common carriers subject to 
| this act in the manner and form deemed expedient and to the public interest, observ- 
ing such limitations only as to power and authority, with respect to duties of such 
regional, territorial, district, or special traffic committees, as may be vested in the 
| Interstate Commerce Commission under the terms of this act: Provided, however, 
| That railroads and shippers shall have equal representation in the appointment and 
composition of each and all such regional, territorial, district, or special committees. 
The Interstate Commerce Commission shall have the power to designate the chair- 
man of each of the ccmmittees herein provided for and to fix the compensation of 
each of the members thereof. 


| 

| 

| as. 
| 

| 





Hovusrt oF REPRESENTATIVES, 
COMMITTEE ON INTERSTATE AND ForEIGN COMMERCE, 
| Thursday, August 14, 1919. 
The committee met at 10 o’clock a. m., Hon. John J. Esch (chair- 
; Man) presiding. , 


STATEMENT OF MR. LUTHER M. WALTER, GENERAL COUNSEL 
OF THE NATIONAL ASSOCIATION OF OWNERS OF RAILROAD 






SECURITIES, 1623 FIRST NATIONAL BANK BUILDING, 
CHICAGO, ILL. 


The Carman. To-day we take up consideration of the so-called 
Warfield plan, and Mr. Luther M. Walter is here to present it. 
Mr. Walter, give your name and address and whom you represent. 


152894—19— vor 1 61 





958 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Waxrer. Luther M. Walter, of the firm of Borders, Walter & 
Burchmore, 1623 First National Bank Building, Chicago. I am 
one of general counsel of the National Association of Owners of 
Railroad Securities. 

In opening the statement for our association I have been requested 
by Mr. S. Davies Warfield, the president, to specifically direct your 
attention to the remarks made by him on January 31 and February 138 
and 14, 1919, before the Senate Committee on Interstate Commerce, 
to be found in parts 7 and 10, respectively, of those hearings. 
assume that that is sufficient to bring them before your committee. 

The observation should be made at this time that the plan as then 
submitted has not been changed, and will be presented as it was at 
that time. Some of its fundamentals have been adpoted by other 
organizations and presented to you. That will develop as I proceed 
with my remarks. 

The National Association of Owners of Railroad Securities is a 
voluntary organization made up ot the owners of railroad securities, 
arin salty bonds, comprising the large life insurance companies, 
fire insurance companies, savings banks, in short, all of the trustees 
or the investment concerns are members; and in the membership 1s 
represented almost $9,000,000,000. 

The purpose of the association is to present to public authority, 
whether regulating bodies or legislatures, the interests of its members; 
to see that there is such treatment accorded as will deal. fairly with 
the investment already made and make it possible for investments 

tobe made in railways in the future. 

»« I-think I might also say that these same members are holders of 
‘investments made in all of the industries of the United States in 
‘every form. What you do here will largely affect the stability and 
credit of investments made throughout the United States. ; 

The members of the association and its officers believe that under 
our system of government investment in property is protected under 
the law and under the Constitution and they confidently believe that 
the members of this committee and the House and the Senate will 
not depart from the principles upon which our Government has beep. 
founded and upon which our industry has developed to,be the greatest: 
in. the world. 

Perhaps, every one of you gentlemen on the committee hold life- 
insurance policies. Twenty-five per cent of the investments back of 
those policies. is in railroad secutrities, principally bonds. One of 
-the large life insurance companies holds approximately $400,000,000 
of railway bonds. The workmen throughout the United States m 
making provision for their families, and you and I m making provis- 
ion for our families after we have gone, are vitally interested to see 
that fair treatment is accorded to these investments. 

Following Mr. Johnston you will hear from the savings banks as 
to what they think of the proposition. I was very much surprised 
to learn that in the State of Massachusetts 70 per cent of the popula- 
tion are investors in ‘savings banks and these banks make their 
investments to protect their depositors. 

A bill has been prepared and will be presented by Mr. Johnston, 
the drafter, who will explain its provisions in detail. — 


iy 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 959 
_ Now, beforé I begin a discussion of the plan, I want to call your 
‘attention to one or two fundamental propositions. These roads 
'were taken by the Government for war purposes only. The first 
year of operation by the Government has cost the Government 
|approximately $250,000,000. Up to the end of June the Govern- 
‘ment had lost approximately $300,000,000 more. By the end of 
‘the year, I think we may count on an absolute loss, irrecoverable to 
the Government, of $1,000,000,000. 
__ I want to furnish to the committee a summary of the reports made 
by class 1 carriers to the Interstate Commerce Commission for the 
‘month of June, and for the first. six months, and at the same time 
‘to hand to you a compilation by the United States Railroad Adminis- 
tration, being the condensed income account as reported by it. 
' I want to briefly call attention to these facts as showing the finan- 
cial condition of these carriers. 
(The reports referred to are as follows:) 








RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


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RETURN OF THE RAILROADS TO. PRIVATE OWNERSHIP. 973 


You will observe from the report for the month of June, 1919, a 
comparison with June, 1918 

The CHAIRMAN (interposing). On what page or sheet? 

Mr. WatTsr. On the one from the Interstate Commerce Commis- 
‘sion. ‘They are now using both sides of the paper and this is the one 
‘which on one side deals with June and on the reverse side deals with 

the six months. 

These figures as shown in the final summary cover class 1 roads 
only, dealing first with the United States, and then separately for 
each of the three districts. You will find that the railway operating 
revenues in June this year exceeded those for June of last year by 
approximately $31,000,000. You will find the aggregate revenues 
were $426,000,000 in June, 1919, and $395,000,000 for June of last 
year. Item 18 gives you the ag sregate expenses. 

Mr. Sms. The gross return ? 

Mr. Warrer. Yes. Now, June of last year contained a very large 
amount of labor cost made retroactive by Order No. 27 to January 
1; and the expenses there shown are greater than the actual 
expenses; the real result so far as June, 19°8, is concerned, is much 
better than appears on that statement. 

The railway operating income as shown by item 22 and that is 
the item which really states the net results of operation, shows in 
June $55,000,000 this year as compared with a deficit of $57,000,000 
last year, but, as you will find when we come a little bit later to use 
the exhibit prepared by the Railroad Administration that there is 
‘m labor cost, made retroactive, something like, for the six months, 
$98,000,000, so that there is no ‘accurate result in accepting the June 
ficures, and you must furthermore bear in mind that the increase in 
rates on freight became effective June 25, 1918. There was only 
one week of that increase in the June, 1918, figures. 

Mr. Winstow. Is that the net operating income ? 

Mr. Watrers. Yes, sir. The terms ‘‘railway operating income’’ 
and “net operating income”’ are gencrally interchangeable. 

Mr. Winstow. What items do you take into tuat? 

Mr. Watrer. You will note, item No. 19, ‘‘net revenue from rail- 
Way operation,” which is the difference betw een item 10 and item 15, 
‘is $69,000, 000 for June, 1919; deducting “‘railway tax accruals — 
: excluding “ war taxes’ ’—which under Federal control the corporation 
has to pay, and the “uncollectible railway revenue,’ leaves 
| 7, 000,000. That is the operating income. 

Mr. Wixstow. Does that include the bond interest ? 
Mr. Watrer. No. The bond interest is payable out of the oper- 
3 ating income, and the dividends as well. That is what the corpora- 

tion has left to pay fixed charges and dividends, and from that must 
! ao. be paid the equipment rents and joint facility rents. 
| 





Mr. Winstow. Do you show anywhere how they come out after 
paying dividends and the interest on the bond? 

Mr. Watters. I have not that, but will later show you as to the 
individual carriers. 

Reversing the sheet, because I want to go through the various 
classification territories, you will find the results for the six months 
which is much more comparable and will answer the question as to 
What the condition of these carriers is. 


152894—19—-voL 1———62 


| 


974 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


You will observe that the railway operating revenues, item 36, 
for the six months, 1919, are $2,356,000,000, and for 1918, $2,088,- 
000,000, showing $268,000,000 increase. ‘he operating expenses 
which were $1,821,000,000 in 1918 became $2,090,000,000 in 1919. 

Mr. Winstow. You might explain these items as you refer to them. 

Mr. WattTER. Yes, sir. 

Mr. Winstow. Do the advanced rates apply to both years, 1918 
and 1919, when you come to consider your gross operating revenue? 

Mr. Watter. No. The figures for 1918 contain an increase in 
passenger rates which became effective early in June, I think, and 
the freight rates, June 25. At any rate, there was very little of that 
increase in revenue due to the Railroad Administration’s increase in 
the rates, shown in the 1918 figures. 

Mr. Winstow. Have you anything here to show the cost of opera- 
tions, outside of labor? 

Mr. Watrer. Yes. You will see there that the maintenance of 
way and structures, item 37, increased from $288,500,000 to $370,- 
823,000, that maintenance of equipemnt increased $110,000,000, and 
in traffic there was a reduction of $5,000,000. 

Mr. Coapy. What does that mean ? 

Mr. Watrter. That is the cost of the off-line officers—the traffic 
managers. Ae Ge | 

Mr. Coapy. In other words, the overhead ? 

Mr. Watrer. Yes, sir; all of the men who publish the tariffs, who 
solicit the shipment of freight, and things of that sort. 

The CuarrMAN. They were discharged ? 

Mr. Watrer. They were discharged. 

The CuarrMAN. Or put to other duty ? 

Mr. Watrer. Yes; or put to other duty. ‘I think I will interpolate. 
That is one of the reasons why the Railroad Administration was not 
successful. The men who were in contact with the shipper and the 
passenger were taken away, the point of contact—n other words, the 
sales agents of the Railroad Administration were removed from duty 
and the policy adopted of moving the freight without much regard 
to anybody’s wishes or cost. 

Mr. Cooper. Do you know of any instance where any competent 
men who had been with the railroads for years have been dropped 
from the service ? , 

Mr. Watter. There were a number of men who were dropped. 1 
can not give the details. I happened to be the assistant director 
under Judge Prouty at that time during 1918; all of the complaimts 
to the administration came into our division and I handled most of 
them; there were a number of men who had been dropped because 
they were traffic men and off-line officers without anything to do: 
The corporation took care of a good many of them and others were 
given other duties but there were a number that were left out. 

Mr. Cooper. The reason I asked that question was because it has 
been called to my attention that a great many men had been dropped 
from the service, men who had had long experience in the operation 
of railways. I know some of them personally myself. 

Mr. Watrter. That is true; that did happen. 

Now, transportation, which includes a large part of the labor cost 
appears in item 40. 

Mr. Sms. Item what ? 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 975 


Mr. Watrer. Item 40. There was an increase from $970,803,000 
9 $1,043,210,000. 

“Mr. Sims. That does not include the labor cost only? 

Mr. Water. No; but that is very largely labor. 

-General expenses in item 43, transportation for Investment, are 
mall items. 

Mr. Srus. Does that include the higher officials in the labor cost ? 

Mr. Watters. They would be chargeable to transportation, I think, 

ery largely because they were the operating men; the appointment 
f regional directors, Federal managers, and other admmistration 
aen, resulted in the severance of a great many men from the admin- 
stration pay roll, who became officials of the corporation and were 
aid by the corporation out of its standard return; if we should add 
o the Railroad Administration expenses the salary roll of the men 
ecessary to keep the books and to act for the corporation that would 
e a figure comparable to what it was in 1918, because the salaries 
f the president and these larger officers, I think, were charged against 
he administration up to June, 1918. I think it was about that 
ime that they severed relations with the corporation, so that if the 
orporation’s pay roll aggregated $100,000,000, for the purposes of 
llustration, it ought to be reckoned with in comparing because it 1s 
a the expenses of 1918 and not in the expenses for 1919. 
Mr. Wrystow. How did the tonnage compare in those two years ? 
Mr. Watrer. As I recall the figure it was about 2 per cent more 
o 1918 than in 1917, but there are some figures available. I will 
ubmit those figures to the committee as to just what the result has 
en. I think I have here some figures that will give you that 
nformation for the individual months. 

Mr. Winstow. The reason I made the inquiry was to find out if 
he increase of revenues was due entirely to the rate? 

Mr. Watrer. I[ think it was, but I have some figures that will 
mswer that. The tons per mile of road per day, getting down to 
hat unit, the net ton-mile, that is the freight per ton-mile per day 
a 1919 for January was 4,275; 1918, 3,878, and 1917, 4,770. In- 
tead of giving this by months, let me give you the result of six 
aonths for 1917, 1918, and 1919. 

_ Mr. Winstow. For six months? 

Mr. Watrer. Yes, sir. For the first six months in 1917 the rail- 
oads under private operation handled 5,081 tons of revenue freight 
yer mile of road per day; in 1918, this fell off to 4,975, and in 1919 
0 4,266. You see the drop in business, 

Mr. Wiystow. All of the increase of revenue from freight was due 
-0 the rate ? 

| Mr. Watter. Yes, sir. 

» Mr. Wrnstow. And a little more? 

Mr. Watrer. Yes, sir; I think that is true. June, 4,615, that is 
che past June, 4,615 tons per mile of road per day, which was an 
nerease over May of nearly 90 tons. 

_ Mr. Warson. Were sidings included in the expenses of 1917, that 
3, sidings into the factories ¢ 

Mr. Watrer. No. That would be very largely capital account. 

_ Mr. Watson. You treat them as capital account ! 





976 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Water. Very largely capital account, that is true, but the 
cost of operating those sidings and switches would be represented in 
the expense account. 

Mr. Merritt. The figures which you have given would have some 
bearing on the allegation which has been made several times that 
during that time the railroads had ceased to function ? 

Mr. Watrer. Yes, sir. I have just this observation to make on 
that. There was congestion in the eastern part of the country, but 
if the repressive provisions of the law as to combination and con- 
centration of action and concentration of force had been removed, | 
verily believe that the railway operating officials could have brought 
about just the same result, and perhaps better. 

Mr. Merritt. And at very much less expense ? 

Mr. WattTEeR. Undoubtedly. 

Mr. Winstow. Was that the only remedy had, as a matter of fact’ 

Mr. Watrer. I think that was the remedy. I do not know of 
anything else. I would not say that there was no other cause. 
It is very difficult to pomt to a particular thing, but that is my 
understanding. 

Mr. Montracur. What do you mean by repression ? 

Mr. Water. The right to combine and to put all operations in 2 
single control; in other words, make a director general themselves 
to subordinate the individual action to the greater power. 

Mr. Montacur. You mean that it was more efficient and successful 
under the Railroad Administration ? 

Mr. Water. I think it was. > 

Mr. Montacus. In other words, you think if such liberty had been 
given the railroads they would have been more successfully managed 
for the war purposes than by the Government taking them over and 
operating them? | 

Mr. Water. I think they would. 

Mr. MontacuE. I have felt that way myself. | 

Mr. Water. My opinion may not be worth very much, but that 
is my judgment. When you got west of Chicago and south of the 
Potomac there was little congestion, it all lay in getting to the north 
Atlantic ports, and when you got—— 

Mr. Cooper (interposing). According to the figures given there 
were more tons moved before Government control than there were 
in the years 1918 and 1919? 

Mr. WatTER. Yes, sir. 

Mr. Coorrer. Then, as Mr. Merritt said, the roads had not ceased 
to function under private control ? 

Mr. Watter. They had not. There were, of course, very graye 
weather conditions immediately before and immediately after the 
transition from private to Federal control. | 

Mr. Sims. If I catch the force of your remarks about private col- 
trol with a single director, as compared with Federal administration 
they would have been operated better and have secured bette! 
results than they did ? 

Mr. Watrer. More economical. 

Mr. Sms. That is what I understood. 

Mr. Watter. I think that is right. St 

Mr. Sms. Would not that argument apply right now to the rail 
roads if they were in the hands of their owners and being operated 
would not that same result follow? 


° 


| RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 977 
| Mr. Water. I think it would follow, but you must bear in mind, 
ludge Sims, that the Railroad Administration has piled upon these 
arriers costs of operation which they could not to-day handle 
yithout disaster to them. ‘ 

Mr. Sims. You mean that they could not operate the railways 
‘iow as economically as they are being operated or that they could 
ye operated more economically, according to your judgment, than 
he Railroad Administration is doing it? 

Mr. Water. I think so; I believe always that private initiative 
ind private control can do that. 

Mr. Srus. Then, why should not the operation of the railroads be 
‘eturned to them if they would not make a deficit? They might 
duce it, and it would be in the public interest if the deficit could 
ye reduced. 

Mr. Water. -Then, the public would be shifting from the 
-houlders of all of the people to the owners of these properties losses 
vhich the Government itself has placed upon those properties. 

| Mr. Srms. You do not comprehend my question. I méan why 
hould not that be done without withdrawing the guaranty or doing 
mnything about it? Would it not be economical and beneficial for 
‘he railroads to be now operated by their owners instead of having 
he Government to operate them through its present facilities ? 

_ Mr. Watter. I think that is true. : 

_ Mr. Sims. Then, would it not be in the public interest to prevent 
in increase of the deficit, or to reduce it so far as it can be reduced ? 

Mr. Watrer. I think that is true; but the injustice of that would 
e that unless the Government continued to be responsible for those 
esults it has created it would be placing upon those properties a 
‘nancial burden that is not fair, just, or equitable. You can not, 
is I said before, turn these properties back to their owners unless 
rou make provision coincident.with their return for their being 
perated in the interest of the public, and with a fair return upon the 
apital invested, and a fair wage to labor. When you do that, the 
(uicker you return them the better. 

Mr. Sims. What I am trying to convey to your mind is that it 
vould be better to return them with a less deficit, and I am not 
roposing as a condition that the guaranty should cease. That was 
ny question. 
| Mr. Watrer. That can not be done without legislation. 

» Mr. Sms. Would it not be in the POU interest, according to 
‘our judgment, to return them even if they were not able to over- 
‘ome the deficit, supposing that the Government continued liable 
or the standard return ? 

| Mr. Water. Yes, sir. 

_ Mr. Coapy. Was not the cold weather of the winter of 1917 and 
he great congestion responsible for the loss? 

. Watrter. It was the congestion or weather congestion of 
Jecember of 1917. . 

| Mr. Montacur. Do you give anywhere in your figures the amount 
‘if labor cost ? 

__ Mr. Watrer. The items of that are shown, as far as I could show 
‘hem, in item 43 and the other divisions. — 

- Mr. Montracur. I understood you to say that it is included in 
he cost of transportation, but is there a separate item here for that? 













~ 


978 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Watrter. No, sir; but my understanding is that the increase 
in wages alone by the Railroad Administration exceeds $1,000,000,00( 
annually. 

Mr. Monracur. What is the greatest cost connected with thi 
operation of railraods? Is it the labor cost? Is that the greates 
or the least cost ? 

Mr. Water. The labor costs are the greatest costs. 

Mr. Montacur. Don’t you think your figures ought to show tha 
labor cost ? 

Mr. Waurrr. I have not those figures separately, but I will en 
deavor to have them here. I would make the observation tha: 
these items covering maintenance of way, structures, and equipmen 
include the labor cost of the men engaged in doing that work, an¢ 
their increase in wages would also be shown in this item. 

Mr. Montracur. What I am eager to see is what part of the cost i 
represented by labor. Do you include in that all salaries ? 

Mr. Water. Yes, sir; but I think there is a separate item in th 
classified accounts for that. I will undertake to secure from th 
commission a comparison of those various items segregated for si 
months in 1918. 

Mr. Coapy. Are the labor costs included in all these items from 3} 
to 43% 

Mr. Water. Yes, sir; I think there is an item of labor in ever, 
one of them. Now, let us go for a moment to the condensed incom 
account as prepared by the Railroad Administration, and that give 
you the percentage 

Mr. Montaaue (interposing). What number is that ? 

Mr. Watrer. That is the small print in the four-sheet exhibit 
Take the first two sheets giving results of June, 1919, as compare 
with June, 1918, and you will see that the Railroad Administratio 
has divided the information as to districts and regions. Over in th 
right-hand column, which is a very important one, you will find th 
per cent that the net Federal income bears to the rental which th 
Railroad Administration must pay for those properties. You wi 
observe that for the month of June, in the New England district, i 
the next to the last column—— 

Mr..Sms (interposing). What does that “‘B” mean? 

Mr. Waurer. ‘‘B” means that they earned net in June less tha 
the amount of rental which they had to pay. 

Mr. Sms. The figures mean what they did earn 

Mr. Water (interposing). They earned 42 per cent of what the 
had to pay in the New England district this year. 

Mr. Barxiey. This last column means that they did not ear 
anything ? | 

Mr. Watrer. That they did not earn as much as they had to pay 
and that there was a deficit. 

Mr. Barxiey. There seems to be a deficit in all of them. 

Mr. Watter. That is for June of this last year. 

Mr. Barxiey. Then, there should be a ‘‘B”’ in the second colum 
too. 

Mr. Watrer. ‘‘B” represents the actual deficit, where they «i 
not earn the operating expenses. You must bear in mind the feu 
that in that month last year retroactive wages were largely pai 
and that helped to make the June deficit. 








RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 979 
Mr. Sms. Then, in the other column, for this, year, there are shown 
earnings in excess. 
‘Mr. Watter. No, sir; it is only in excess of the rental where it 
exceeds 100 per cent. The New England roads earned only 42 per 
-eent of what the Railroad Administration must pay for the proper- 
ties. 

Mr. Sms. What about last year? 

Mr. Coapy. Take this 42 per cent 

Mr. Water (interposing). That shows it earned minus per cent. 

Mr. Sims. And this is plus—— 

Mr. Watrter. Yes; plus, or over the actual operating expenses. 
For purposes of illustration, they paid for the rental of roads in the 
‘New England district $3,542,552, and in June of this year they 
earned $1,491,158 over the cost of operation, or 58 per cent less than 

the rentals they had to pay. 
Mr. Sms. Last year it was all below the cost of operation ? 
Mr. Water. In June. 
__ Mr. Montague. Do you mean to say that operating cost exceeded 
operating income ? 

Mr. Water. Yes, sir; they excceded the revenue account. They 
charged into June of last year what they had to make up in back 

wages. 
: ‘2 Wesster. In the last column where ‘‘B’’ appears, 1t means 








“that the roads earned less than the cost of operation, and, conse- 

quently, no per cent of the return ? 

'- Mr. WatrTeER. Yes, sir. 

Mr. Wesster. And the other column shows the percentage of 
return that they did earn ? ‘ 

| Mr. WALTER. Yes, sir. 

Mr. Sims. Over and above the cost of operation ? 

: Mr. Watrer. Yes, sir; the percentage of the rental. 

Mr. Sims. It is more than last year ? 

| Mr. Watrer. Yes, sir. I have, as you will see, appended a state- 

| 

1 





| ment taking the grand total of all the regions for June, and you will 
observe that all roads under Federal control earned 64 per cent of 
the rental which has to be paid. 
Mr. Coorrer. Do I understand that the Government will have 
make up that deficit, or will have to make up that 36 per cent ? 
Mr. Watter. That is the grand total. It means that for June 36 
per cent would have to be paid out of the taxpayers’ money. You 
- will observe that some of the railroads earned more. For instance, 
dropping down to the Detroit & Toledo Shore Line, there is shown 
an earning of 212 per cent on the standard return, and the Grand 
| Trunk Western shows 429 per cent. Then there are some roads that 
had actual deficits, as you will notice opposite the letter ‘‘B” in the 
left-hand column; but taking the six months’ period, which appears 
on the last two sheets, that statement shows that in the first Six 
months of 1918 the grand total for all the regions, or the grand toal 
_ earned by all of the roads under Federal control was 38.4 per cent of 
their rental, while for the same period this year the earnings were 
| 39.8 per cent. There is a difference of 1.4 per cent. 
) Mr. Stiness. What sheet is that ? 
_ Mr. Warrer. That is the third sheet. You will notice the number 
of ‘‘B’s” even in this year, after the war is over. That is shown on 
third sheet of the exhibit. 





980 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Sweet. Is not-that the fourth sheet ? | 

Mr. Watrter. It is the third sheet that I am commenting on now, 
That shows that 39.8 per cent of the rental due for the first half of 
the year was earned during that six months; tliey are behind 60.2 pe 
cent of the accrued rental. The first two sheets deal with June only, 
while the next two sheets deal with the six months’ period. 

Mr. Merritt. The first and second sheets deal with June ? 

Mr. Water. Yes, sir. If you will note the results for those re- 
gions, you will find that in the New England district there is an actual 
deficit this year as well as for last year. You will note that in the 
Allegheny region there was only 9.4 per cent earned of what they 
actually promised to pay those carriers. Now, let me call your atten- 
tion to this fact, that in July and during the last days of June, 1918, 
the Railroad Administration relinquished over 2,100 corporations or 
railroad lines of transportation. They issued that many notices of 
relinquishment, and there are to-day under Federal control something 
less than 500 lines. 

Mr. Sims. The greater part of those lines that were relinquished 
were plant facility lines, were they not? | 

Mr. WALTER. Judge, you and I have some disagreement as to what 
is a plant facility. 

Mr. Srus. They were what the Railroad Administration regarded 
as plant facilities, were they not? 

Mr. Water. They have discharged lines that they said were 
plant facilities that I do not think were plant facilities. 

Mr. Sims. Well, let us take what they say they were. 

Mr. Water. They discharged some of the same kind that they 
kept, and they kept some of the same kind that they discharged. 

r. Sms. But a number of them, even you admit, were plant 
facilities ? 

Mr. Watrter. I do not know. I would not admit that, because 
I do not know what they were. I asked the division of law to tell me 
how many orders of relinquishment had been issued, and they told 
me that the number was something over 2,100. 

Mr. Sims. What was the mileage ? 

Mr. Water. I do not know. J want to make it plain to you that 
if you continue the standard rate of return there are a lot of lines 
that are now not under Federal control and have been out right along; 
you must deal with the railroads of the country as a whole if you are 
going to do exact justice. 

Mr. Coapy. You referred to the Allegheny region. That is a 
region of coal-carrying roads, is it not? 

Mr. WALTER. Yes, sir. 

Mr. Coavy. And the freight is heavy ? 

Mr. Water. It was heavy and is heavy. The best results in an 
one of these regions is shown in the central western region, whic 
shows for this year 63.1 per cent and for last year 76.9 per cent, 
while the southwestern region showed for six months last year 74.7 
per cent, while for six months in 1919 it shows only 34.2 per cent. 

Mr. Ses. Is that due to inefficiency of operation ? 

Mr. Watrer. I can not say whether it was due to that or some 
thing else. 

Mr. Stms. Was it due in any degree to that ? 

Mr. Warrer. I would not say that it is due to inefficiency in 
operation, because I do not know. 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 981 


_ Mr. Sims. Do you know that it does in part account for that great 
difference ? 
_ Mr. Water. I know that is the ultimate fact, and I believe that 
private management can do better than Government management. 
- Mr. Winstow. In some cases was not freight diverted from one 
ine to another line, which might possibly account for those losses ? 

Mr. Water. Yes; that is true. J would not say it is a fact, but 
if 1 were a regional director operating a property with which I had 
been connected in the past, and expected to be connected with after 
Government control was over, I might, unintentionally and purely 
as instinct, as a honeybee makes its cell, get as much traffic as I 
could on to the line I knew about, because | would know I could 
handle it. Now that result might happen. There has been com- 
plaints by owners of the property, to the Railroad Administration, 
that the men who were in charge had diverted freight and passengers 
and had operated the properties to the benefit of some and the det- 
riment of others. I am not saying that is well founded, but it is just 
one of the things that did happen. Now, go down that list—— 
Mr. Stas (interposing). Right in that connection, in order for that 
to be a true statement, they would have to have diverted from the 
whole southeastern region the difference between the average 74.7 
and 34.2. 3 
Mr. Watrer. Not at all. 
' Mr. Sms. Why not? 
Mr. Watrer. Unless it was wholly due to a diversion of freight 
and nobody has made that statement. 

Mr. Sims. You said a diversion of traffic. 
_Mr. Warrer. But I didnct say where. Iam speaiing of individual 
ines. 
g Sims. But the lines within the same region compare with each 
ther. 
Mr. Warrrr. They may compare, but what is the result of the 
‘tomparison. You can compare any two objects, but the result is 
ihe comparison. 

Mr. Stms. What I mean is a diversion from one local line to another 
ocal line in the same region. 

Mr. Water. Yes; but let us assume that the Santa Fe operating 
‘rom California to Chicage runs through one region and that there 
ire other roads connected with gateways to California. For example, 
ihe Burlington, which connects at some junction point between 
Jalifornia and Chicago, and that freight is diverted onto the Bur- 
ington. It would come out of that Southwestern region and would 
10t appear in the figures this year. And take another illustration 
learer home 
. Mr. Sims (interposing). This is 40 per cent less and I can not see 
ow you can reasonably insist that that is due to any kind of diver- 
lon. ; 
Mr. Watter. I did not, Judge Sims. Please understand that I 
lid not say that was entirely due to that, or that any part of it was, 
ut I said it was possible. Now, let me give an illustration that is 
,t little bit closer. I heard of some figures in October of last year 
‘vhere the Pennsylvania and the Baltimore & Ohio showed sub- 
| tantial decreases for that month and the New York Central showed 
|. Substantial increase. New, it is barely possible that part of that 













982 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


difference might be due to the more profitable freight going over the 
New York Central for purposes of successful o eration. The Rail- 
road Administration might want to send train loads of empties west 
over one of those lines and move the loads east over another. The 
revenue of that loaded movement would in nowise appear in the 
results of operations on the Pennsylvania or the Baltimore & Ohio, 
but would appear in the New York Central. J am not saying that 
these figures are due to that at all, but I am trying to make the point, 
before | come to the remedy, that these roads can not now, on the 
revenues and expenses they have, take up the burden of giving the 
people of this country fair transportation service and give any return 
on the investment. 

Now, let your eye run down to the next to the last column and note 
that some of those carriers earned 200 per cent of the rental due for 
the six months, and to the like effect on the last page. But you will 
find a lot of ‘‘Bs” in that same column for the six months of 1919. 

Now, a great deal of very valuable information is contained in 
those five sheets, one from the Interstate Commerce Commission 
and four from the Railroad Administration. The tendency is the 
thing to observe. 

The Railroad Administration is continuing to operate these prop- 
erties. They have wage advances, as I believe the Director General 
has said, pending before him running up to the hundreds of millions, 
perhaps $800,000,000. The members of our association, gentlemen 
of the committee, believe that labor is entitled to a fair wage fol 
what it does, and that capital is entitled to a fair return. Labor and 
capital, jointly, give the puolic the service for which the public pays 
If, after labor has been fairly paid, there is more than a fair returr 
on capital, capital and labor ought to share that excess earning 
The public is vitally interested, and we believe that the public shoulc 
likewise have some of the excess which it has paid over and above the 
labor and operating cost and the capital cost. ; 

The National Association of Owners of Railway Securities, whet 
it took up this problem of trying to work out a solution which woul 
be fair to all of the three interests, capital, labor, and the public 
consulted with the shippers. For the first time, almost, in my pro 
fessional career have I appeared where there was an interest, pri 
marily, for which I was paid, other than the shipping interest, and. 
assume that one reason why I am one of the general counsel for thi 
association is because of my contact with the shippers, my under 
standing of their problems and their position, I believe the associa 
tion has worked out what is fair to all these interests. We consulte 
with the State commissions, with their representatives; we con 
sulted with public interests; so that this plan brings to you th 
Sedan I think, fairly combined, of the views of all these differen 

eople. 

Z Noe what is the plan? The first problem is to get a proper rit 
level. . If you go out and buy an engine or an automobile, you wl 
find on every engine a gauge, an oil level. If you do not keep itu 
to that level you are liable to burn it out and ruin your power. ] 
you keep it way above it, you lose power, because you soot up an 
your ignition is faulty. : 

So first let us find a proper level and keep the oil up to the mark 0 
the gauge, and therefore we suggest first that this Congress say | 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 983 


_ the commission—and we think the commission is the only body that 
| ought to have anything to do with the regulation of these railroads— 
- “You make the rates and make them to produce on the aggregate 
_ -yalue of these properties, devoted to the public service 6 per cent”’; 
. we say to each individual carrier, ‘‘Go out and get all of that you can, 
and make your service attractive to the shipper.” We do not take 
any of the money that any one carrier earns and give it to another cavrier. 
Now, that is our rule for rate making. It is the rule that was 
submitted here by the transportation conference of the Chamber of 
Commerce of the United States, held under the auspices of the Cham- 
ber of Commerce of the United States. 
Mr. Denison. Does that mean 6 per cent on the entire valuation ? 
Mr. Wattrer. On the combined valuation, treating them as one 
‘railroad. 
' Mr. Denison. Including the stocks and bonds ? 
Mr. Water. No, sir; you pay no attention to their stocks or 
- bonds. It is the value of the property devoted to the public service. 
Mr. Denison. How is that ascertained ? 
' Mr. Wartrer. Until the commission has found the value of these 
properties we take the only available standard or base, the property 
imvestment accounts, and [J am now coming to what I regard as the 
crucial point that must meet your approval. 
Mr. Plumb, who is perhaps as learned and informed on these things 
-as any man connected with the valuation of the railroads, made this 
statement to you—and I want you to understand that as a lawyer I 
_ have the greatest respect for Mr. Plumb and his familiarity with these 
subjects; I do not by any means agree to his results, but as a lawyer 
and as a student he is familiar with these things, and JI want to call 
your attention to the statement that he has made. 
Mr. MontaGus. When and where ? 
Mr. Water. Before you. 
_ Ihave shown by some excerpts from reports by the Interstate Commerce Commission 
that the property investment account of the railway lines in all of the transportation 


districts of the United States are wholly unreliable, and can not be used as the basis 
, for determining what the public shall pay for service. 








Now, there he made a succinct statement in that quotation; you 
gentlemen as lawyers, a good many of you, know that you can take 
a particular opinion and draw out a sentence somewhere and assert 
| that as an authority, but when you take the whole case it is different. 

Now, I propose to show to you that when the same sort of a ques- 
tion that we are here propounding to you was presented to the Inter- 
| State Commerce Commission it took the property investment account 
| as the only available base by which to determine whether the revenues 

of the carriers were adequate. 
| Now, let-us take the 5 per cent case. That case was decided by 
| the Interstate Commerce Commission on July 29, 1914. 
| Mr. Wrinstow. Will you permit an interruption there ? 
Mr. WALTER. Yes, sir. 
/ Mr. Wiystow. When you speak of property investment, do you 
‘mean such property as has actually been paid for in cash? 
_ Mr. Warter. No; I am taking the property investment account. 
- But I am willing to go further; if there is a fraud in that account, it 
' can be corrected; but when we take the combined property invest- 
‘ Ment accounts of all the roads in the United States, it is quite different 






a 


984 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


from taking the property investment account of any one particular 
road which may be excessive in and of itself. 


Mr. Winstow. You take the property investment accounts as 
carried by the books of the companies ? ) 

Mr. Watrer. Yes; for the 2,500 corporations in the United States, 
and consolidate them and treat them as one railroad. 

Now, in the Five Per Cent case, the commission’s decision was an- 
nounced on July 29, 1914. In that case the increases requested were 
5 per cent in official classification territory. There were 35 railway 
systems which, in presenting their case, acted as one, treating those 
35 svstems as one railroad, and the commission took them in the 
same way. The decision is reported in 31 I. C. C., 351, et seq. 

On page 355 the commission states what was involved in the pro- 
ceeding of inquiry which it initiated on its own motion: 


1. Do the present rates of transportation yield to common carriers by railroad oper- 
ating in official classification territory adequate revenues? 
2. If not, what general course may carriers pursve to meet the situation? 


On page 360, under the heading ‘‘Do the railroads need increased 
revenues /”’ the commission states: 


Briefly summarized, the specific contentions of the carriers are as follows: , 
(a) That the rate of return in net operating income upon the property investment is 
declining. 


And (6), (ec), and (d) follow. 
Now, on the first proposition and under the heading “The test of 
the sufficiency of revenues,’ the commission states: 


In the 1910 case (20 I. O. C., 243, 275) we said that the question then to be deter- 
mined was whether the net return of the carriers upon the value of their property 
devoted to the public service was sufficient without an advance in their rates. In 
this case the carriers, following that suggestion, have sought to show an inadequacy 
in their revenues under the present rates by comparing their return with their prop- 
erty investment. They have introduced no evidence to establish either the cost of 
their properties or their present value, but have adopted the book value as the ‘‘near- 
est and most accurate reflection of the value of railroad properties devoted to public 
service obtainable at the present time.” > 


That quotation, I may interject, I think is from the brief of the 
carriers. The commission proceeds: 


The nature and unreliability of the property investment accounts of carriers have 
frequently been commented upon by the commission; and it must not be understood 
from what was said in the 1910 case, or from what is here said, that the commission 
regards it possible to scure from the carriers’ books and records complete information, 
either as to the cost or the present value of the properties devoted by them to the 
public use. Because of the unreliability of those accounts, some of the protestants 
have vigorously challenged the right to use the property investment accounts of the 
carriers as a basis for determining the adequacy of their net revenues. They contend 
that, in the absence of more definite proof showing the cost or present value of the 
property, there is no sufficient basis for any conclusions on that question. Is the 
position of the protestants well taken? 


Under recent legislation by Congress the commission is now engaged in ascertaining 
the original cost, so far as possible, and the reproduction cost of all the railroads in the 
country. The work is but just commenced and no general results can be made avail- 
able for several years. Ifthe information were at hand at this time it would doubtless 
clear away many points of obscurity in the case; for the reasonableness of the return 
enjoyed by these carriers can not be measured accurately without a more exact 
knowledge of their property investments. In our judgment, however — 


Mark these words: 


In our judgment, however, the practical necessities of the situation will not permit 
us to defer action, as suggested by some of the protestants, until our valuation of rail- 
way properties shall have been completed. All things considered, it 1s clearly our 


a 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 985 


duty to investigate and determine the important questions now before us in the light 
of the best evidence now available. The criticism made by the protestants of the 
property investment accounts of these carriers is well founded; but notwithstanding 
their imperfections these accounts afford a usable pasis for a fairly satisfactory study 
of the course and tendency of the returns. The accounting rules made effective by the 
commission on July 1, 1907, require all entries in the property accounts of railways to 
be stated in terms of cash. The observance of these rules as time goes on will result in 
_ showing in those accounts a constantly increasing proportion of cash investment and a 
constantly decreasing proportion of mere book statement under the loose practices of 
carriers prevailing prior to that date. For this reason somewhat greater dependence 
may be placed upon the ratio of return shown for recent years than upon those shown 
for earlier years. While the property investment accounts are used herein for the 
purposes of comparison it must be understood that they are not accepted by the com- 
Mission as evidence either of the actual cost or the present value of these properties. 


__ Then the commission takes up the facts presented, and I am reading 
this to you with two purposes: One to demonstrated beyond any 
‘question that the commission took the investment accounts as a basis 
to measire the returns; second, to show that the result, the ration of 
net operating income to property investment account being too. low, 
‘and that the rates must be increased or the net operating income must 
be greater. On page 365 the commission states: 


The property investment of the 35 railway systems in official classification territory, 
as shown by their exhibits, ageregated about $3,787,000,000 on June 30, 1898. The 
return upon this amount in net operating income for that year is stated at 4.39 per cent. 
During the next few years conditions in the transportation world improved rapidly. 
In 1900 the property investment as reported stood at about $3,952,000,000. The net 
‘operating income for that year is stated at 5.28 per cent. In 1903 their propertv invest- 
‘ment was reported at about $4,300,000,090. The net operating income for that year 
‘reached 5.85 per cent. It is obvious that if we select either the low ratio of the net 
operating income for 1898 or the high ratio of 1903, as a basis for comparison, some 
very unsound inferences may result. All things considered, it is clear that in place 
of a comparison of one particular year or period with another, we must take a inore 

‘comprehensive view of the trend of railway earnings. We shall. therefore, begin our 
examination with the year 1900, omitting the years 1898 and 1899, which show rela- 
tively low-earnings and appear not to be fairly representative of railroad conditions. 


This is the majority report of the commission: 


The record does not disclose the actual investment in the property of those railways 

in 1900, and we have already explained why their property investment accounts, par- 

ticularly prior to 1907, are fnreliable. With this factor in doubt, it follows that we 

have no conclusive means of determining whether the net operating return of 5.28 

per cent upon the book value for that year was or was not a reasona})le return upon the 

‘Teal investment. The same infirmity affects the statements coveting each year of the 
/entire period from 1900 down t» the present time— 


_ That is, five years ago. 

» But, as we have pointed out, the degree of inaccuracy in the property-investment 
“account of these carriers has been constantly diminishing since 1907, when our account- 
‘Ing rules were revised and became really effective. Using the figures appearing upon 
‘the exhibits offered of record by the carriers, we have prepared a table showing the 
‘property investment of 35 systems operating in official classification territory, together 
‘with the return on the investment in gross and net operating revenue, and in net 
operating income for the years 1900 to 1913, inclusive. 


_ Now, the figures appear in that decision on page 367. The average 
for the entire period from 1900 to 1913 was 5.64 per cent upon the 
ey investment account. ; 4 i) 

_ The commission stated on page 384, under the heading ‘‘Findings 
‘as to the adequacy of present revenues’’: 

In view of a tendency toward a diminishing net operating income as shown by the 


facts described we are af opinion that the net operating income of the railroads in official 
classification territory, taken as a whole, is smaller than is demanded in the interest of 








986 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


both the general public and the railroads; and it is our duty and our purpose to aid, so 
far as we legally may, in the solution of the problem as to the course that the carriers 
may pursue to meet the situation. 

The financial condition of the various railroads composing the 35 systems varies 
greatly, as disclosed by their net corporate income as well as by their net operating 
income. The condition of some of them is so prosperous that they clearly do not need 
a higher net income; the condition of others is such as to preclude the expectation of a 
return upon outstanding capital stock or the possibility of raising much additional 
capital without a thorough reorganization. . 


Again on page 386 the commission says: 


Treating as one road the 35 railway systems that have joined in this application for 
our approval of a so-called 5 per cent advance 1n their freight charges, we have reached 
the conclusion that their net operating income is insufficient and should be increased. 


Commissioner McChord dissented from the conclusion that the 
advance ought to be allowed in central freight association territory 
only. Thatis, Ohio, Indiana, Illinois, and parts of Michigan, because, 
he said, the carriers ought to have more money in trunk line territory 
as well. 

Commissioner Daniels dissented because the commission did not 
include the entire territory in the advance. 

On page 438 Commissioner Daniels has this to say, under the head- 
ing ‘‘The test of sufficiency of revenue’’: 

In the absence of a valuation of railroad property by this Commission, we were 
confronted in the instant case with the necessity of finding a reasonable base upon 
which to compute the carriers’ net returns. In the majority report, after a considera- 
tion of various bases, the following conclusion as to the property investment accounts 
is reached: 

“But notwithstanding their imperfections, these accounts afford a usable basis for 
a fairly satisfactory study of the course and tendency of the returns.” j 

The property investment account was originally taken at the figures standing on the 
carriers’ books prior to July 1, 1907. Since that time, in accordance with the account- 
ing rules of the commission, only cash actually expended for property has been added 
to the original book value. It is conceded that the original figure is one not verified; 
but it is equally true that since 1907 the additions thereto have been made under the 
commission’s accounting rules allowing only actual cash outlay to be added to the 
preexisting figures. As the additions increase absolutely and relatively to the 
original figure, the total figure progressively approaches accuracy. When it is con- 
sidered that since 1907 these additions amount to over $1,200,000,000— 


I want to add there that in 1907 the total property investment 
account of all the railraods in the United States was $13,030,000,000. 

Mr. Coapy. What does the property investment account include, 
the capitalization issue, certificates of indebtedness, etc. ? 

Mr. Water. That is all on the other side of the ledger. In 1917, 
on December 31, including terminal companies, that investment 
account had increased to over $19,000,000,000. : 

Mr. Smus. Between 1913 and 1917? 

Mr. Watrer. Between 1907 and 1917. 

Mr. Srus. $13,000,000,000 ? 

Mr. Water. $19,000,000,000. In other words, you had nearly 
half what was in effect in 1907 added in actual cash to these properties 
under the accounting rules of the commission. 

Mr. Sims. Real cash investment ? 

Mr. WALTER. Yes, sir. . 

And when it is further considered that the property investment account since 1907 
has in no case which has been brought to our attention been augmented by reason ot 


the appreciation in the value of property over its original cost, but has been decreased. 
by depreciation of various items, such as equipment, there seems some reason to 


assume that the base selected is as fair as can be obtained for the purposes of this 
inquiry. 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 987 


_The acceptance by the majority in their report of property investment as a base 
nd its explicit employment in connection with operating income to ascertain the 
ate of return obtained by the carriers under existing rates must be insisted upon. 
n this connection it is also of especial significance to note that this ratio of net operat- 
ag income to property investment is expressly accepted by the commission as its 
est of the rate of return, not only in preference to, but to the logical exclusion of, net 
‘orporate income (the percentage available for dividends on stock alone, apart from 
-eturns on bonds and notes). 


Commissioner Daniels then makes an estimate—this was in 1914, 
tthe end of July, as to what the result would bein 1914. He thought 
t would be about 4.22 per cent upon the property investment ac- 
ount, but, as a matter of fact, it was only 4.12. Now, here was the 
ommission disposing of this great question upon the basis of property 

‘nvestment account, and it found that 5.64 per cent as the average for 
he period was not enough. Let us see what happened after that 
‘lecision. For 1914 it’ was only 4.12 per cent; 1915, 4.17 per cent; 
916, for the year ending June 30, 5.90 per cent; and if you take the 
-alendar year 1916, 6.17 per cent, and for the calendar year 1917, 
‘481 per cent. 
| Mr. Coapy. That property investment account includes stations, 
varehouses, and office buildings ? 
Mr. Water. Yes; all that is included. There is, of course, an 
‘mprofitable investment included in the accounts. In other words, 
‘ou take the great station of the Pennsylvania Railroad in New York 
jity; that perhaps will not earn a net return on the investment that 
‘mounts to very much, but it is a part of the great property of the 
ailroads of the United States, devoted to the service of the public, 
nd the public ought to pay what is reasonable and only what is 
easonable. 

Mr. Coapy. I agree with you. 

- The CuarrMaAn. Was Commissioner Daniels’s prophecy confined to 
portion of the country or to the whole country ? 

Mr. Water. He only dealt with official classification territory. 1 
rill argue to you later that what is required by 35 systems in the 
fficial classification territory is required for the Nation as a whole. 

: Mr. Winstow. Will you permit a slight interruption there ’ 
| Mr. Water. Yes, sir; certainly. 

Mr. Winstow. To what extent have the railroads come under the 
ommission’s plan of a uniform accounting ? 

- Mr. Warrter. All railroads engaged in interstate commerce must 
omply with those rules. 
' Mr. Wrnstow. Have they already come in? 

Mr. Waxter. Yes; long before 1917, buv the commission has pro- 
Tessively insisted upon uniformity; and has become stricter in its 
equirements, to avoid a recurrence of the evils that it found to exist 
rom time to time. , 

_ Mr. Winstow. What system is now in force in regard to the 
lepreciation of property under the accounting system set up by the 
mmission ? 

' Mr. Watrer. [ can nct give you a definite answer to that. I 
‘hink some of the carriers have one rule and some have another. 
ommissioner Clark made some answers in regard to that, but I am 
ot able to give you a correct answer. 

_ Mr. Wrystow. Do you think that in the book accounts of the prop- 
tties that the railroads have been sufficiently liberal in making their 
easonable depreciation ? 
















988 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Waurer. I can not answer that; I do not know, Mr. Winslow, 

Mr. Winstow. Have they found any shortcomings in respect te 
that matter in the physical valuation which is now going on? 

Mr. Watrer. It might be developed through the course of the 
inquiry, but the net results that may be found by the commission 
might or might not reflect that. I do not know, but my understand. 
ing is that the commission is to report on the question of depreciation 
that is, property less depreciation. 

Mr. Wrxstow. In making the physical valuation examinations is 
it not a fact that they make them as of one time for the railroads | 

Mr. Water. I think there is a fixed date, 1914, but they wil 
bring that on up as the property is added to. 

Mr. Wrystow. They must start on one basis? 

Mr. Water. I think that basis is June 30, 1914; I am not certain 

Mr. Winstow. And they must appreciate on one basis? 

Mr. Water. I think that is true, but I am not an authority o1 
accounting and I am not going to guess at things if I can avoid it. 

Mr. Wrnstow. I should like to ascertain whether we are treating 
the book values as including the depreciation or whether having i 
mind the book values of the properties subject to full depreciation 

Mr. Watter. They say: 

In no case which has been brought to our attention has the property investmen 


account been augmented by reason of the appreciation of value over its original cost 
but it has been decreased by the depreciation of various items. 


Mr. Winstow. Have the railroads had a uniform method of ac 
counting for depreciation ? 

Mr. Waurer. No, sir; they have not been uniform in that. Som 
have had 2 per cent and some have 3 per cent on their equipment 
but all of them have some equipment or other depraciéteds so tha 
the property investment account is less than it would have been 1 
it had not been depreciated. 

Mr. Wrnstow. Do you think that you and I agree that the per 
centage of standard returns based on book values would be ver; 
much affected in accordance with the practice of the railroads i 
depreciating or not depreciating ? 

Mr. Water. Yes, sir; if they did not depreciate, it would resul 
in a lower percentage of return, and if they did depreciate, it woul 
result in a slightly higher percentage of return. As you increase th 
base, you will necessarily decrease the rate of return. 

Mr. Winstow. Is there any way to define in a broad way a uml 
form standard with respect to the depreciation of railroad property 

Mr. Water. I am not able to say. If anybody knows, th 
Interstate Commerce Commission does, and I will undertake to ge 
an answer for you from them. 

After the hearing before your committee, Dr, Lorenz, statistici 
for the Interstate Commerce Commission, states in accordance wil 
my request for the information referred to: 

The rules of the Interstate Commerce Commission provide that carriers charge ” 
operating expenses monthly a percentage on the original cost of equipment to repr 
sent the carrier’s estimate of the accrued depreciation on equipment, and if des 
such charges may be made on fixed improvements also. No specific rates are pr 


scribed, and consequently no uniformity has existed in this matter, although th 
annual reports to carriers state explicitly what has been done. 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 989 









| _ Very few carriers have exercised the privilege to charge any depre- 
(sation on fixed improvements. 
The CHarrman. I wish to state that in presenting this bill I con- 
‘sidered the matter of giving specific authority to the commission 
jover matters of depreciation, and as to whether, or not, there should 
'9e prescribed a rule for depreciation which could be applied gen- 
‘wally. ‘There is no lack of power in ‘he commission now over the 
|uatter of depreciation. If the commission wished to fix a standard 
4 depreciation for the carriezs of the country the existing act would 
‘five the power, but I think they have always hesitated about making 
i rigid rule, because of the varying conditions under which the various 
| oads operate, due to location, climate, and other factors. However, 
hey are now studying that problem with a view of establishing some 
ules with reference to its determination. That is the present status 
‘fit, and that is why this bill contains no powers with reference to 
/epreciation. 

Mr. Coapy. Do they allow for the appreciation of real estate values 
/.t terminals ? 
| Mr. Watrer. No, sir. Now, bear this in mind, that the property 
‘avestment accounts have not been increased by reason of or do not 
|epresent, in any way, the greater cost of ties, engines, rails, etc. 
issume, for the purpose of argument, that the property investment 
ecount was excessive, if you measure the cost of the ties, equip- 
jaent, and rails, and the cost of the labor performed on the proper- 
‘ies of the carriers in building them, by the present cost, the total 
|rould be far greater than the aggregate property investment account. 
\’an there be any doubt of that in view of the rising cost of everything 
‘uring the last few years? In other words, any inaccuracy in the 
jidividual investment account would be equalized by reason of the 
‘vet that there are roads whose value exceeds their property invest- 
}ient account; and that would be further absorbed by their present 
/alue due to the increase in the cost of labor and material, 
| Mr. Denison. Does not the finding in the case of the five completed 
/aluations contradict that statement ? 
| Mr. Waxter. I do not think so at all, because, in the first place, 
/10se values were of 1914, and they represent only 1,800 miles out of 
159,000 miles. 
| The CuarrmMan. And, another thing, they only took in the one 
ement of the cost of reproduction of the thing. | 
} Mr. Warter. Yes, sir; only one of a multitude of things that must 
/@ considered in determining the basis on which the return must be 
(gured. You may criticize the fact that here and there some bonus 
| ock was issued by individual roads; you can find exceptions to any 
ile that controls anywhere. It is by and large that you must answer 
jiat question. 
| Mr. Sims. I do not understand that the plan advocated by the 
julway executives ‘will require anything based upon the property 
,vestment account. Is that correct ? ; 
“Mr. Warrer. I do not know. They will explain that to you. I 
ant to make clear that cardinal difference, in my mind. I know the 
lamber of commerce plan, and that is practically what they are 
mtending for. 

. Sims. So far as the fixing of rates is concerned. 


152894—19—yor 1—— 63 














990 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. : 

Mr. Denison. Is it your understanding from Mr. Plumb’s state- 
ment that he selected two or three roads and called attention to the 
inaccuracy .of their property investment accounts, and then drew his 
conclusion as to all of them from those instances ? : 

Mr. Waurer. Yes, sir. For instance, if you will take the invest- 
ment accounts of the M., K.& T., the New Haven, the Pere Marquette, 
the St. Louis & San Francisco, and the Rock Island, and add all of 
them together, and you will find that their total property investment 
account is from about one and a quarter billion dollars to one and a 
half billion dollars. Assume now the entire amount is false. Under 
our plan we take from the excess earnings of carrier some $83,000,000 
a year, which, capitalized at 6 per cent, would amount to more than 
such combined investment account of those five carriers. : 

Mr. Coapy. Does that proprety investment account include any 
intangible rights ? 

Mr. Watter. I can not tell you. Ido not know. | 

Mr. Cooper. Did I understand you to say that since 1907 there has 
been $6,000,000,000 of actual cash invested in railroads ? | 

Mr. Water. I say that since 1907 the property investment 
accounts, under the rules of the commission, which require cash, 
increased from $13,000,000,000 to over $19,000,000,000. 

Mr. Coorgr. Do the proponents of the Plumb plan question the 
investment of that $6,000,000,000 ? | 

Mr. Water. As I understand it, they would cut down the invest: 
ment in railroad property to-day to ten or twelve billion dollars. Ide 
not think Mr. Plumb undertakes to say where, how, or in what manne! 
this has been brought about, but he says that the properties to-day are 
not worth it. . 

Mr. Coorrr. If you have $6,000,000,000 that has been invested 
since 1907 in actual cash, and which no one can question, then, 
according to the proponents of the Plumb plan you would not hayé 
much left in the way of actual investment in the railroads of oui 
country. ‘There would not be much left according to their way ol 
figuring ? 

Mr. Water. That is true, and I think it is quite futile to accept 
any such contention as is made. Now, Mr. Plumb has for severa 
years represented the brotherhoods before the commission on thi 
plan of valuation, and he has argued there well and ably in behalf oi 
his clients for just as low a valuation as he can. It may not be inap. 
propriate to say that his purposeis this. That the lower hecan make th 
capital the less will be the capital returns out of a given amount 0) 
money paid by the shippers for service, and, therefore, there will be 
greater amount left to pay wages, That is a perfectly fair and fran} 
statement, and Mr. Plumb can not and will not avoid that as a corre¢ 
statement of his view. . | 

Mr. Sims. You say that Mr. Plumb selected those instances 4 
propery investment accounts and drew his conclusions from then 

s it not true that they were the ones that had been completed by the 
commission ¢ | 

Mr. Watter. Yes, sir; the five roads. ; 

Mr. Sms. I thought you used the word ‘‘selected,’’ or it may bt 
that the gentleman asking the question used the work ‘“‘selected.” — 

Mr. Montaaue. I understood Mr. Plumb to say that the property} 
investment account ran somewhere between nineteen et twenti) 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 991 


Dillion dollars, but that the real value of the railroads was really ten 
‘or twelve billion dollars. 

' Mr. Watrer. That is correct, and Mr. Plumb believes that. 

2 oe Montacue. Yes; I am not questioning the honesty of. his 
“pellet. 

| The Crarrman. Under the Plumb plan, the courts have the judicial 
‘determination of valuation, or that is a judicial question? 

Mr. Watter. Yes, sir. 

The CuatrMan. There is an appeal from the adjustment board by 
the corporation provided for in this bill direct to the courts on such 
“valuations ? 
| Mr. Water. Yes, sir. 

_ The CHairman. Then, even Mr. Plumb, in determining values, 
would have to take the valuations provided by the courts of the land ? 

Mr. Watter. Yes, sir. 

The Cuamman. Have any courts of the United States ignored the 
‘matter of the property investment account in determining either the 
‘question of valuation or of rates ? 
| Mr. Water. It can not. 

The Cuairman. If that be true, what right of hope have the Plumb 
plan advocates that they can have the Government to purchase the 
railroads for ten or twelve billion dollars ? 

_ Mr. Watter. [ can not see the slightest foundation for that hope. 
It sometimes happens that a man looking to the ultimate result that 
he desires, undertakes to formulate a basis for his argument, even 
deluding himself. I have not any doubt that the railroads are worth 
‘$19,000,000,000, and that the courts, unless they completely reverse 
all the principles found in their decisions, will sustain that value. 

_ Mr. Coapy. So that the success of the Plumb plan is dependent 
upon the hope and expectation of cutting the capitalization in two? 
Mr. Wacrer. Yes, sir; that must be. Now, let me call your 
‘attention to this fact, that every plan that you have had submitted 
here that deals with financial conditions will bring about a period of 
litigation, or a period during which you will have valuations going 
through the courts with all of the uncertainties that destroy the hope 
of return upon any investments: You can not expect that exten- 
sions, improvements, and betterments will be made upon the rail- 
Toad property if you have uncertainty. It is the certainty of things 
‘that contribute to increase in investments. Now, our plan does not 
‘all for delay of any kind; the commission would go to work just as 
in this case, from which I am reading, and find the amount of operat- 
‘Ing income required. 

~_ Now, Commissioner Daniels said on page 443, after referring to the 
‘disclosures during 1914, and the return during the test period which 
averaged 5.64 per cent: | 

__ The disclosure is convincing that the return received, not on security issues, but on 
‘the book valuation of the property actualiy used in the service of the public, is wholly 
‘inadequate, when gauged from the standpoint of justice to the carriers and on the wider 
Score of a continuance of adequate service to the public. : 

_ Then, on page 453, he says: 


_ Expected earnings constitute in the last analysis the bid which the carriers must 
Make for new capital for needed improvements, extensions, new rolling stock, and 
‘similar purposes. It is not necessary to say that on such a showing the investing 
(public will hardly be eager to intrust its funds to transportation enterprises. Where 


4 











992 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


well-secured, long-time bonds bearing 43 per cent interest command little over par, 
and where stock can be sold at par only on the prospect of a’‘much higher rate of return, 
it is clear that the carriers must make a better showing of net revenue before they can 
as a whole enlist large additional supplies of capital. . 


Then, in the concluding paragraph, he says: 


A living wage is as necessary for a railroad as for an individual. A carrier without. 
a sufficient return to cover costs and obtain in addition a margin of profit large enough 
to attract new capital for extensions and improvements can not permanently render 
service commensurate with the needs of the public. Eventually it may come about 
that railroads will be owned and operated by the Government. That is a matter of 
public policy which it is not the province of this commission to consider. But that 
such a departure from the present policy of private ownership and corporate operation 
should be materially hastened by the reluctance of new capital to invest in these 
properties would seem to be a grave indictment of our present system of regulation 


and control. 


Now, in the Fifteen Per Cent Case, the Interstate Commerce Com- 
mission again took the property investment account as the yardstick 
to measure the rate of return and to determine whether there ought 
to be an increase in the revenues of the carriers. 

The CHAIRMAN. 1917 ? 

Mr. Watrer. 1917. The first decision in that case was June 27, 
1917, and on page 313, treating then the country as a whole the com- 
mission states: 

It is not practicable to determine from figures now compiled the book values of 
investment in road and equipment per mile of road prior to June 30, 1915, for roads in 
the several districts, but those for the United States cover a longer period. While 
these figures can not be accepted as reflecting accurately the actual cash investment 
they may be taken as significant for purposes of comparison. The figures for operating 
income per mile of road for calendar years when compared with those for book value 
of investment in road and equipment per mile of road at June 30, give for class I car- 
riers for the United States as a whole the following ratios, v sing the estimated. figures 
for 1917: 

Ratio of operating income to investment. 


Per cent. Per cent. 
PO TT ae es oak cee ee ca 16, SL7 i 1912. 2.2 ae eo ee ee 5. 300 
VOT Gis ac eee ces oa DA ae eee 6.400 || 191)... cc os ae oe 5. 070 
TOs Oo eee ee ee eoen 5: 240'}| 1910.22. 2.4.7 2 ee 5. 519 
LOUes ss Sea ha ts Po hide to seb 4.091"|| 1909. 27. G20 S5 LL 5. 866 
AOA Se eS oS See ot ale oy ces 4, 683 Hh 1908 s+. i:.t.ce ee See ee 4.941 








_ 1 Based on an estimate of $4,334 operating income per mile of road and book investment of $74,500 per mile 
of at en ae costs subsequent to Apr. 30, 1917, will probably operate to diminish this figure 
somewhat. 


Now, there is a constant level between 5 and 6 per cent. Is it 
not possible that the Interstate Commerce Commission, treating 
these roads as a whole, could say how much revenue ought to be 
added each year. They may make mistakes in one year but they 
can very well determine that there ought to be so much money, 
having a budget system in effect so the carriers could say, “This 
next year we expect so much expenses,” and it can, Just as a man 
operates his busiess, in a general average way determime the reve- 
nues required, and as each year goes by it can arrive in its own mind 
at what it ought to do for the next year based upon the experience 
of the past year. 

Now, here was the average of these years, in the 1910 case, of 
5.64 per cent. We ask 6 per cent, and when we come to apply our 
second fundamental by taking away excess from certain carriers, we 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 993 


bring the average to 5.52, which is less than the average of those 

_ years from 1900 down to 1914. ' 

Mr. Sms. May I ask a question right there, because it is pertinent 
to the matter you are discussing. Mr. Walter, have you made any 

investigation as to what the values of the roads would be during the 

years 1912, 1913, and 1914; I mean, before the European war broke 
out, as to the values of the properties determined by the market 

value of their outstanding a and bonds during that period ? 

Mr. Water. No; I have not. 

Mr. Sms. Does not such value, as represented in the market 
value of the bonds and stocks, fairly represent what is assumed to be 
the actual value of the property? That is, in normal times and for 
_a long enough period of time so that a particularly depressing year 
or a boom year would not affect it ? 

Mr. Watter. No; it does not. 

Mr. Sims. I have heard gentlemen who I thought were qualified 
to say that that test of value and the book value would be practically 
the same. 

Mr. Water. I do not know. They may be much better informed 
than I am, but I would hate to take the market reports as to value 
of stocks, day by day, on the stock exchanges and accept that as the 
value of the property over a period of years. 

Mr. Simms. I mean their actual value from business transactions in 
the purchase and sale and transfer of the stock and not simply the 
_ quotations. 

Mr. Watter. I think that what I have read from the Interstate 
Commerce Commission’s decisions demonstrates that it accepted the 
property investment account of the carriers as a whole to test the 
adequacy of their return, their net operating income. We ask you, 
as a temporary yardstick and until we know the value of these prop- 
erties for rate-making purposes, to accept the property imvestment 
account; bear in mind that you can not take from these carriers their 
constitutional protection and if any one of them js notoriously or 
manifestly excessive—or rather, to put it the other way, if the 
property investment account does not reflect the value of the propery) 
the courts will protect them on that value. If there is fraud any- 
where in these investment accounts, one way or the other, the 
commission can find it and take care of it; but you would not be 
interested as to the individual carrier until you commenced to deter- 
mine whether it earned, under our second fundamental, more than 
6 per cent. / 

Now, what is our second fundamental? It undertakes to solve in 
a@ measure the trouble that the commission has found in every case— 
that here is a rich road paralelled by a weak road. Shippers send 
their freight largely as a matter of habit. No railroad has a property 
right to have any particular shipper’s freight moved over it although 
it had moved over it for 20 years. J can ship over any route I see 
fit and the movement of the freight is what determines the earning 
power of the carrier. 

_ Now, with one road earning 20 per cent upon its property fairly 
devoted to the public use and another 3 per cent, as the comuuission 
has frequently pointed out, to give the road with 3 per cent enough 
to make it self-sustaining and a fair return on its property will give 
an unconscionable return to the richer road. ‘The money we repre- 


994 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 4 


sent in this association has been devoted to a public use, invested in 
these properties, and it is entitled only to a fai return, that is all; 
that is all we ask; but under the system of rate making we must 
reckon with the fact that the rate that applies between Chicago and 
New York must apply over every route that operates between those 
two points. If you increased the rate to the weak road so it could 
earn such a return, the tonnage would leave it and it would have 
nothing. If you reduced the rate on the rich road the tonnage would 
all flock to it, so you must adopt a system which will treat the trans- 
portation systems of the country, or at least in regions, as a single 
system for the purposes of revenue. 

We say that after you have put the oil up to the prescribed level 
in the entire engine of transportation power, that you must have 
some way to see to it that the earnings of the richer roads are kept 
within bounds. We are going to lessen the earnings of the richer roads 
under our plan by providing that after they have gotten up to that 
fixed per-cent level on their own property we will divide the excess 
above it in three parts. We believe first, that you must give some 
incentive to the corporation to give efficient service and to be econom- 
ical, and it ought to have enough of that dollar above six per cent 
to cause it to be pulling on the traces all the time. We believe one- 
third of that is ample for that purpose. Now, that leaves two-thirds. 
Having given the corporation its share of the excess, we believe labor 
is entitled to just as much and so we give labor one-third. 

Mr. Dentson. What labor? 

Mr. Warrer. The labor that is employed on all these railroads in 
the region. Take the official classification territory, the commission 
has divided the country for many years into three grand divisions, 
roughly speaking, north of the Ohio and Potomac and east of the 
Iilinois-Indiana line. 

.Mr. Barxury. Did you say east of the UJinois-Indiana line? 

Mr. WALTER. Well, it takes in a part of Ulinois, nut generally 
speaking, that is the line. 

The CrarrMan. It runs down from Chicago. 

Mr. Watrer. The line is not clearly demarked, but speaking gen- 
erally, that is the territory. 

Now, whenever we take the excess earniugs of one road——- 

Mr. Sms (interposing). What becomes of the third part of that 
fund ? 

Mr. Watrer. The last third goes into a fund to be administered 
by the Interstate Commerce Commission. | 

(The committee thereupon took a recess until 2 o’clock p. m.) 


AFTER RECESS. 


The committee resumed its hearing at 2 o’clock p. m. 
The Coarrman. The committee will please come to order. You 
may proceed, Mr. Walter. ; : 
Mr. Watter. At adjournment, Mr. Chairman, I was discussing the 
manner in which we divide the excess in equal parts to the corpora- 
tion, to labor, and to the public. Later on I shall explain how each 
of these funds is to be used, but before I do that I think I should 
demonstrate to you the justness of 6 per cent as the fixed rate of 
return. I think I have clearly shown that if the Interstate Commerce 






bi RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 995 
ib . 

‘Commission, fully cognizant of all of the facts in connection with 
‘railroad ownership and operation, accepts the property investment 
account as the base upon which to test the sufficiency of net earn- 
‘mgs, that this committee can well do the same until a valuation has 
‘been arrived at. | 

_ But I should have said something before I left that as to the use 
of une 6 per cent. If you search the decisicns of the courts of the 
‘United States you will not find complete unanimity as to what is 
‘the proper measure of return upon investment. It depends upon 
various circumstances. Gas companies have the right to a certain 
‘return; water companies have the right to a different rate of return; 
‘in other words, the risk of the investment has something to do with it. 
‘ I want to call your attention to just one decision of the Supreme 
‘Court; there are two points in it; in the case of the City and County 
‘of Denver v. The Denver Union Water Co. et al. (246 U.S., p. 178): 
_ The net return, therefore, is found to be only 4.2812 per cent of the value of the 
‘plant, excluding the disputed water rights; while there is no controversy over the 
‘master’s finding that the prevailing rate of interest for secured loans on business 
jand residence properties in Denver 1s about 6 per cent, with higher rates for loans 
‘less adequately secured. 

' “As was declared in Wilcox v. Consolidated Gas Co. (212 U. 8., 19, 48) the question 
of the rate of compensation that may be regarded as sufficient depends greatly upon 
‘circumstances and localities. In that case we held (p. 50) that complainant was 
‘entitled to 6 per cent on the fair value of its property devoted to the public use. We 
‘have no hesitation in holding that the return yielded by the ordinance now before 
us is clearly inadequate, and amounts to a taking of complainant’s property without 
due process of law, contrary to the provision of the fourteenth amendment in that: 
regard, even excluding from consideration the disputed water rights. 


I think that is sufficient. 

Mr. Merritt. What is the date of the decision ? 

Mr. Water. It is in 246 U. S., which would be the last term of 
court. 

In The Lincoln Gas case, last June, 6 per cent was there fixed as 
the rate of return. 

Mr. Simms. They held that less than 6 per cent was unconstitutional. 

Mr. Watter. They held it was unconstitutional in that it pro- 
‘duced only 4.28 that it was confiscation. In reference to the Wilcox 
ease, they held that the Consolidated Gas Co. was entitled to earn 
6 per cent. 
| Mr. Sims. Was that a legislative-made rate ? 

Mr. Warrter. It was an ordinance; it »/as made by city ordinance 
‘as I understand it. : 

Mr. Sims. Hasn’t it been held that where the legislative-made rate 
does give any profit at all that it is not unconstitutional on the 
ground of confiscation ? 

. Mr. Watter. In the Munn case they held that if the rate produced 
any profit, it was not unconstitutional. But just as we have 
progressed in’ everything else, Judge Sims, we have come to the point 
‘Where we have reached, as I have shown in this case, a 6 per cent 
basis. The court held in the Denver case that the ordinance violated 
‘the fourteenth amendment in that it returnea only 4.28 per cent. 
Mr. Sims. That is, the Supreme Court of the United States so held? 
Mr. Waurer. Yes; the Supreme Court of the United States. 

‘Mr. Sms. Do I understand you that now the Supreme Court of 
‘the United States has determined that not less than 6 per cent on the 
‘Imvestment account referred to is in and of itself confiscation ? 





hey ah Pea 


996 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Watter. In the particular cases; and we are arguing since, in 
-the case of the gas and water companies, they say 6 per cent 1s proper; 
that the railroads of the United States are entitled to the same 
return. 

I come now to some of your own legislation on this point: Legisla- 
tively you have passed upon 6 per cent as a fair return. 

Mr. Sims. I did not mean it is not fair return. J am talking about 
its not being constitutional by reason of ccnfiscati on. 

Mr. Water. Yes, sir. 

Mr. Sims. If Congress should pass a law by which a rate is restricted 
below 6 per cent—I mean it has that effect, then that law is void? 

Mr. Wattrer. I do not say it is void. I say, under the decisions of 
the courts, there is ample basis for argument that if it produces less 
than 6 per cent it would be subject to that objection. 

I want now to call your attention to the Federal reserve act as 
amended by the act approved March 3, 1919, on two points, one as 
to the 6 per cent and the other as to the division of earnings. 

Section 7 of that act provides: 

Src. 7. After all necessary exvenses of a Federal reserve bank have been paid or 
provided for, the stockholders shall be entitled to receive an annual dividend of 6 per 
cent on the paid-in capital stock, which dividend shall be cumulative. After the 
aforesaid dividend claims have been fully met, the net. earnings shall be paid to the 
United States as a franchise tax except that the whole of such net earnings, including 
those for the year ending December 31, 1918, shall be paid into a surplus fund until it 


shall amount to 100 per cent of the subscribed capital stock of such bank, and that 
thereafter 10 per cent of such net earnings shall be paid into the surplus. 


The net earnings derived by the United States from Federal reserve banks shall, 
in the discretion of the Secretary, be used to supplement the gold reserve held against 
outstanding United States notes or shall be applied to the reduction of the outstand- 
ing bonded indebtedness of the United States, under regulations to be prescribed by 
the Secretary of the Treasury. Should a Federal reserve bank be dissolved or go 
into liquidation, any surplus remaining after the payment of all debts, dividend 
requirements, as hereinbefore provided, and the par value of the stock shall be paid 
to and become the property of the United States and shall be similarly applied. 

There was a basis of 6 per cent upon bank capital, and after a 
certain reserve fund was accumulated, equal to 100 per cent of the 
capital stock, the entire profits except 10 per cent went to the United 
States, and you only gave the bank 10 per cent to go into its surplus. 

Mr. Sts. Would you consider a Federal reserve bank as a private 
corporation in the same sense that you do a railroad ? 

Mr. Water. No; I think there 1s a difference, but I can not see 
why Congress would be willing to prescribe 6 per cent as proper for 
the banks and not be willing to fix 6 per cent as a fair return on the 
ageregate property of the railroads devoted to transportation pur- 

oses. 

? Mr. Sts. I am not talking about its willingness. I am talking 
about the constitutionality of the question as constituting confisca- 
tion unless it pays 6 per cent. ; 

Mr. Water. Our plan provides for 6 per cent as a minimum leyel; 
that is, the level below which the commission would not allow the 
rate to go. There is another reason why the commission ought to 
make these rates. There are all sorts and kinds of inconsistencies 
and contradictory adjustments in rates in the United States. I 
should like to see the Interstate Commerce Commission, at the same 
time it is fixing this level of revenue, straighten out these kinks and 
make a proper relation of rates, one territory with the other, and a 
proper relation of rates upon one commodity with another. 

4% 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 997 


They have to raise $50,000,000, we will assume, in official classi- 
fication territory. The first thing the commission would do would 
be to find the low spots, the roads that are not earning a sufficient 
return, and they would ascertain the traffic which each road hauled. 
‘They would determine what higher rate they could put on without 
interfering with the movement of traffic. After they had done all 
‘they could to fill the low spots on each road, then if more revenue 
is required the commission would act on the through rate on 
traffic moving over several carriers. The commission can so adjust 
the divisions, as your bill provides and as our plan outlines, between 
the weak line and the strong line as to equalize the situation, giving 
added earning power to the weak line without at the same time 
unduly depressing the earnings of the strong roads. 
_ I think that expression in the Federal reserve act goes a long way 
toward giving legislative precedent, and with the decision of the 
courts establishes the minimum fair return upon railway property at- 
not less than 6 per cent. I have no apprehension that if you made a. 
report to the Congress of a provision, as contained in our suggestion,. 
‘to the commission, allowing 6 per cent, that you would have very 
little objection on the floor. Of course some one might say it ought: 
to be 3 per cent or 4 per cent, but I think to-day people recognize 
that 6 per cent is fair. The shipping interests of the country are 
willing to pay that return upon the facilities that are serving them. 
eer. uae Why is it necessary to state any arbitrary percentage of 
return ¢ 
_ Mr. Watrer. Because the commission is made up of a multitude 
of men. You should charge them with making the rates in order 
to meet requirements. It has been an anomalous condition for a 
long time that the carriers, who make the rates, try to hold the com- 
mission responsible for the general level of return. I think it is a 
question of legislative policy. The expression ‘‘just and reasonable”’ 
is a most elastic one. ‘‘Just and reasonable’’—if it is a particular 
rate we are dealing with, there are many things to be considered. 

at we are talking about here is not a rate on iron ore, sand, or 
something of that kind, but we are talking of the rate of return, 
something made up from all the individual rates that the carrier gets, 
the combined rate of return. If 1 were on that commission and you 
had furnished a legislative declaration as to what the revenue ought 
to be in the aggregate, it would give me a complete basis upon which 
to rest my findings and something from which I could work in decid- 
ing those cases. So I would take the question of rates away from the 
esarriers and put the carriers on the same basis as the shippers. If 
the carrier wanted to change a rate it could go to the commission 
and get permission to change it, as does the shipper. The shipper 
oes to the commission. So if you charge the commission with the 
axing of net operating income up to a standard or level to which 
they shall go, it has something to work to instead of the elastic and 
liscretionary term of ‘‘just and reasonable.” 
_ With the commission fixing the base rate, I should go further than 
your bill. I would allow the commission to divert tonnage, provided 
she service of the shipper and the rate and the terminal delivery is 
ust as good over the one road as over the other. Nowit has happened 
1 Many cases that strong roads force unjust divisions of the through 
‘ate on weaker lines—I will give you just an illustration: A number of 


998 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


roads that handle the transcontinental business reach Kansas City, 
Some of them from Kansas City operate through to Chicago; but the 
Great Western, the Burlington, and the Milwaukee do not come im 
from the West to Kansas City. So a road that comes into Kansas 
City and terminates there, like the Union Pacific, has a great deal 
of tonnage which it turns over to carriers which come from the Hast 
into Kansas City and there terminate. 

The result of this exchange has been that the division of the trans- 
continental freight rate on citrus fruit, accruing to the carriers be- 
tween Kansas City and Chicago out of that through rate, has been so 
small as to scarcely pay the out-of-pocket expense. There ought to be 
and must be given to the commission the power to fix that division, 
whether the carriers agree or not. Heretofore it has been only when 
the commission fixed a through rate that it could change divisions. 
when the carriers have disagreed about them. Igo further. I say 
that if the carrier that operates from Kansas City to Chicago can 
handle the traffic and can give delivery at Chicago, and it is to the 
public interest—leaving it to the commission to say whether it was in 
the public interest—the commission can divert some of that traffic to 
the road that needs the tonnage, because there is. no vested interest 
in that tonnage in any one of these carriers. The commission, in the 
exercise of wise discretion, would not take tonnage away from the 
road that needed it in order to be a successful property; it would 
only take it away from the road that could comfortably give it up 
to the road that did need it. i 

Mr. Winstow. As between two roads that were paying, would 
you give them the power to divert tonnage from one to the other im, 
order to facilitate rapid shipments ? 

Mr. Water. Yes; I certainly would. This association is in favor 
of trusting all of these things to the Interstate Commerce Commis~ 
sion, and they do not want any superior body over that commission. 
They have the utmost confidence in the commission doing the right 
thing. All Congress needs to do is to put a yardstick in the law 
and you can trust the commission to apply it with rates, revenue, 
operations, etc. . . 

Mr. Monracue. If it is mandatory upon the commission to fix # 
rate to give earnings of not less than 6 per cent, what would be the 
moral incentive for economies and efficiency in the operation of the 
systems ? 

Mr. Watrer. The commission does not fix the rate of return for 
any individual carrier. It makes the level of rates which are par- 
ticipated in by all the carriers in that territory. 

Mr. Monraacur. And some of them would receive less than 6 per 
cent ? 

Mr. Watter. Yes. We do not apply the 6 per cent minimum to 
the individual carrier at all. We say that the total operating rail- 
way income in southern territory, and separately in official classifi- 
cation territory and separately in western territory, shall be not 
less than 6 per cent. Every one of those hundreds of roads in there 
gets-all it can. ; 

Mr. Montraaur. Can they make more than 6 per cent? 

z Mr. Water. Yes; they may earn 10 per cent, and some actually 
0. 
Mr. Monracur. And you then distribute the excess ? 











= RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 959 _ 


Mr. Water. We take two-thirds of the excess of the individual 
varrier, the two-thirds of the excess over 6 per cent, but if a road 
yarns only 2 per cent we do not give it anything, except as the com- 
(mission may increase rates upon a particular line in reaching an 
igeregate of 6 per cent and except as the division of the through 
hate to the weaker line may be increased by the commission. 

\ Mr. Montacue. Take the converse of that situation, take a road 
vyhich earns much more than the 6 per cent. 

| Mr. Watrer. We let them keep one-third of the excess over 6 per 
“ent as an incentive to be constantly economical. 

} Mr. Montacur. Do you think that is sifficient incentive ? 

Mr. Watrer. Yes; we do. 

} Mr. Coapy. Sa one road makes over 6 pe cent one year and 
he next year makes only 2 per cent or 1 per cent. How would you 
idjust that ? 

. WALTER. We do not adjust it except over a period of years. 
\ carrier that does not earn 6 per cent this year is not, under our 
olan, entitled to take anything out of earnings of a richer year to 
jake up for the poorer year. We undertake to have the commission 
‘x a revenue level which will take account of the changing con- 
litions and of the kind of tonnage that moves. There may be a 
irop failure somewhere, and all those things have got to be taken 
nto consideration. We do not take from one to make up for the 
oss of another, except as we do this. We provide for reserve funds, 
inder the supervision of the commission, to protect against acts of 
yxod or what you might call a lean year. The commission shall set 
iside a certain reserve to take care of that sort of situation, running 
er a period of years. We do not allow an individual carrier to 
vay, “Well, last year we earned only 4 per cent and this year have 
arned 8 per cent, we are entitled to that 2 per cent, before we make 
| division to the Government and to labor.’’ The commission is 
xpected to take care of that in its reserves, which are provided for. 
‘fr. Johnston will explain to you how that is done, but aside from 
hat we make no provision. 

‘The Cuarrman. What do you think of the constitutional argu- 
nent, presented by Judge Lovett in a recent pamphlet, to the effect 
hat Congress, by its enactment, can not divert surplus earnings of 
“my given carrier over a 6 per cent minimum, or any other minimum, 
0 other lines ? 

Mr. Watrer. We do not do that. We do not take excess earnings 
ty road to pay to another. But the answer to that is, if we 
id do it 

The CuarrMan. But there are some plans that seek to do that? 

Mr. Water. Yes. The answer to that is this. The carrier 
arns what Congress says it may earn. After this constitutional 
equirement has been made, assuming it to be 6 per cent, the require- 
fent in the bill as to a fair return, we provide by statute that the 
| arrier that collects 6 per cent does not receive the additional two- 
hirds over 6 per cent, but, in other words, holds it in trust. It 
lisposes of it under our plan, by giving one-third to labor and one- 
hird to be used by the corporation, which is controlled by the 
nterstate Commerce Commission. In other words, the two-thirds 
vhich is taken away has never gone into its treasury, to the extent 
if vesting complete ownership in the corporation, 














+t 


1000 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Montacur. You do not take it out of its treasury, but yow 
prevent its going into the treasury ? +t 

Mr. Watrer. That is it. We prevent it going into the treasury, 
It holds it in trust. Even now we have this sort of a case; the com- 
mission held that the rate on apples of $1.25 was unjust and un- 
reasonable. That money has gone into the treasury of the carrier, 
and yet the carrier may have only earned 3 or 4 per cent; still the 
commission says for that particular service you have charged an 
unlawful rate, it is unjust and unreasonable, and the commission 
awards reparation. The carrier has to pay that money, although 
it has gone into its treasury. If the commission can take that action 
with regard to that one rate, when the money has gone into the 
treasury and is mingled with all of the cash and assets of the company, 
certainly you can, when they have made 6 per cent and one-thir 
excess over, forbid the two-thirds of the excess to become its 
property. 

Mr. Smms. Yes; and one-third of that surplus would go to labor. 

Mr. WALTER. Yes. 

Mr. Sims. It would go to the labor of the region ? 

Mr. WALTER. Yes. 

Mr. Sims. Therefore it would go to the labor of that portion of the 
carriers that did not earn 6 per cent? 

Mr. WatTER. Yes. 

Mr. Sims. Do you think we have a constitutional warrant to so 
dispose of surplus earnings of a road beyond 6 per cent ? 

Mr. Water. Yes. 

Mr. Sms. That is within a region ? 

Mr. Watrer. Yes; for this reason: A satisfied laboring force upon 
the railways of the country is a national asset. Unsatisfied labor 
and unrest is a positive menace. Congress has the right, when the 
constitutional requirement as to return upon investment has been 
made, to take that fund and under the administration of a national 
agency distribute it among all the labor in a particular territory 
working on the-railway. 3 , 

The shippers of the entire country pay the returns to the New York 
Central, because traffic moving from and to every State goes over 
that line; it is really a contribution by the shippers through the par 
ticular vehicle or corporation which collects it. I have no doubt ot 
the constitutionality of that manner of distribution. | 

Mr. Dentson. What do you think of this theory, that when 4 
particular road earns considerably over 6 per cent, by reason of @ 
rate which the Government has given it, or allowed it to charge, that 
therefore the Government has the right of control over such part 0 
it as it desires to control ? . 

Mr. Watrer. I think that is quite true. The Oklahoma case, the 
Noble State Bank case, I think, is complete authority for that sort 
of distribution. | 

The CuarrMaAn. Will you just cite that case in the record at this 
point? , 

Mr. Water. I can give it to you. 

The CHairRMAN. You need not do it now. 

Mr. Sims. It was the Noble Bank case. ‘ 

Mr. Water. Yes; the Noble State Bank case (219 U.S.). 











RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1001 


Mr. Sms. With respect to this question of region, included in a 
articular region are roads that do not make 6 per cent and others that 
jake over 6 per cent ? 

Mr. Watrter. Yes. 

Mr. Sims. Then you take away from the roads that make over 6 
er cent all that they make except one-third of the amount over 6 
er cent ? 

Mr. Water. Yes. 

Mr. Sims. And you contribute one-third of that amount over 6 
er cent to the laborers on the road who did not make 6 per cent? 

Mr. Watrer. That is true; as well as to the labor on other roads. 
_Mr. Sims. Therefore, enabling that road to secure labor at a lower 
age than it would otherwise have secured it ? 

_ Mr. Water. No, sir. . 

Mr. Sims. Suppose the labor says that it will not work on that road, 
ad then they say to them, Well, these good roads in this section are 
ding to give us one-third of all they make over 6 per cent, which is 
» go to the employees, so you might as well work for us. Is not that 
sally indirectly paying a part of the necessary expenses of the opera- 
on of the weak road ? 

Mr. Watter. No; because the wages paid are uniform throughout 
1e territory and the employee on the rich road gets just the same as 
1e one on the weak road; they get just the same share of the excess 
arnings in all the region. If we did not do that, if we limited it to 
ie labor on a particular road, you would find that the most competent 
id capable employees would flock to the rich roads, and therefore 
su have to distribute it all over the region. _, , 

Mr. Sus. I can not get away from the idea that you in an indirect 
ay take away from those who have to give to those who have not. 

Mr. Watters. No. 

Mr. Sims. You take away from those*who have earned it, who 
ader the law have performed all the services required to be performed 
id give it to a road that can not make 6 per cent under the same 
eatment, under the same law, rates, rules, and regulations. 

Mr. Water. Take this case for illustration. We will assume now 
lat we have a very large movement of coal to go over five railroads 
ider a joint through rate. Now, the laborer on one road will con- 
ibute just as much, so far as he is concerned, to the movement of 
tat coal as any laborer on any of the other roads. It is the total 
mpensation which the shipper has paid, the combined investment 
property, and the combined labor of transporting it which has made 
‘possible to reach destination. You have separate corporate organi- 
itions, but you have every employee in that territory and every 
dilar of investment doing all that it can to produce a net of 6 per 
mt for the whole territory, and when you divide the excess over 
per cent, in order to meet the constitutional requirement, I think 
yu have fully protected yourself. You have not lessened the amount 
tat a weak road has to pay an engineer for eight hours, because he 
‘ts a standard wage, and he gets his share of the excess that every 
eo in that entire territory gets. 

r. Sims. The stock of the weak road will advance by reason ot 
yur diverting this much of the just earnings of the strong road, and 
e€ stock of the strong road will decline, or fail to go as high as it 
ould go if that was not done. » | ) 


x 
& 


1002 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. A 


Mr. Watter. Not at all. They will all appreciate to the extent 
that earnings have increased, that instability as to investment has 
disappeared, and that the certainty of contmued earnings and un- 
interrupted service will appreciate all other investments. . 

Mr. Suss. What about the other one-third of which you spoke? 

Mr. WALTER. We create a corporation known as the National Rail- 
way Association, with the nine members of the Interstate Commerce 
Commission as a majority of the board of trustees. Hight men se- 
lected by the railways of the country constitute a minority. The 
corporation is not operating for profit at all, it is not the property of 
any railroad company, but it is an agency of the United States just 
as is the Emergency Fleet Corporation. If that excess goes to that 
corporation it is to be used as those 17 men may see fit. 

Mr. Srus. Used for what purpose ? | 

Mr. Water. Take the equipment that the Railroad Administra- 
tion has bought. The carriers donot wantit. They take that equip- 
ment at a fair price, by agreement with the director general, and they 
pay for it. They operate it, and the road that uses the equipment 
pays for it. 

I heard something said the other day about the ownership of cars 
by the packers. Why could not this corporation take all the out- 
standing beef cars, including the seasonal cars, special cars, and use 
them where they are necessary, thereby having in its possession 
ample special cars to take care of the needs of the shipners of the 
country. . f 

I have been counsel for one of the packers for a good many years 1h 
these rate matters, and I know they would be glad to get rid of that 
car investment if they could be sure of a car supply. Let this corpo- 
ration that we are talking about take all of these cars; let them take 
the fruit and vegetable cars, which in the early sprmg are moving 
fruit from Florida aud in the late fall are moving apples from New 
York. In other words, they are moving all over the country. No 
individual carrier can be expected to have enough refrigerator cars to 
take care of the apple crop in New York, when they are only going te 
move it for a month in the year. The roads operating to California 
are not going to have enough cars to move the citrus fruit, because 
they do not need them all the year round. Let this corporation own 
enough of this seasonal and special equipment und furnish it to the 
railroads and require the railroads to pay for it a sufficient amount 
to produce a fair return upon the investment in that equipment and 
the service the corporation performs. | 

Mr. Sims. The strong road, with plenty of working capital and 
investment capital, will have to pay that corporation for the equi) 
ment it has purchased just as much as a roa] that has not cor 
tributed a cent of capital; is that your idea? ) 

Mr. Wattrr. Surely; because where do they get the money thal 
went into the corporation? You and I and shippers of freight have 
paid that money into the corporation. We give it 6 per cent, al 
that it is entitled to under the law, and one-third more as a rewal'¢ 
for efficient service. We have taken nothing from it to which it I 
entitled; we have given it one-third of the excess to which it was n0 
entitled under the constitutional provisions, because the mone} 
invested is dedicated to a public use and a fair return only is all tha 
it is entit!ed to have. 







i 
Le a 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1003 





_ Mr. Sus. I can not conceive why a road which makes more money 
put of the same operation, the same investment, and at the same 
tate than some other road, is not entitled justly and morally to that 
‘earning. 

' Mr. Warrer. Of course, Judge, I can not account for your failure 
0 conceive that from your viewpoint, but I have tried to explain 
it as fully as I can. ‘The Constitution guarantees a public-utility 
corporation only a fair return upon its investment, and if a man who 
‘mvests in one, and who knows that, under the law, gets that fair 
teturn and more, how can he complain? The Interstate Commerce 
‘Cotamission always gives a little higher level of rates where they have 
jarich and a poor road in order that the poor road may get something 
togoupon. It has been compelled to deny advances in rates because 
75 per cent of the advance would have gone to roads that did not need 
it. Now, when you take away two-thirds of the excess of this 75 
‘ver cent there is an incentive for the commission to be more liberal 
with the weaker roads. 

Mr. Sims. But if the man who has invested the money takes all 
the risk and chance of winning or losing, why should the man who 
‘fas lost profit by that because his risk does not turn out as he hoped 4 
Why should the man who benefits be penalized? Is not that bor- 
dering on socialism ? 

Mr. Water. Not at all. Let us assume that we have a road 
operating hetween St. Paul and Chicago, that there is only one road, 
and it is making munificent earnings. The people who are along 
the. other side of the Mississippi River need railway service, local 
railway service; the farmer has got to have some way to get his wheat 
out, his corn and his cattle; another company goes to work and 
ouilds a road between St. Paul and Chicago on the other side of that 
aver, through another territory, and divides the tonnage between 
5t. Paul and Chicago. Tet us suppose you bought stock in the first 
tailroad hefore the second was built, and it was worth 200 cents on 
ihe dollar, which you paid for it. The same tonnage moves over two 
roads now and you have lost half your earnings. Have you any 
vested right to have rates made over those two roads, so that you can 
lave the same earnings that you had in the beginning? Not at all; 
1ot at all. Or, if there is only one road there, should the freight that 
moves over it have to pay a rate which produces 25 per cent upon the 
Mvestment? Not at all. You are not entitled to it. 

Mr. Simms. But the people on the second road will get one-third in- 
lirectly of what the good road makes—— 

| Mr. Watrer (interposing). They do not get it directly or indi- 
“ectly; no. 

' Mr. Srus. The road gets its labor paid. 

Mr. Watrrr. No; it pays the same wages as the rich road pays. 

Mr. Sims. I know; but the labor gets something, which the weak 
“oad does not have to pay, which you say is satisfactory. 

_ Mr. Watrer. The labor on the rich road gets just the same thing; 
4 dividend paid by the rich road—it is money of the public which this 
Jongress, under our plan, would prohibit the rich road from ever 
yetting. 

Mr. Sous. Your idea is the road should not be permitted and has 
aot the right to earn anything more than a certain amount on its 
as capital, regardless of the amount of service that it may 
tender ¢ 





F 


res 


1004 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Watrer. It is entitled only to a fair return upon the property 
devoted to a public use and service. 

Mr. Winstow. That would not preclude it from earning all it could? 

Mr. Watter. Not at all. It can earn all that 6 per cent, as a gen- 
eral level, can produce on all of the railroad property of the United 
States. That is all. 

Mr. Dentson. In that connection, I would like to state that Com- - 
missioner Clark, in testifying here, in response to a question I put to 
him, said that the most desirable solution of the special-car service, 
such as refrigerator cars, etc., was that they should be owned by a 
separate corporation and furnished to the d:fferent roads as required. 

Mr. Watter. Yes. sir. Now, this corporation, I think, would also 
be able to accomplish a great many other things. We have set forth 
some of those things in the bill, but let us take the unification of 
terminals. Here is an operating force hand in hand with the com- 
mission as an administrating force, with the commission in the 
majority—the public interest supreme. There may be times when 
improvements are necessary which no carrier itself would make; 
perhaps a link should be built which would save a vast expense in 
coming down and around, we will say. This corporation, out of these 
public funds, could make, that link, if it was in the public interest. If 
it was clearly in the public interest that the commission should have 
a larger fund, that should be done. I will show you later, from fig- 
ures, what this fund would have been if this plan had been in effect 
during the three-year test period. It would have had $83,000,000 to 
be divided between labor and the Government. Now, it may be there 
ought to be a larger amount in the fund. The commission can make 
rates higher than 6 per cent to raise that fund, if in the public interest. 

I am sure that the people in this country who pay freight charges 
and passenger rates are perfectly willing to pay whatever is necessary 
to keep our transportation service at the highest efficiency, provided 
it does not result in extortionate earnings upon investments of the 
richer roads. It is that objection which shippers have made in these 
rate advance cases, that the roads that did not need an increase in 
revenue got it and the public did not get the benefit. I can not see 
why any member of the committee, or any man anywhere should be 
opposed when, under this plan the carriers are not prevented from 
paying any customary dividend or fixed charge. _ Under our plan the 
carriers all over the country can pay the dividends that they did pay 
during the three-year period. It does not cut any of that off. It 
does affect their surplus, but it is for the public good. 

Mr. Montacue. Have you formulated a bill? 

Mr. Watter. The bill will be presented by Mr. Johnston at the 
conclusion of my examination. He will explain it in detail. 

Mr. Monracue. The bill is arranged in legislative form and em 
bodies your views ? 

Mr. WatTER. Yes, completely. 

Mr. Denison. Mr. Walter, I want to ask one question for informa- 
tion which I think will interest the committee. Are there any figures 
available which you can give, or any one else, showing a comparison 
between the property investment account of all the railroads, whieh 
you have said is something over nineteen billions, and the total 
outstanding stocks and securities of all the railroads ? 


3 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1005 


_ Mr. Watrer. Yes. That is already in the record. Commissioner 
Clark put that in. 
\ Mr. Denison. For my own information, can you give an idea of 
how they compare ? 
* Mr. Watrer. Yes. There are about $8,000,000,000 of stock and 
$11,000,000,000 in bonds. There is a lot of duplication of securities. 
Por example, one road owns the stock of another, but I will under- 
‘take to prepare a short exhibit, which I will insert in the record at 
this point, giving the stock and bonds duplicated and not duplicated. 
Denison. I would like to have that, because I would like to 
know what income the 6 per cent on the aggregate property invest- 
‘ment account would yield in comparison to the aggregate of stocks 
and bonds. 
\ Mr. Wa ter. I will also work that out. 





Zomparison of property investment accounts, capital stock, and funded debt and per cent 


. of return on capital stock, classes 1, 2, 3, and nonoperating subsidiaries, Dec. 31, 1917. 





MII eIIU OHO i ec. fae. os ob See se lace tebe cecabens $18, 423, 235, 159 
Capital, unduplicated: 

| a es cn en cee sew e ede cpa $6, 582, 809, 245 
FEE IS 9, 818, 976, 772 


: bast 1G, 401,786, OLY 
Net railway operating income (5.52 per cent of property investment). —_1, 016, 962, 580 


Wemmmatt OP IKEG CHATPOS. 5 no ec ce cence aewecs 500, 018, 448 





Preis available for dividends $1.2. 255 2... ck cee et 516, 944, 132 
Per cent on capital stock, 7.85 per cent. 

There has been some objection to this plan because the percentage 
of return will run as high as 25 per cent upon the capital stock after 
ixed charges are paid. The objection is made that that is too much, 
Dut it is less than they would get if you did not have the restriction 
inder our plan. 

Now, I am going to show you how it works out. We have taken 
ul the class 1 roads in the three territories and we have applied this 
lan to them during the three-year test period. 

There were 162 systems. Each one may have three or four cor- 
orations, but these are systems with 231,321 miles of road on June 
30, 1917. | 

These 162 carriers represent 97 per cent of the gross revenue of 
he United States, 98 per cent of the amount of revenue, and 89 
yer cent of the mileage of all the lines. We have applied it to that 
‘roup. 

By order to bring about the 6 per cent in each of these three terri- 
ories we would have to increase the rates, in official classification 
erritory, in that period, 5.07 per cent; in southern territory, 4.67 
er cent; and in western, 6.96 per cent of the revenues in effect. 
hat makes throughout the United States an increase in the gross 
evenues of the carriers of 5.78 per cent. 

The total property investment in these 162 systems in the United 
states would be $17,192,000,000. The freight revenues would have 
Neen $2,368,000,000, and the net railway operating income would 
lave been $894,000,000, with 5.2 per cent as the rate of return on the 
oroperty investment. 

_ Now, applying that plan, there are36 roads in eastern territory 
rhich would have earned more than 6 per cent, and they would have 


152894—19—vo1L 1——64 
















> . a - 
el te 


1006 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


contributed two-thirds of the excess over 6 per cent to the fund for 
public use, or $31,863,000. They would have been $9,741,000 better 
off, after paying into the fund that $31,863,000. That is, treating 
them in the aggregate, because some of them were below 6 per cent 
before we applied this increase and would only get a part of it. In 
other words, they would not get all the increase, but may be a half. 

Mr. Winstow. What years are covered in that period ? 

Mr. Warrer. The average of this period of three years ending 
June 30, 1917, treating the average of those three years as one year. 

Mr. Winstow. You probably have not figured out the percentage 
of increased cost in the last two years ? 

Mr. Watrer. Oh, no. I am just assuming that the plan had been 
in effect and the commission had made rates which produced 6 per 
cent as a minimum and that every road in the territory would have 
participated in its share in the increased rates in the proportion as its 
gross revenue was to the aggregate gross revenue. 

Mr. Winstow. Did you disturb any of the guaranties made by one 
road to another ? ) 

Mr. Wattrer. Not at all. We do not interfere with corporate 
organization or anything of the sort, and we have paid no attention to 
stocks and bonds except that one of the fundamentals of our plan is 
that the commission should exclusively regulate the issue: of these 
securities. 

Mr. Winstow. In other words, you too, the present roads with all 
their present obligations ? / | 

Mr. WALTER. Yes. } 

Mr. Coapy. Mr. Plumb said the other day there had never been any 
retirement of railroad obligations, except by refunding. Do you 
know anything about that ? 

Mr. Water. No; I do not. I am not going to base my case on 
guesses. There has been enough of that done. : | 

Now, in the southern territory 19 roads would have contributed to 
this fund—these 19 roads, in the aggregate, if they had had an increase 
in rates, would have been $121,233 worse off, because they came nearer 
to 6 per cent than the roads in official classification territory. In the 
western territory 24 roads would have contributed $37,885,000, and 
they would have been $15,768,000 better off. In the United States 
as a whole 79 railroads would have contributed $83,000,000, and they 
would have been better off as a whole by $24,443,000. 

Thirty-one roads in the eastern territory would have been $12; 
000,000 better off, but they would not have contributed anything t¢ 
the fund; in southern territory 13 roads would have been $4,295,00€ 
better off and would not have contributed; in the western territory 
39 roads would have been $12,994,000 better off and would not have 
contributed. : 

In the United States as a whole the roads not contributing, 83 @ 
number, would have been $29,256,000 better off. Combining tit 
162 roads and treating them as one property they would have coa: 
tributed to the fund $83,494,000. They would have kept $53,699,00 
that $83,000,000 would have been divided between labor and tli 
Government. Now, some people will say that half of $83,000,000 © 
a small amount to be divided among labor, but if you apply that b 
a system of benefits and insurance, etc., it means a great deal in th 
results it will bring about. More than that, it puts the employee ii 








RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1007 
|a position where he feels he has an interest in the property on which 
(he is laboring. You will not find three men working where two men 
‘an do the work. TI think it will have that effect, too. Now, as to 
‘the rate of return. 
|. Mr. Sims. Right there, Mr. Walter. A road has contributed 
‘$83,000,000? . 

Mr. Watrter. Yes; all roads, collectively. 
Mr. Sims. But you are distributing all of that $83,000,000 among 
‘all of the roads within the territory referred to ? 
| Mr. Warter. Not at all. They do not any of them get any of it. 
| Mr. Sms. Who gets it ? 
Mr. Warrer. Labor gets half of it. 
| Mr. Sims. You said that certain railroads would be so many 
|million dollars benefited, which roads had not contributed ? 
Mr. Water. Yes. 

Mr. Sims. Now, they had to get that from somewhere. 
' Mr. Watrer. They get it out of the rates they collect. 
| Mr. Sms. Certainly; but they can not pay it out of the rates 
‘unless they get 
| Mr. Watrer. The roads don’t pay it; the shippers pay it. 
| Mr. Sims. I know; but it takes from the corporation or system 
\which earned it under lawful authority and turns around and gives 
to a corporation that did not invest a dollar in it and did not earn 
1 dollar of it by any service it rendered to anybody. Is that a fact? 
| Mr. Wattrrer. No. In the first place, under our plan, two-thirds 
of the excess over 6 per cent never becomes the property of or goes 
|mto the treasury of the rich road. The rich road has had its fair 
return of 6 per cent and one-third of this excess. It can not com- 
|olain, because it has had its constitutional return and more. That 
583,000,000 never was the property of any corporation. The ship- 
ers contributed to it, the road to hold it as trustee, to finally turn 
t over to this corporation. : 
| Mr. Sms. Then you are taking it from the shippers unjustly ? 
| Mr. Watter. No; not unjustly. 
Mr. Sims. For the benefit of those who have never given anything 
/n return for it. 
| Mr. Water. Not at all. The shippers of this country are more 
ritally interested than the capitalists in having labor continue in 
minterrupted service. They must move their products from and to 
narket. They must buy their materials and supplies and they are 
villing to do almost anything to have a settlement of this unrest and 
hese threats of strike and ruin. They are the people who are more 
soncerned even than capital. 
| Mr. Sms. Well, but you are taking from the shipper more money 
\jhan he ought to pay. 
| Mr. Waurrer. More money than he ought to pay, if you have in 
nind only the rich road. | 
| Mr. Sims. But the poor road is not entitled to it and never earned 
,t—this shipper’s money that you are taking away, and therefore 
you are taking more money from the shipper than ought to be taken, 
‘or the service which the shipper receives. 
Mr. Watrer. No, sir. The shippers are not going to complain 
they just know that the rich road does not get any richer ‘They 
are willing to pay a fair return upon the property devoted to public 























Ih 


1008 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


service, but they insist that the system of regulation that you do 
adopt shall take care of those that need it most. 

Mr. Sms. Well, if one corporation owns and operates them all, 
why wouldn’t they all be benefited by having more economical sery- 
ice rendered, without this extra pay by the shipper ' 

Mr. Water. All the shippers of the country pay it to these rail- 
roads as one system, 6 per cent and no more; treating them as one 
road, under our plan, 6 per cent is all they get. We do not undertake 
to apportion it between the weak and the strong, but to allow each 
id get all that it can. If we find some getting more and some getting 
ess—— | 

Mr. Sims. You let them get all they can, but you don’t let them 
keep all they get. That is the way I see it. 

Mr. Water. I can not help that, Judge. I have tried to make 
the plan plain. | 

Mr. Sims. I know you have made a noble effort, and I must charge 
it to my own obtuseness. . 
Mr. Water. I think if you can just get your mind in such a mood 
that you are willing to consider it open and take away from these 
rich roads money they have not earned, you will have no .concern 
about anything else. It is a new proposition, but I have just shown 
you how it worked in the case of the Federal Reserve Banks. After 
they have acquired a certain reserve fund they get 10 per cent and 
the Government gets 90 per cent. . 

Mr. Smus. Yes, but they did not get something they were not en- 
titled to or keep something to which they are not entitled | 

Mr. Watrer. I say if an individual road earns more than 6 per 
cent, after it takes care of the proper reserve funds, it has got more 
than, under the Constitution it could compel or is entitled to get out 
of the public. The people we represent are the ones you are going 
to look to for future investments and they are willing to have these 
limitations upon excess earnings if they can get stability and know 
that this trouble, that is constantly recurring, can be avoided. 

Mr. MontaauE. Is it somewhat analagous to usurious interest; all 
over a certain per cent is usurious and goes to the public or other 

erson. 
‘ Mr. Watter. I think the time is coming when excess earnings have 
got to go. You are doing it in your taxing. 

Mr. Wesster. Does your plan in its operation involve any differ- 
ent principle than the principle involved in income taxation ? 

Mr. Watrer. No. It is very much like unto it. 

Mr. Wessrer. Is not the error in Judge Sims’s position this: 
That he assumes that the railroad earns the sum total of the revenue 
it receives under this rate when, as a matter of fact, it does not earn 
it at all; it simply keeps it temporarily and is required to devote it 
to a specific purpose ? 

Mr. Water. That is right; it is a trustee, that is all, and the 
people are getting the benefit of that trust. 

Now, in the eastern territory the actual rate of return, compared 
with the new rate of return that the roads would receive—taking 
the roads that would have contributed the property investment 
account was $4,826,000,000, net railway operating income 
$289,142,000, or a return of 5.99 per cent on property investment. 
Now, under our plan, with one-third over 6 per cent, the earning 00 











\ 





RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1009 


|the investment would have been $298,883,000, or nine million dollars 
odd more, which increases it from 5.99 to 6.19 per cent upon the in- 
vestment. ‘The roads that would not have contributed, the weak 
¢roads, had a property investment account of $1,971,991,000, net oper- 
ating income $65,145,000 or a return of 3.3 per cent. 
| Now under our plan those roads would have earned $77,162,000, 
‘and so be $12,000,000 better off, and their rate of return rose from 
}3.8 to 3.91 per cent. Then with the commission in control of divi- 
/sions and with the movement of tonnage it can still further increase 
‘the earnings of these weaker roads. 
What we are looking to is an ideal situation, where the sufficiency 
jof transportation service, the ability to serve the public and the 
return to capital will be the same on all of these properties, but that 
\isfarin the future. We are trying to build up to what is fair as well 
}as permanent. 
| Commissioner Clark’s testimony showed you 80,000 miles of rail- 
froad that did not pay a cent of dividend. Now those investments 
jare held widely and everywhere; we do not know where, but it is in 
‘the interest of the public to have that property put in better shape: 
‘it is a national asset. We show you similar figures for all of the 
\territories. It might be well to call your attention to the United 
States as a whole. 
Mr. Sims. Is there an inherent right in the stockholder to some- 
| thing in property which he owns—does not earn ? 
| Mr. Watrrer. Why does it not earn it? 
| Mr. Sms. If it has stock in aroad that does not make earnings in 
jexcess of fixed charges and costs of operation, how has he any right 
to something he did not get, that the property could not make and 
‘did not make under the law ? 
; Mr. Watrer. In the first place we have no concern with the stock 
‘and bonds; we are dealing with investments. 
/ Mr. Sms. You are talking about dividends; that all goes to stock. 
| Mr. Watrer. We are talking about earnings, and I said there were 
no dividends on the 80,000 miles of railway. There may be some 
‘good reason, but I call that an evidence of weakness in the American 
| transportation system. 
Mr. Smus. That stock is widely distributed then ? 
Mr. WatrTeEr. It is 80,000. miles; it may be distributed throughout 
‘the United States. 
Mr. Srms. The inference is the people were suffering for what they 
jought to have. In other words, it is an inherent right to dividends, 
\whether the company earns it or not. 
)} Mr. Watrer. The stocks and bonds outstanding on that 80,000 
miles of railroad represents some money that somebody is devoting 
jto the public use. 
| Mr. Stus. The bonds, of course. 
Mr. Water. And the stock, to the extent that money is paid for it. 
Mr. Stus. That does not always follow. 
_ Mr. Wattrrer. Anyway, whatever the form the investment may 
be held in, whether stocks or bonds, the investment is devoted to the 
public use, and there is a public interest. ‘The man who has one car 
of live stock to ship on a little branch line of railroad is just as much 
‘mtitled to have this Government look after the status of transporta- 
‘tion on that line of railroad as if he shipped 10,000 cars. | 


—=_ 












1010 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. — | 
, ¥ 


Now, in the United States as a whole, the roads that would have 
contributed, earned $733,000,000 on the $12,000,000,000 investment, 
and that was 6 per cent. Under our plan they would have earned 
$757,000,000, 6.2 per cent. The roads that would not have con- 
tributed earned 3.25 per cent, being $161,000,000 on an investment, 
of $4,969,000,000, and under our plan they would have earned 
$190,000 ,000, or 3.84 per cent. The total amount of all roads, 
those that would and would not contribute, would have resulted in’ 
5.52 per cent, instead of 5.2 per cent. actually earned. aat 

The next page gives you graphically the showing as to individual 
lines, and you will notice from the black line, which represents what 
they did get, that the great bulk of them lie the left of the 6 per cent 
line, and those roads that reached beyond the black line, earning 
more than 6, is shortened by two-thirds of that excess; the white ling 
becomes—the weaker roads represented by the black line on the left 
approach under the new status of things under the graphic chart the 
white line—both of them approach nearer to a common minimum of 
6 per cent. Or, as showed on the right, take the Ann Arbor road, 
it earned $531,583, or about 3 per cent. Under our plan it becomes 
$631,813, about 3.5 per cent; it would not contribute anything to 
the excess fund. Going down to the next road which does con- 
tribute is the Baltimore & Ohio. It earned $25,575,000. It would 
earn under our plan $29,635,000, including what it keeps, but would 
pay $243,000 to the fund. It is $4,000,000 better off under the plan, 

So we take each individual road for that eastern or official classifi- 
cation district. We next go to the Southern District, and we give 
you the same figures there. There is the Alabama & Vicksburg, the 
first one shown; it earned a little more than 6 per cent, $342,083. 
Its new earnings will be $353,000, but it would contribute to the 
excess earnings fund $42,000. | 

The Cincinnati, New Orleans & Texas Pacific earned $3,596,308, 
or 9.13 per cent on its property investment. Under our plan it 
would be $2,906,983, but it would have contributed to the excess 
earnings fund $1,089,690. 

We have then the western district, which follows. I shall not take 
time to give you those figures, but they are all there. 

On the following page we have practically a repetition of the formula 
which we gave you on the first page. I sbaen repeat that, but 
the followmg summary is interesting: 

In the United States as a whole $733,115,140 went to these 162 
roads, and the new net income would be $841,051,984; the earnings 
over 6 per cent amount to $125,000,000; the carrier getting one-third 
of that keeps it, and then the $83,000,000 goes into the fund. 

Then we follow up with roads which would have contributed to 
the fund, each one shown separately, with the net change under the 
plan, and so follow it up with the others in excess. qj 

On the third page from the last, or about the third page from the 
last, we give you the fixed charges and dividend appropriations to 
show that, without. exception under our plan, these fixed charges 
and dividend appropriations could have been made; they would haye 
had ample funds to do it. 

Here, then, is the net result of our plan: Roads whose net railway 
operating income would be decreased by the plan; that is, the final 
result of our plan applied to them would not leave them less net rail 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1011 


way operating income than they had without the plan; there would 
‘be 16 roads that would be decreascd $200,000 or less; three roads 
‘between $200,000 and $500,000; seven between $500,000 and 
$1,000,000; and five between $1,000,000 and $2,000,000, and we name 
| those roads, the Bessemer & Lake Erie, C., B. & Q.; Delaware, Lack- 
awanna & Western; Duluth, Missabe & Northern; and the Union 
Pacific. The decrease of $2,000,000 or more comprises three roads, 
| the Norfolk & Western, Philadelphia & Reading, and the Pittsburgh 
|& Lake Erie. The roads that would have been increased under the 
\plan; 19 roadsshowing an increase of $200,000 or less;. eight an increase 
| between $200,000 and $500,000; fivebetween $500,000 and $1,000,000, 
‘and eight between $1,000,000 and $2,000,000. We show the roads 
| with the amount that they would have had. 
| Now, that is the result as applied. We believe that it 1s feasible 
and practicable to apply this plan. I think that explains the plan. 
| Mr. Johnston will show you the statute that would accomplish it. 
/ Mr. Denison. Have you ever discussed this with the railway 
| brotherhoods to determine whether or not it would meet the approval 
of the organizations or men in one district that might be higher or 
‘lower than another ? 
| Mr. Watrer. No; I have not. There were in the Transportation 
! Conference, to which Mr. Wheeler referred, representatives of some of 
the organizations. I presented this plan, argued it, but I was told by 
the representatives of the American Federation of Labor that they 
did not want profit sharing in this form. Of course they want the 
“Plumb Plan”’ if they can get it, and they do not want to agree to 
| anything short of that, although you will recall when Judge Dewalt 
/ asked Mr. Plumb whether a participation in profits after capital had 
| had its fair reward and labor had had its fair wage with participation 
in management would be satisfactory, “Well,” he said, ‘‘it would be 
/a large improvement over present conditions.’ That is about the 
| best way I can answer your question. 

I have no doubt that the rank and file of this country would be 
satisfied and pleased with this plan, and if they could understand the 
| difference between the benefits our plan gives to labor and the 
chimerical plan that has been outlined here, I have no doubt that 
this would be satisfactory. 

Mr. Denison. There is very little diffesence in the schedule of rail- 
| way men’s wages all over the country ? 

| Mr. Waurer. That is right; there was very little, and the admin- 
/ istration has made them practically uniform. 

Mr. Denison. And before Government control the schedule of 
| wages has been practically the same? 

/ Mr. Water. Very little difference. 

/ The Cuarrman. There is always this difficulty where Congress fixed 
a certain figure or standard. Your plan fixes a standard for the 
return at 6 per cent upon the property investment. Now, I can 
conceive that 54 per cent m some year might be quite as liberal a 
‘return as 6 per cent in others. You can see that there 1s that pos- 
‘sibility of change? 

| Mr. Water. That is true, but it is no more inelastic then just 
“and reasonable, if the commission failed to get 6 per cent in any 
One year, there is no penalty upon anybody; the Government does 
not guarantee to doit; the commission does the best it can to approxl- 































| 


1012 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


; 


mate that and to not fall below 6 per cent; we think that without 


that legislative decree you can not secure capital for future improve- 
ments; to get such capital you must have a substantial revenue of 
not less than 6 per cent through a period of years. 

The CHarrmMan. Have you considered this aspect of the case? Our 
action, if we adopt your bill and fix 6 per cent, would not bind the 
next Congress ? 

Mr. Water. Not at all.. 

The CHarrMan. It is possible to conceive that labor organizations 
and the farmers combined would think that 6 per cent was too high 
a wage; their combined action, manifested at the polls, might make 
a Congress that would reduce that to 5 per cent, or even less. 

Mr. Water. That is possible. 

The CoarrmMan. Might not the combined public make it more than 
possible ? , | 

Mr. Water. I do not think so at all. I think that the publie 
will be perfectly content to pay 6 per cent, but what the public will 


not be contented with is to have earnings far in excess of 6 per cent. 


Now, you can not take away that excess unless you have first 


provided a legislative yardstick to do it with. These two go hand in © 


hand. The transportation conference has adopted a different method 
of handling the excess. It arrives at the level of earnings by using 
the temporary yardstick that we here suggest of the property invest- 
ment account, but when it comes to take away the excess it adopts 


another method, which has the result of making the poor roads poorer. 


and leaving the rich where they are, because it fixes the standard 
rate of return as the limit, and that brings me to the point where I 
ought to call your attention to that fact. 

Mr. Montacur. Before you leave that division, and in continua- 
tion of the suggestion made by the chairman, this plan of yours of 
getting capital for the railroads would not work out very well unless 
we understand that the net of 6 per cent in a governmental assur- 
ance, would it ? 

Mr. Watter. It is a legislative direction that this is what we want 
the body that acts for us to do. 

Mr. Montacur. And it will not be successful unless it assumes 
somewhat the form of a governmental guarantee in the public mind? 

Mr. Watrer. Well, the public minds, many of them, have ap- 
praised it as a guarantee. 

Mr. Monracur. It will be generally construed as almost a Govern- 
ment bond, willit not? | 

Mr. Water. Not at all; no. 


Mr. Montaeur. You do not think the popular mind would so take 


them ? 
Mr. Watrter. Not at all; no. 


Mr. Monracur. They will take it as a good investment because 


the Government is back of it, will they not ? 

Mr. Watrer. They will take it as a good investment because the 
act to regulate commerce requires the Interstate Commerce Commis- 
sion to adjust rates so that the total investment will produce 6 per 
cent. JI have no apprehension that you would find a Congress suc- 
ceeding you interfermg with your act. I believe it will settle the 
troubles that the carriers have as to credit; that it will satisfy labor, 


he 


i) RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1013 


| 


| 


(IT am going to outline in a minute 


| and with some provisions as to the adjustment of labor disputes that 





Mr. Monracuz (interposing). What I had in mind was. this: 
, Assuming, for the sake of argument, that the attractiveness of these 


| securities for new capital will largely depend upon the faith that the 
Government will so regulate these roads as to be a substantial guar- 
| antee of such a return, is that not true? 


Mr. Water. No; I think not. 
Mr. Montacur. How will your plan work out if that is not the result 


‘of it in the popular mind ? 





Mr. Watrer. It will have this effect: That you have fixed the 
yard stick by which rates are to be measured. 
_ Mr. Monrtacusr. And that yardstick is 6 per cent? 
_ Mr. Wa rer. Yes. 





_ Mr. Montacur. And the Government fixes it? 


Mr. Water. Yes. 
Mr. Montacus. And it is upon the faith of that yardstick that the 


| public will purchase it? 


| Mr. Watter. Yes. 
. Mr. Montracusr. That is a Government action ? 

Mr. Watrer. Yes; and the faith that the Interstate Commerce 
Commission, faithful to the oath of its office, as it has been in the past, 
will be in the future, and will carry it out. 

_ Mr. Montague. This is the thought which I wish to direct your 
attention to. Ifitis that faith which makes these securities available, 
‘substantially it will be in the popular mind a Government security; 
do you not think the public will think that any Governemnt security 





at 6 per cent would be a pretty high rate of interest ? 


_ Mr. Watrer. No; there is an entire difference. In the first place 
you paid 43 per cent. 
. Monraeue. Four and three-fourths and six per cent is quite 
different. 
Mr. Water. Yes; there is a good deal of difference; but you must 
bear in mind the hazards, one of them only has the railway property 





| behind it; the other has the United States’ assets of every kind and 





description back of it. 
Mr. Montacur. You see the labor contention here is to put the 


: Government back of it and also to put the Government back of the ~ 
| direction; then you have double assurance ? 


Mr. Water. I think there is not 
Mr. MontacvE (interposing). Do you not rather approximate that 
‘statement or contention to some extent ? 

- Mr. Watrer. Hardly. But we do think that 6 per cent will be 





accepted by the public as fair. Now, the public patronizes the 


Federal Reserve Bank in the borrowing of money to finance business, 


)to carry on every kind of trade, and you say that the bank shall have 
|6 "a cent and may retain part of the earnings in excess thereof. 


Johnston calls my attention to this fact, that under the appli- 


ycation of the excess earnings fund the net result is 5.52 per cent. 
That is on class 1 roads. 


I have no apprehension of that. Of course it would be a short- 


: eal policy for the security holders to ask this Congress, or any 
‘ot 


er Congress, to adopt a policy which could be but fieeting in its 


|effects and which would bring down upon their heads ruin in later 


years. But we have no fear of the future in that regard. 


1014 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Winstow. Will you or somebody else explain the financial 
structure ¢ 

Mr. WattEer. What do you mean by that? Iam no financial man © 
at all. I have a hard time to make both ends meet as it is. } 

Mr. Wrnstow. According to recent precedent then you should 
make a better advocate. Somebody, I suppose, will explain how 
these securities are going to be transferred and handled % 

Mr. Water. There will be no change at all, Mr. Winslow, in the 
way in which securities have been handled, except as you may 
change the law as to the issue of securities. It is nothing more than 
an increase in the revenue of the carriers, with a decrease in the excess 
earnings. 

Mr. Winstow. Say a man had a share of stock in the Pennsylvania ~ 
road, what happens to that share? : 

Mr. Water. It is not changed in the least, except you have got a 
little better assurance that you are going to have enough earnings to 
derive something upon that investment. That is all. We do not 
change any corporate existence; no change of any sort, except a 
higher level of net corporate income to the roads that earn less than 
6 per cent, and to some of them that earn more than that amount, 

Mr. Wrinstow. You do not form any one corporation, a single 
corporation ? | 

Mr. Water. No, sir; we are opposed to regional corporations; we 
are opposed to compulsory Federal corporation, and I will tell you why 
in a minute. Perhaps I might just as well do that now. 

Compulsory Federal corporation has been advocated by many 
people; the great and the only purpose, perhaps, is to avoid State 
regulation. The Supreme Court, in the Shreveport case, shows how 
the Federal power can control a burden cast upon interstate com- 
merce. It was my good fortune to be counsel for the State of Louisi- 
ana in bringing that case and to take it through the commission and 
to the Supreme Court and to have that principle established. Now 
your bill and our plan proposes to effectuate the Shreveport principle, 
and that will give everything that the advocates of compulsor 
Federal incorporation want. It gives it without the delay that wi 
follow and the litigation that will ensue if you try to compel a man 
that has stock in the Baltimore & Ohio, of Maryland, to sell that to 
somebody when he does not want to sell it, and compel somebody to 
buy it that did not want to buy it. Nothing but litigation will ensue 
if you adopt compulsory Federal incorporation. 

The decision of the Supreme Court in Hay versus Hemphill (vol. 
201, U.S. Reports, at page 75, et seq.) said: 

It is true that the corporation in this case was chartered under the laws of New 
Jersey, and that it receives its franchise from the legislature of that State: but such 
franchises, so far as they involve questions of interstate commerce, must also be 
exercised in subordination to the power of Congress to regulate such corporation, anc 
in respect to this the General Government may also assert a sovereign authority to 
ascertain whether such franchises have been exercised in a lawful manner, with a due 
regard to its own laws. Being subject to this dual sovereignty, the General Govern- 
ment possesses the same right to see that its own laws are respected as the State would 
have with respect to the special franchises vested in it by the laws of the State. The 


powers of the General Government 1n this particular in the vindication of its own laws 
are the same as if the corporation had been created by an act of Congress. 


If the carrier says, ‘‘We have been unjustly subjected to the lo 
level of State rates,’’ I would cite them to what the Interstate Com- 
merce Commission did in Texas. It found what was a just and 








RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1015 


reasonable rate between Shreveport and Texas. Before that decision 
‘the rate on buggies from Shreveport out to Marshall, Tex., had been 


| $1.50 per hundred for 50 miles. From Dallas to the same destina- 


) cents for 150 miles, three times the distance and one-third the rate. 


| tion, wholly within the State of Texas, the rate on buggies was 50 
\ 





| 


— 





Now, then upon the complaint of the State of Louisiana the Interstate 
Commerce Commission fixed the reasonable rate on buggies and 
everything else that moves in all of that territory, in both directions, 


) from Shreveport to Texas and from Texas to Shreveport, and then 


said that the carriers in the State of Texas shall not charge for the 


} same distance a lower rate on any commodity than they apply for 


like distance between Shreveport and Texas. 

_ The result was an increase in the rates in Texas. It is just the 
same as though the level of these tables was brought up to the level 
of your platform. That was accomplished under existing law, but 


| it is a long and laborious process and the law ought to be changed, 
| so that the State commission can sit down with the Interstate Com- 
merce Commission and after hearing the carrier and shipper, to 
agree if they can, but if they can not agree, the Interstate Commerce 
} Commission will say what the rate level will be. That is a plan 
‘which /I believe to be feasible and practical. You do not need 


compulsory Federal incorporation, with the unsettling of values and 


with the delays incident to the litigation that will follow. 


Mr. Winstow. Let me submit a hypothetical case. As I under- 


‘stand it—I may be a little dense—the 6 per cent is allowed on the 


ot a ye 





book value of the property. Is that right? 
Mr. WaLTER. Yes, sir. 

Mr. Winstow. Then suppose the book value were below $1,000,000, 
to get down to the little fellows, you know, and yet the road had 
$1,300,000 of stock outstanding on which it had been paying divi- 
dends, which dividends we will say amount to more than 6 per 
cent on the book value. What happens to the dividends out of the 
$1,300,000 if they are only allowed the income of 6 per cent on 


$1,000,000 2 


Mr. Water. Of course if the book value is less than the value of 


‘the property, and we say the Interstate Commerce Commission 
should determine that question, then it is 6 per cent upon the value 
| which the commission finds. 


Mr. Winstow. But book value does not determine earning power } 

Mr. Wa ter. No, sir. 

Mr. Winstow. Then you get to the same point we have been 
wrestling with before. What is going to happen to the fellow that 


+ has a lot of common stock, $300,000 of it, on which he has been get- 
) ting dividends in the past, when under your system stock will receive 
| no dividends save up to the amount of $1,000,000 ? 


Mr. Watter. No, that is not the fact, Mr. Winslow. 
Mr. Winstow. How does that work out? 
_ Mr. Watrer. We have applied the 6 per cent upon the book value 


and during the three years, ending June 30, 1917, the resulting 
| revenue pays every customary and usual dividend that has been 


aid in that time, and the fixed charges. It will not cut dividends; 
it will not make it impossible for any carrier subject to it to be as 


_ well or better off than it was before the plan was applied. 


ay 


1016 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. — 


Mr. Winstow. I am afraid I do not make myself clear. If the 
book value is $1,000,000 you will allow 6 per cent on that million 
and that is all, is that not right? 

Mr. Waurer. And one-third over. 

Mr. Winstow. Well, one-third over. I will make it $1,700,000 of 
common stock on which it has been paying a dividend in the past, 
Under your plan you would figure 6 per cent; under your plan you 
would cut off the dividend when you reached one million ? 

Mr. WattER. No, sir. 

Mr. Winstow. I do not see why not. | 

Mr. Water. In the first place we make the rate not on the indi- 
vidual carrier, Mr. Winslow. We make it upon the combined 
property investment of all the carriers and let each one earn all that 
it can, and it keeps one-third of all it gets over that. Now to haye 
paid the dividends you are talking about, it had to earn a lot more 
than 6 per cent. | 

Mr. Winstow. On the book value ? 

Mr. Watrer. Yes. Its property that it uses for the public is not 
changed at all. v 

Mr. Winstow. Not at all? | 

Mr. WatrTerR. It is the same property; it has got more money t 
work for than it had before, because there is a 5 per cent increase in 
the freight rates during that period. 

Mr. Winstow. Let me put it another way. How do you handle 
watered stock in cases where the watered stock has been receiving 
dividends ? 

Mr. Water. We do not pay any attention to that under our plan 
at all. If the amount of revenue that results from our plan is not 
sufficient to pay the earnings, then it is up to the carrier to do one of 
two things: It can either show that it has a greater amount of property 
devoted to the public use than its investment account shows, or it 
can shrink its outstanding securities, or it may pay a lower rate of 
dividend, but that is_all conjectural, because under our plan there is 
not a single dividend that would need be cut, because the revenues 
would be ample to pay dividends and fixed charges in every case. 

Mr. Winstow. I am sorry I can not see that, but I do not yet 
quite see what happens to the so-called watered stock if it had been 
a dividend paying stock, not represented by book investment. 

Mr. Watrer. We have not in our plan paid any attention to the 
securities that are outstanding, except to see that not a single divi- 
dend and interest charge that was paid would be rendered incapable 
of payment by the application of the plan. if 

If you will give me an individual instance of any road, I will show 
you exactly what it has done to fixed charges, dividends, and earnings. 

Mr. Wiystow. I will try to do that later on, but at the moment I 
can not do it. 

Mr. Water. I shall be very glad to come to your office at any 
time and undertake it. 

Mr. Winstow. I can not conceive that a road which had been 
conservative and has kept its book accounts of property down, and. 
has issued no more stock than is represented by book values, would 
not be in somewhat of a pickle if now they had to make allowances 
for the fellow who had been more careless and had issued stock in 
excess of his book values and paid dividends upon it. 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1017 





) 
I 
} Mr. Watter. But there is no such case, Mr. Winslow. 

, Mr. Winstow. Do you concede there is any watered stock in this 
Naseer try ? 

_ Mr. Watrer. Yes; there may be watered stock in this country, 
| but it is watered stock because there are outstanding shares of stock 
| in excess of the money in the property. ; 

’ Mr. Winstow. Yes; but you said a few minutes ago somebody 
| would have to put in some good money to buy those stocks. 

_ Mr. Wacrer. But if they put money in there in stocks that repre- 
sents nothing else; in other words, to take securities at far in excess 
of the value of the property, they can not expect the stock to pay a 
| Sefarn: upon the investment. It is the value of the property that 
must be the supreme measure. 

Mr. Winstow. So if there were earning power there, not represent- 
ing any assets in the form of book values, you would regard that 
| earning power, so far as paying dividends on stock, you would take 
it out on the basis of earning power ? 

Mr. Water. No; I would not. The earning power is one of the 
‘things to be considered. 
| Mr. Winstow. If not in book value, is it ? 
| Mr. Watrer. No; if not in book value. 
| Mr. Winstow. Then you are going to add that to book value in 

consideration 

Mr. WALTER (interposing). No; you are talking about a perma- 
nent valuation and a permanent disposition of this matter. ‘We are 
| dealing here with the situation which must give us a basis to operate 
| under until we know what these properties are worth. Now when 
the valuation body fixes a value for these properties, it will consider 
/ Many things besides book value. 
| Mr. Winstow. Then your plan would be sufficiently elastic to 
| allow the consideration of and to act affimatively on earning power 
| as an asset ? 

Mr. WA.tER. Yes; there is nothing in this plan at all which pre- 
vents anybody, either the Interstate Commerce Commission under 
| your direction or anybody else, from fixing a value on these proper- 
| ties far different, above or below the property investment account. 
This is only a temporary arrangement until you provide something 
| different or better; just as the commission in the 5 per cent case said, 
“We have got an emergency; we have go to meet it. What is the 
| best thing we have at hand to determine what the earnings are?”’ 
) They took the property investment account and pointed to the fact 
that their valuation had not gone far. Since that time they have 
)gone five years further toward getting the values of these properties. 
} Mr. Winstow. Can we agree that in the case of a road which has 
issued stock on earning power without a book value behind it, the 
jchances are that in starting in under your proposition that those 
\shares, issued on earning power only, would be in the discard for the 
| time being. 
_ Mr. Watrsr. No, sir; for every one of the stocks that have been 
earning dividends, receiving them, will receive them under our plan, 
because the level of rates is sufficient under this plan to do it. 

I think perhaps J have now gone far enough on the compulsory 

Federal incorporation. 
Mr. Sanpers of Indiana. May I ask just one question ? 


| 
























The CHAIRMAN. Yes. 

Mr. Sanpers of Indiana. You were discussing the question in 
regard to jurisdiction over rates. I should like to have your opinion 
as to whether or not the Congress of the United States has the power 
to give the Interstate Commerce Commission complete jurisdiction — 
of all transportation rates ? | 

Mr. Water. Of common carriers that are at all engaged in inter 
state commerce. 

Mr. Sanpers of Jndiana. If they engage in interstate commerce 
at all? ) 

Mr. WauTer. Yes, sir; I think that is the law. 

Mr. Sanpers of Indiana. Would you think the commission could 
not be given jurisdiction over rates of a carrier whose property lay” 
wholly within one State ? : 

Mr. Watrer. It may lie wholly within one State, but it is engaged” 
in interstate commerce. , 

Mr. Sanpers of Indiana. And not connected—— 

Mr. Watrer (interposing). If it handles no traffic coming from 
or going to a point outside the State, the Interstate Commerce Com-~ 
mission can not be given jurisdiction. 

Mr. Sanpers of Indiana. As I understood you, you thought the 
provisions of the Esch bill, with reference to the interstate and mtra- 
state rates, was in accordance with your views ? ; ) 

Mr. Waurer. Yes; as I understand it. If there is any undue 
burden upon interstate commerce by reason of a State rate, the 
interstate and the State commissions sit down and thrash that out. 
If they can not agree, then the Interstate Commerce Commission 
says the last word. | 

Mr. Sanpers of Indiana. I have thought that the provisions of the 
Esch bill were merely to clarify the Shreveport case, with the addi- 
tional right to State commissions to sit jomtly with the Interstate 
Commerce Commission and perhaps with the additional feature that 
when it was fixed it would not last more than two years. I thought 
that was the provision of the Esch bill. 

Mr. Water. You are right about that, but providing a quicker, 
more expeditious method than results now under section 3 of the 
act to regulate commerce. | 

Mr. Sanpers of Indiana. Does it make that provision ? 

Mr. Watter. Yes; I think it does, when you call the State com- 
mission in to sit with the Interstate Commerce Commission; what has 
been needed in the past was closer cooperation between the State 
and the interstate Commerce Commissions. [ dare say there is no$ 
another State in the Union where you could have found that dis- 
parity between the State and interstate rates that existed in Texas: 
There was a policy stated in the reports of the State commission Mm 
that State ‘We will keep our trade for our own people,” and they 
erected a barrier around their State. They now see it was a mistake, 
The shippers who fought us were represented here by Mr. Fulbright, 
and he told you that the Shreveport decision was a blessing, im 
hearing before this committee. 

Mr. Sanpers of Indiana. I am at a loss to see how the Warfiell 
plan would work out unless you had a unified control of the rates; 
that is, in working out the plan so that when the commission undet> 
took to fix the rate to yield a certain revenue, they would know 


1018 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. | 
t 
4 


‘RETURN OF THE RATLROADS TO PRIVATE OWNERSHIP. 1019 






their field and they would, by definite mathematical calculation, 
ih course using the factors that they had as a guide, the factors of 
the past 
_ Mr. Watrer (interposing). You are right about that and we do 
)provide, and we think under our plan the Interstate Commerce 
Commission can fix every rate of a carrier that engages in interstate 
‘commerce. 
| Mr. Sanvers of Indiana. If it is interstate commerce they file a 
schedule with the Interstate Commerce Commission 2 
| Mr. Water. Yes, sir. 

Mr. Sanpers of Indiana. And then the commission can determine 
whether that would yield, in accordance with their judgment, 6 per 
cent. If then a large part of that field is to be covered by actions of 
carriers filing their schedules with State commissions, with no knowl- 
edge on the part of the Interstate Commerce Commission as to what 
that action would be, and only the right to supervise it upon com- 
plait, I do not see how—— 

| Mr. Watrer (interposing). No; that is not our plan. So far as the 
control over the rates is concerned, that is the Esch plan and it is our 
plan, but in making the rate the carrier has no part under the War- 
jfield plan. The commission makes the rate and we provide for it 
c cooperate with State commissions and with regional commissions, 
| the three of them to work out what this level of rates will be, which 
/m the aggregate will produce 6 per cent, State and interstate complete. 
| And I think that is proper and fair. 

| Now these regional commissions, just one moment on that. We 
| would provide for six such commissions, and you will find a colored 
map in the rear of that volume outlining where those commissions 
; would be—New England and Trunk Line, Central Freight, Southern, 
‘Southwestern, Western Trunk Line, and Intermountain and Pacific. 
| There would be six commissions, composed of three men in each 
| 





-_—— 





territory. Those three men would have the same powers in its ter- 
ritory that the Interstate Commerce Commission has over the whole; 
they would have jurisdiction over all the rates that were wholly 
within that territory. The Interstate Commerce Commission, sitting 
as a supreme leveling body, would prescribe rules and regulations for 
the handling of all matters wherein uniformity might be violated, 
just as the Supreme Court in patent cases undertakes to see to it 
that patents are recognized uniformly throughout the United States. 
, When rates affect more than one region the Interstate Commerce 
‘Commission would say what body, what regional commission, or 
)perhaps what representatives from two or more original commissions 
}would dispose of it; to my mind the great value which would result 
from regional commissions is the ability to sit down with the carrier 
}and shipper at home and settle these things. As it is now, the Inter- 
'state Commerce Commission has many duties to perform; they will 
be vastly increased under the Esch bill, and more so under our bill. 
| Hearings by the regulating body should be near to the locality 
mvolved. As it is now, the public comes to Washington. It seems 
to me that the main office of the commission ought to be in Chicago, 
}or some place more centrally located, instead of having everybody 
come here. Twenty-four hours would be all that is required to 
permit practically everybody to reach the office of the commission 
from every section of the country this side of the mountains. 








1020 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


The CuarrMan. You provide in your bill that the regional com- 
missions shall have authority over stock and bond issues, and that 
there may be appeal from the regional commission to the Interstate 
Commerce Commission here. That interjects one set that ma 
cause delay. Is it not true that sometimes the issuance of sue 
securities is a matter of considerable emergency in order that the 
railroad carrier may avail itself of the then price of money ? 

Mr. Watrer. You are quite right, and we provide for a con- 
current jurisdiction, and the Interstate Commerce Commission, with 
rules which it would prescribe, would always be open in any emergency 
of any sort affecting the jurisdiction of any regional commission 
anywhere. It is simply a subordinate part. 

It is true that the commission is approaching more and more to 
placing responsibility upon employees, and the examiner, after the 
ist of September, will make a tentative report himself without 
consultation with the commission, which will be served on the 
parties, but he is still a long way from the local situation, the local 
color; we think that with these regional commissions acting under rules 
prescribed by the Interstate Commerce Commission and with the 
State commissions cooperating with the regional commissions, the 
Interstate Commerce Commission will have more time for the bigger 
things, for the emergencies such as you refer to. This will not 
halt or stay anything that ought to be expedited. It will prevent 
many things going to the commission that, unless you do so, iney- 
itably must go there. 

The CHarRMAN. Would you give the regional commission final 
authority in certain matters so there would be no appeal? 

Mr. Watrer. No; I would not, because I think there is very little 
reason for it with the Interstate Commerce Commission at head- 
quarters providing rules and regulations which will insure uniformity. 
But there are many, many things of local effect. The shipper does 
not like the kind of car service he is getting, or he can not do business 
on a particular rate. He goes to this regional commission, sitting 
at Atlanta, and the regional commission calls in a representative 
of the carrier and asks ‘‘What is the fact about this?’ There is a 
meeting of minds before they leave the room, and it is disposed of 
quickly. That is one of the advantages of these rate committees 
and we want to continue some organization of that sort. The rate 
committees are equally divided to-day between shipper and carrier, 
and many of these things are thrashed out and agreed to then and 
there, and it is simply a matter of form to have a freight rate authority 
issued from here and freight rates put into effect. 

The CHAIRMAN. You will have six regional commissions corre- 
sponding to the various traffic areas ? 

Mr. Warrer. Yes; the commission would fix the boundary. We 
only suggest these. 

The CuarrMAN. And how many commissioners ? 

Mr. Water. Three each. . 

The CHarrMaNn. I notice in your analysis you say the regional 
commission shall be selected equally from the two political bodies? 

Mr. Water. Yes; there are 18 in the United States. 

The CuarrMan. I was trying to reconcile that statement with each 
regional commission. . 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 102] 








_ Mr. Watrer. One of the fundamentals of this plan is to get just 
| as far from political organization and_ political influence as it is 
_ humanly possible to get. I believe in political institutions, and am 
| gometines a little partisan, but the transportation business of this 
) country certainly ought to be free from it. It is paralyzing where- 
| ever it touches. 
| The CuarrMan. I suppose we had better take up these details with 
, Mr. Johnston when he comes to explain the bill 2 

Mr. Water. Yes; he will explain it. 
_Mr. Denison. Will the commissioners be assigned to any par- 
dicular district ? 
Mr. Watrer. No; I think they ought to remain in that district. 
It may be there ought to be some interchange or infusion of new 
| blood, but it is hardly possible to have a commission know all of the 
‘local situations. You go to a commissioner who has been on the 
) public service commission of a State with some matter of adjustment 

that affects his State, and he does not need much testimony and can 
|quickly get to the heart of things. The more a man knows about 
his locality the better and quicker relief he can give. 

|. We would have these regional commissioners do more. If there 
is any labor dispute that carriers and Sey oses can not settle, that 





commission should act as a board of conciliation and try to get them 
together. If it can not do so, it should appoint an arbiter, if they 
can get them to agree to arbitration, but we want something in the 
law which will make it possible not to have a strike or lockout until 
there has been arbitration and publication to the world of what the 
facts are. There may be opposition to it, but I think in the long 
run it would be the best thing for everybody. Capital for a long 
time resisted regulation, but it has been regulated and knows it is 
better that it is regulated, and when labor knows that it also will 
submit to regulation. 
) Mr. Denison. You follow the labor arbitration act in that par- 
i ticular, do you not ? 


| Mr. Watrer. Yes, sir. oi 95 ; 

»_ The Cuarrman. Let me raise this question in your mind. Under 

the existing law and under the powers we hope to grant it, the Inter- 

state Commerce Commission is a quasi judicial body, while under 
152894—19—vor 1—65 | 





1022 . RETURN OF THE RAILROADS TO. PRIVATE OWNERSHIP. | 
your plan you would make it almost wholly judicial, taking away its 
administrative functions. 3 

Mr. Watrer. We would make it almost entirely administrative. 
You fix the standard, they but enforce and administer the law. 

The CHarrman. Yes, they administer the law, but we understand 
what we mean by a quasi judicial body. Here is the point. If you 
require the Interstate Commerce Commission to have the regional 
commissioners to determine these labor disputes, do you not involve 
these bodies, the regional commission and the Interstate Commerce 
Commission, in a maelstorm of labor excitement, so that amongst 
the public there may be a loss of confidence in the judgment of that 
commission on things purely within its jurisdiction ? , 

Mr. Warrer. Not at all. Our principle is this: The body that 
controls the revenues should have control of the expense. Divided 
authority and divided responsibility beget chaos. Look at the War 
Labor Board: It goes ahead and grants increases in wages, regard. 
less of whether there are funds to pay them. © It says, “That 1s no 
concern of ours; get the money.” 

We have to have a responsible body which says a man is entitled 
to more wages, but it should take into consideration the right of 
those who must pay. | £ 

The CuarrmMan. ‘There was a time when I agreed with that. 

Mr. Water. I am sorry you have passed it. | 

The Carman. I have been somewhat shaken in my confidence 
in that proposition. My thought is that we should not impose any 
powers upon the Interstate Commerce Commission in the exercise 
of which the confidence of the people may be shaken in it, in the 
performance of the functions for which it was originally created. 

Mr. Watrer. I agree with you on that; but let me ask you, suppost 
that you have a transportation board or somebody that does fix the 
wage, and the Interstate Commerce Commission is made a mer 
automaton. It has got to accept the award, although it may haw 
better information, and be above the political influences that conto 
the other body, and yet it has to sit supine and accept the mandat 
of somebody that it knows is wrong. I would put the commissio 
where, with all the facts before it, it weighs all the facts and fixe 
what is fair. I do not agree at all to a division of responsibility. W 
are opposed ‘to that transportation board or any other board that 1 
superior to the commission who can tell it what shall be done iD 
particular case; Congress, whose creature the commission. is, alon 
should have authority over the commission; because we believe tha 
the purpose of it is to try to break down the spirit of independence 
and judgment of the Interstate Commerce Commission. We i 
confident to rest all in the Interstate Commerce Commission, with th 
direction of Congress to it, as to what it shall do. 

The CHAIRMAN. We have an arbitration board created under th 
Newlands Act, just as we had a board under the old Erdmann A¢ 
Has labor availed itself of the Newlands Act in the last three yea 

Mr. Water. As a matter of fact I do not know; but, whether 
has or not, I think that the law ought to require that there be.a swt 
mission to orderly authority upon facts. The principle of the Ame 
can people has always been that you submit your life to the trial of 
judge and jury, and you submit your property rights to trial by. 
judge and jury, all you have. There is no reason why the wage la 
going to get for the next 10 years can not be submitted to an imparti 

















RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1023 









ibunal, and if I do not like what they give me, I can go ahead and 
do something else. 
| The Cuarrman. That is true in principle. Australia and New 
| Zealand sought to administer a like law, but it was a failure. 
/ Ifiltustrations and examples and the experience of other nations is 
‘to apply, Australia and New Zealand may have some influence with 
‘us. It does seem that we ought to devise a method whereby trans- 
‘portation, upon which the life of the nation depends, shali not be 
‘interrupted for a single hour. 
(| Mr. Watter. If you do not do it you have failed to do the prime 
‘thing that the American public needs. 

_ The Cuarirman. Any further questions? 
_ Mr. Sims. I wanted to ask this, if Mr. Walter finished his general 
statement? If he has.not, I would prefer that he get through before 
Task my questions. 

Mr. Watter. There are just a few other things. 

Mr. Sims. I did not know whether he was through or not. 

Mr. Cooper. Mr. Walter, I put the question to Commissioner Clark 
‘afew days ago relative to the Interstate Commerce Commission trying 
to adjust wage rates, and he objected very strongly to the commission 
being placed in that capacity, on the very same ground that the chair- 
man just explained, that it would destroy their service as the Inter- 
state Commerce Commission. 

_ Mr. Watrer. I heard Commissioner Clark give the answer. It 
would be a tremendous responsibility that is placed on the commis- 
sion. It would add greatly to the work that they must do, physically 
and mentally. I would, in some way, under the commission, let the 
bureau that does it, the board that does it, be under the direction of 
the commission; let it be under its control and report to the commis- 
sion, and let the commission act. I would not ask Commissioner Clark 
personally to do all of those things. Itisa great burden, but I do not 
want anybody else doing that work who is wholly free from the juris- 
liction of the Interstate Commerce Commission. In other words, I 
want a consolidated authority over expenditures and revenues. 
Now, as to consolidation of companies, we are opposed to compul- 
sory consolidation. If there is any one thing that the American people 
vant to-day, it is competition in service, and we want that competition 
service affected as little as possible; but we are willing to leave with 
ihe commission the right to say what consolidation, and under what 
ierms it shall be done; leave it to the natural evolution of thin gs, 

Bear in mind that one of the features of the excess earnings reduc- 
‘ion is to work toward consolidation; here are two roads that can 
de put together, with an investment back of one of ten millions, and 
in investment back of the other of ten millions; they have each the 
ame investment. One road earns 8 per cent on its investment, and 
he other road earns 4 per cent. The one that earns 8 can keep 6, 
md one-third of the excess, the remainder goes to the fund. In- 
‘tead of doing that, it would say “‘ Why should not I buy this connect- 
ng carrier that is only earning 4 per cent? On the combined twenty 
‘millions we will just earn 6 per cent, and there will be nothing to go 
‘0 the fund.”” And the road that only earns 4 per cent, instead of 
’eing, as it has been in the past, at the mercy of the richer road, and 
‘ompelled to sell at the terms of the richer road, is in position to have 
‘ir terms of sale. But all of that should be under the control of the 
(terstate Commerce Commission. 


i} 
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iE 













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1024 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Now, the regulation of securities, likewise, we believe, should be 
under Federal authority; we understand that State authorities are 
perfectly willing to have complete control over that vested in the 
National Government. | 

I have already told you that we are opposed to compulsory Federal 
incorporation. “el 

Mr, Sanpers of Indiana. IT would like to ask, with reference to 
compulsory consolidation, if you think we could do that? 

Mr. WALTER. You could not, in my mind, compel the existing 
corporations to surrender their property and turn it over to a cor- 
poration created by Congress. The theory upon which the pro- 
ponents of compulsory incorporation go is “ We will deny the right of 
the State corporation to engage in interstate commerce.” They 
might just as well say that a citizen of Ilimois can not engage im 
interstate business in Ohio. 

Mr. Sanpers of Indiana. I was not asking about compulsory 
Federal incorporation, but the thing I was asking about was com- 
pulsory consolidation. 

Mr. Waxter. I doubt that. I think you can so frame the law 
that it will be a persuading force. 

Mr. Sanpers of Indiana. You can not make one carrier purchase 
the property of another carrier ? | 

Mr. Water. No, you can not; but you can so frame the law that 
in its beneficial features it is to the interest of both, and the publi¢ 
interest will be protected. 

I have already told you why we are opposed to the department of 
transportation, or cabinet officers. We believe our corporation that 
we have talked to you about can do all of the things which the 
department of transportation or the board of transportation, what- 
ever you call it, could do; and the Interstate Commerce Commission 
would at all times be a majority. It would have all of the informa- 
tion and experience of these railroad men. 

Now, the guaranty. We are opposed to a guaranty. It is 
simply the outer portal of Government ownership. You can not 
have it without making up losses, and if you make up losses you are 
eoing to have the profits of those that do make a profit, and there can 
be no escape from it. A guaranty does that, and I want, just as 
strongly as I can, to impress upon you the difference between that 
and providing that the commission shall make rates which all roads 
can strive for, which, in the aggregate will produce 6 per cent on 
aggregate investment—that is, nothing but just » legislative level 
the commission has. Go into any lumber yard, and you will find 
barrels filled with water, and there is a notice that employees must 
keep water to a given level, and that is all our plan is. It is not & 
cusranty, end the public ought to understand that it is Just an 
interpretation as to what just and reasonable ought to mean. . 

As to the Plumb plan; with a great deal of skill and ingenuity Mr. 
Plumb has outlined his plan end presented it to you. All that I 
care to say sbout it is that we do not favor it. It is impossible. 
It is not in line with our institutions, and could not in the end profit 
anybody. As a shibboleth, perhaps, it appeals to some, but when 
they begin to understand it we believe it will not have supporters, 
and you need heve no fear on that score. 

There are a good many things that I ought to have said to you 0D 
direct, but I think what I have said will outline the plan, and Mr 


i) RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1025 





Johnston, who has drawn the bill, will be able to explain to you in 
tetail just how we bring this about; but we do believe, that with the 
}x0vernment being responsible for the present plight of the trans- 
ortation systems of the country, it is up to the Government to act 
jromptly, until some permanent solution of the question can be 
Jrought about. Our plan can be quickly put in operation; no 
lelays; and we think it is just to all parties concerned. 
Mr. Sims. I know, Mr. Walter, that you are a man who has had oreat 
pportunity to understand the transportation problems from every 
qewpoint and from every interest point; but I understand that you 
ire appearing here for the plan presented by investors ? 
_ Mr. WattTer. Yes, sir. 
| Mr. Sims. Bondholders and stockholders 2 
Mr. Watrer. Yes, sir. I am their counsel for that purpose. 
_ Mr. Sus. Then, so far as you appear here, it is in the interest of 
‘nvestors ? 
| Mr. Warrer. Yes, sir; and those who hope to invest. 

Mr. Sms. If it is good for existing investors, it is naturally to be 
meposed that it would be for those intending to invest. 
| . Water. I think so. 

Mr. Sims. Of those whom you represent, about what is their hold- 
ng in stocks and bonds? 

r. WatTER. Of the railroad companies? 

| Mr. Sms. I mean value, now, not the face. 
_ Mr. Watrter. I do not know what the value is. All I can say is 
ee. my information is that the par value approximates nine billion 
‘tollars. 

Mr. Stms. The face of the certificates of stock and, of course, the 
yonds, together amount to about nine billion dollars ? 
Mr. Watter. Yes; but it is largely bonds. 








Mr. Sims. Now, about what per cent of the nine billion that your 
lients are is bonds? 
_ Mr. Watter. I do not know. 
Mr. Sms. You said it was ‘‘largely ?”’ 

r. Water. I said so, because you take the life insurance com- 
anies, the savings banks, the colleges, and universities of the country, 
nd their investments are nearly all in bonds. 

Mr. Sms. Would you be willing to risk a guess or approximation ? 
"Mr. Water. No. 
_ Mr. Sms. Is it 75 per cent? 
Mr. Watrer. I have not the remotest idea. 
Mr. Stms. You said it was “‘largely.” 
Mr. Water. I could not say 75. If I said 75, it might be 70. 
Mr. Sius. Would you say as much as 75? 
Mr. Watter. I would not say it. 
. Mr. Sus. It preponderates, however ? 
_ Mr. Watrer. Yes, largely bonds. 
, Mr. Sms. Now, these institutions have bought those bonds with 
2asonable business care, have they not? 
_ Mr. Watrer. I assume that they have, but I do not know. 
Mr. Sis. Are these bonds, any of them, in default of payment of 
iterest ? 
Mr. Watrer. I do not know. 
, Mr. Sts. Do you know whether they need any help or not? 
Mr. Warren. I tried to give you the facts here, to show that they do. 








a 
- s ?. 


| 
{ 


Mr. Srus. If a bond is not in default in interest, and it is amply 
secured by the property behind it, is it in need of anybody’s help? 
Mr. Watrer. If the owner gets the principal and the interest, of 
course it is all right. 5 | 
Mr. Sms. If it is secured by a mortgage on the property, that 
guarantees the interest? | 
Mr. Waxrer. Yes, but if that property can not earn it, and take 
care of it when maturity comes, and there is not credit enough to 
cet capital to refund that obligation, the man’s principal is in a little 
bit of danger. 
Mr. Smus. If the mortgage on the property has got a sufficient 
margin in value, over and above the bonds, the bondholders save 
themselves, regardless of whether it is refunded or not. The bond- 
holder can still have the property and get his money; I mean the 
principal. | 
Mr. Wauter. Yes; but if that property is such that you can not 
operate it and earn money, you have got to sell it as junk; roads have 
been junked in the last few years and sold as junk. ; 
Mr. Sims. In other words, you have got a lot of bonds on property, 
and your clients, who are no more nor less than the trustees, are 
holding bonds without sufficient security behind them ? 

Mr. Water. Nobody said anything like that. | 

Mr. Sims. That results, of the property is going to be sold as junk, 
as you say, does it not? 

Mr. Water. I said ‘‘if,” and there is much virtue m an “‘if.” 

Mr. Sims. Is there any reasonable probability that your clients, 
who are holding these bonds, if they can hold them to maturity, that 
the properties on which they are mortgaged will not pay the principal 
of the debt? 

Mr. Watrer. I could not say. 

Mr. Stms. Without refunding ? 

Mr. Watrer. I do not know. 

Mr. Sms. I mean without voluntarily refunding? | 

Mr. Watrer. I'do not know, but I am always willing to assume 
that those who made the investments were fairly good business men, 
and that they protected themselves as well as they could. But I do 
not know. 

Mr, Sums. That is natural, I think. These bonds, so far as we can 
now see, are a perfectly safe investment and are paying interest 

Mr. Watrter. I can not see that far, Judge. . 

Mr. Sts. It seems to me, Mr. Walter, that these gentlemen 
coming here representing these institutions ought to know the condi- 
tions under which the investments are made, practical as well as 
theoretical. 

Mr, Watrer. Yes. Well, I will admit that I may be subject to a 
great deal of criticism, because I do not know; but I do not know. 

Mr. Srms. Oh, no; you are the attorney. ey |! 

Mr. Water. They are only speaking through me. 

Mr. Srus. You only have the information which they have given you! 

Mr. Watrer. That is all, and I have not got all of that. f 

Mr. Sms. I want to find out the extent of the interest of present 
security holders, if they have any kind of a railroad solution, provided 
they are well secured under present conditions, both by a sufficient 
margin of property and by a current earning sufficient to pay the 
interest. Tt 


1026. RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 







RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1027 


_ Mr. Watter. I have read to you the decisions of the Interstate 
Jommerce Commission, that the level of returns upon the investment 
‘vas not sufficient. 
| Mr. Sours. That was property investment. 
i ‘Mr. Water. Yes; the earnings and the increased rates at a time 

vhen the net operating revenues of the carriers were far in excess of 
‘vhat they are to-day. 

Mr. Sims. But that is on the property investment. 
Mr. Watrer. Yes; by any test, they said the net earnings ere not 
ufficient. 
| Mr. Sms. Has the Interstate Commerce Commission ever said 
| hat the bonds that your people hold are insufficiently secured ? 
| Mr. Watrer. No; but they said this, that the net operating income 
| vas e sufficient to meet the needs of the public and to attract new 
apital. 
| Mr. Sus. I readily agree with that, but I am talking about the 
value of your bonds. Your folks do not operate the railroads. They 
wre not paying wages; they are not doing anything except clipping 
\;oupons, provided there are any funds to pay them with. Now, 
ivhat interest has investment, bond holders’ investment—and I take 
/t that is all life insurance companies and savings banks have got— 
\what interest have they as to whether the railroads are owned in 
jyne way or operated in one way or another, as long as the investment 
|s unimpaired ? 
| Mr. Waxrer. They are interested directly, of course, in the 
|orincipal and in the return upon the principal. They are interested 
lseyond that. If the railroads prosper, other industries will not be 
oY affected; you will have an improved condition in the body 
dolitic. 

‘Mr. Raysurn. They are interested in the future successful opera- 
|jion of the roads ? 
| Mr. Warter. All the roads of the country. 

Mr. Sras. I am trying to discuss their interest as the holders of 
nyestments secured by a mortgage on railroad property. 
| Mr, Water. Yes. 
| Mr. Sms. Have they any financial interest beyond the security 
if that particular bond? 

' Mr. Watter. Why, of course they have. 

Mr. Sims. In the bond itself? They can not have any more 
interest. They can not pay income of the life insurance policies 
put of it. Lf the railroads should pay 12 per cent on the investment 
xecount, the bond would not draw any more interest? _ 

‘Mr. Water. No; it might draw less, because they might be able 
(0 secure capital at a less rate, because the risk is less. 
| Mr. Sms. The bond would not draw any less. Itis a fixed contract. 
| Mr. Watrer. I know, but other and new bonds. | 
| Mr. Sms. I am talking about the bonds now in existence. _ 
| Mr. Watrer. If you want to limit your question to the particular 
bonds on a particular road, of a particular series, of course the man 
who owns those bonds, if he is going to get his principal back at the 
maturity of the bonds, and his share of the returns, he is pretty well 
satisfied with that investment. 
| Mr. Sms. He will not sell it? 
| Mr. Warrer. Certainly he will sell it; you will sell nearly any- 
thing you have if you can get the correct price for It. 








— 










1028 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Smuts. I mean he won’t sell it % 

Mr. Watrer. Unless he thought he could invest it in something 
else with less risk. 

Mr. Srms. The reason why he would not do that would be for 
another or a different investment, but a life insurance company or a 
savings bank would not have such a view as that. Now, I am trying’ 
to find out whether your interest is altruistic and patriotic in a large 
per cent, or are you simply trying to secure or prevent the impairment 
of the existing investments that your clients at this time own and 
control ? 

Mr. Water. We are trying to preserve, protect, and defend those 
investments. But, at the same time, I have explained to you that 
the Security Holders’ Association consulted the shipper, wao must 
pay the freight, consulted regulating authorities or representatives 
as to what was best in the present emergency, but it is far from the 
minds of the members of this association or its officers to appear here 
solely and alone for the money that is involved; but that is the prime 
reason for their being here, and I think the condition warrants their 
being here. 

Mr. Sims. Are they taking the interest that is collected on bonds 
held by a life insurance company or others and spending it for the 
purpose of promoting legislation in which they directly have no 
interest whatever in the particular security ? 

Mr. Water. [ have expressed to you their direct interest in the 
integrity of these investments, and I regard it as a part of their duty 
to defend it, although they have not spent perhaps as much as I would 
like them to spend to defend it. 

Mr. Srus. I am speaking of bondholders. 

Mr. Watter. Let me ask you, Judge, if your railroad is built out 
of the issue of stock alone, is there any difference? Is there any 
more sacredness about a bond than there is about a share of stock? 
It is the money that is used for the service. What difference does it 
make whether you call it a bond or a share of stock? 

Mr. Sims. All the difference in the world to the man who owns the 
interest init. The one has to depend on what he can make out of it, 
and the other does not have to depend upon the earnings, because 
he has the property behind it, that he can sell in a court to pay his debt. 

Mr. Watter. If it is a substantial property; and I say that these 
railways ought to make their properties substantial, because they — 
are going concerns. 

Mr. Stms. And then I ask you if your investments are at this time 
in bonds, they have all been impaired, or are they receiving the 
interest that is due them ? 

Mr. Watrer. I think that their future 

Mr. Srus. I am talking about right now. : 

Mr. Watrer. Go into the market to-day and see whether they are 
impaired or not. 

Mr. Stms. Bonds? 

Mr. Watrer. Yes, bonds. 

Mr. Stus. What has impaired them ? 

Mr. Water. They are selling for less than they were sold for. 

Mr. Sims. They might not have been sold for anything. | 

Mr. Watter. Less than the money that was putin. Take a $100 
bond, selling to-day for less than $100. | 

. Sims. Yes; and stock the same way. 








RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1029! 

_ Mr. Watrer. Well, less or more. 
| Mr. Sims. Yes; either one. A bond would bring a premium if the 
jeurrent earnings were above the average for a like investment. It 
|would sell for more than the face of it calls for; but if the current 
jsarnings do not make it desirable in competition with other similar’ 
| kinds of investment, of course it goes below par. But I want to find 
out, if I can—but I suppose you do not know—whether or not the. 
\mtegrity of the bonds of your clients is threatened without an increase: 
rates, so that they may add to the property a value that it does not’ 
now have. 

Mr. Watrer. I am not able to say now about that except to point 
out this fact to you, that if when refunding time comes these prop-- 
jrties are not in condition to get capital or money to pay for these 

Sam certainly the value of the investment in the bonds is threat- 
ned. 

Mr. Sims. Your plan, then, does not provide for current contem- 
poraneous redemption of capitalization or bonded liabilities 2 
| Mr. Watrer. Well, there is nothing in our plan that prevents any 
vailroad that is able to do it from amortizing any securities it wants.. 
Ae Is there anything in your plan to compel any railroad. 
0 do 1t? 

Mr. Water. I do not think there is. 

Mr. Srmus. I should say not. 

Mr. Watrer. But there is nothing to interfere with the exercise: 
of judgment of those who are operating the properties? 

Mr. Sims. If the railroads on which your bonds are issued are: 
|oroviding, as they should do, a sinking fund with a view of paying’ 

those bonds instead of simply renewing the bonds, then there would 
ye no trouble about the depreciation of the investment—I mean of 
the ability of the company to pay the debt when it matures—but. 
10ne of your plans that I have seen or heard anything about requires: 
juny current amortization or sinking fund, and, the result is now that 
ge have got here twenty billions of dollars, it is claimed, of capital- 
zation, of value of the property that the capital goes into, which is. 
wractically all the capital that ever went into the railroads, together 
i the unearned increment that has grown out of community 
|values, and it stands like the pyramids of Egypt, with the hittle end 
lown, which is getting all the time larger at the top. How is your 
lan, that does not require amortization our of current earnings— 
10w do you expect to be successful ultimately without an ever 
nereasing rate scale ? 

Mr. Watter. Judge, I can not go into a debate with you on any 
‘ort of question of that sort. I do not understand what you are 
lriving at. We have got nothing to do with it in the plan here, as 
}0 any amortized Government railroads, or anything of that sort. 
Ne are insisting that here is an investment in the property. Under 
he present system of Jaw and fact there is not a return upon that 
uvestment which is consistent either with the safety of the invest- 
nent, speaking in the aggregate, or whichis attractive to future capital. 

Now, we are asking you to do those two things. If you are to 
\:dopt a system whereby you remove capital from these roads, suggest 
h» . I have nothing of that sort to suggest. 
| . Sms. But the stockholder in your roads or the mortgage 
|tolder has, it-seems to me, no right at all in the dividends, uniess in 
he paying of those dividends it impairs the property. 











} 
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/ 


1030 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 
Mr. Watrer. The only answer I need to make to that is that the 
capital in the road came from two sources. One is from the share-— 
holder of the stock and the other is from the bondholder. Both of 
those contribute the money, the capital invested in the property, | 
Now, each is entitled to his return upon his money. You should pro- | 
vide a level of rates, which, in the aggregate, because it absorbs the | 
inequalities, puts a general mean in the transportation, a result which © 
almost wholly absorbs these inequalities. | 
Mr. Sms. Well, Mr. Walter, this is not alone my view, as I under- | 
stand it; but how do you or anybody else know whether 6 per cent | 
upon the property in a region will in the future make good under out- — 
standing contingencies—make good or keep at par outstanding bonds © 
and stock ? 
Mr. Watrer. It is the best judgment that we are able to give to | 
it. Tt is more than what the commission said was not enough and © 
but little more. Now, it may be not enough. It is certainly the 
minimum that will accomplish the result of taking care of the present | 
transportation systems, making them adequate to the public needs © 
and attracting capital necessary to make the extensions. 
Mr. Sms. You mean, as I understand, of course, under present 
conditions and in the future. ay 
Mr. Water. Under conditions as they exist and as we foresee 
them, as far as we can. 
Mr. Sims. Here is something that I have thought of and which 
has been suggested to me by a great many others, and while it ma) 
not be pertinent to this bill I want to ask you aboutit. Here are a 
the governments of Europe, that have mortgaged their properties, 
their resources, present property and future earnings, to an extent, 
the governments never before did anything of the sort. Our own 
Government is in debt for the war over 20 billions, as I understand. 
Mr. Waurer. And perhaps 30. i 
Mr. Sims. I mean over and above bonds that other countries owe 
us. Now, with the rates of interest not excessive, as I understand, — 
but the vast volume makes a tremendous burden upon the people - 
every year and will on all of the people. Now, if roduced by labor 
and all the people—not railway employees, but all of them and all. 
alike—if they come down to prewar levels, how are all these coun-~ 
tries, unless it is the United States, to escape repudiation of these 
debts? How are é - 
Mr. Wesster. Let him answer that question, Judge. - 1 
Mr. Watrer. I was just going to make this observation. The 
United States does owe something between 20 and 30 billions of 
dollars. if the people of the United States are to pay off to them: 
selves that debt, industry must go on without interruption. No m 
dustry of this country can be successful that does not have transpor f 
tation adequate, full, and complete. You can not have that trans- 
portation if the present level of revenues and income continues. Now, 
you must have some relief to enable these carriers to go ahead and 
attract the capital to pay off their obligations; and, in other words, 
to meet the demands. ‘ aH 
Mr. Srus. Now I will finish what I started to say. I thought some— 
thing occurred to you. ay 
Mr. Watrer. J thought you had finished your question. 
Mr. Sims. No, I had not; I was only premising. an 
I say, how is it going to prevent absolute repudiation by the 
governments of Europe, at least? 1 


» Sf 
2 


| 
| 


‘ 





i 














RETURN OF THE RAILROADS.TO PRIVATE OWNERSHIP. 1031 


| Mr. Watrer. How is what going to prevent ? 

\' Mr. Sims. I mean if products and the value of labor go to the pre- 
| war level—I mean the pre-European war level—how is it possible for 
tthe Governments of Europe, mortgaged as they are—I do not mean 
each and every one of them, but I mean the average—to escape re- 
pudiation of their debts, unless the present high values and high 
| prices of current earnings and of the value of the products sold upon 
which these debts were incurred, unless they continue for such a 
| period of time that the taxation of the different countries may be 
large enough to enable them to pay off and reduce this debt? 

| Now, J think that is going to be the case. No civilized country 
| wants to have repudiation if it can avoid it. Therefore, I insist, and 
| I do not see how we can escape continuous high prices of material for 
|railroad construction, for labor, and for everything that goes to main- 
| tain that industry, and I can see that your 6 per cent may become 3 
per cent in the purchasing value of its return to the owner of the 
| bonds or the owner of the stock, because industries that are not regu- 
\lated by law can get all the earnings that they make. No price fixing 
‘upon them. 

| Noa, land to-day is selling in Jowa at $425 an acre; IT mean farm 
‘land. If the products of that farm or those farms do not continue 
|substantially as high as they are now, if that man bought it on credit, 
/or a part of it, he will go bankrupt, and if he paid cash, the value of his 
farm will be cut in two. Now, the natural tendency of things will be 
to prevent anything of that sort, and I believe prices are going to re- 
(main high, and how do you or I or anybody else know that a railroad 
\is going to make anything beyond operating expenses ? 

| Mr. Watrer. You do not know that it can do that. 

_ Mr. Sims. I mean that the shipper can bear. 

Now, under your plan and all the rest of them, it is provided that, 
as a matter of course, before you have any dividends paid, operation 
‘and maintenance and depreciation must take priority over the pay- 
ment of interest or dividends.. Therefore, why do you want to have 
'an absolute 6 per cent mandatory provision in the law? 

Mr. Watrter. I said not less than 6. 

‘Mr. Sims. Yes; not less than six. 

Mr. Watrter. It is the minimum return. 

' Mr. Sims. That is the minimum ? 

Mr. Watrer. Yes; but if the time comes—— 

Mr. Sims. That is the point. A few minutes ago, you stated, if 
T understood you correctly, that rich railroads had been collecting 
out of the shipper what they had no constitutional warrant to collect 
and no right to collect. Now, if you are going to fix this, and if it 
‘does not keep your bonds and stocks at par, are you going to come in 
and ask for a further mandatory increase in rates ? 

_ Mr. Watrer. This much is undeniably true, and it is all I need 
to say or care to say in answer to your question. Unless the capital 
that is invested in these railroads and the labor that is invested in 
these railroads or which works on these railroads receives enough 
from the shipper to make that payment, you are not going to con- 
tinue to have labor or to continue to get more capital. The people 
‘of the country, in my judgment, are willing to pay all that is needed 
to secure the capital at reasonable rates, to pay labor reasonable 
Wages, and secure the service that they ought to have. Now, it 
Makes no difference to the man who receives his wage whether he 


q ; 
3 > Hi 


1032 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


gets $95 a day and has to spend $94 to live, or gets $5 a day and had 
to pay only $4. He has the same net in the end. What we are 
interested in is the difference between the outgo and the income. 

Mr. Sms. Well, would a positive mandate on the rate-making body 
that they must not make a rate that will yield less than your specified 
6 per cent upon the property investment within that region, in order 
to do what you say it will do, and if it is made 6 per cent and it does. 
not pay the operation costs of the railroad, then where are your bonds 
and stocks ? 

Mr. Watrer. They will be perhaps in as bad condition as you 
picture them, but that-is all wholly aside from the mark, Judge, if you 
will allow me to say so. | 

Mr. Sims. Well, Mr. Walter, it seems to me that the best legislation — 
we can pass with reference to rate making is to provide just as we do 
now, that rates shall be reasonable and nondiscriminatory, and so 
forth and so on, and leave your commission to determine what are 
reasonable rates under conditions at the time the rates are made, 
without any iron-clad provision of their going up or going down. 

Mr. Watter. If you think that 6 per cent is too much, then go 
ahead and act in accordance with your judgment. ¥ 

Mr. Sms. Oh, go lower. | 

Mr. Water. No. Six per cent, in our judgment, is the least that 
ought to be written in the statutes. If you do not agree with us, 
we are sorry, that is all. 

Mr. Sms. You make it 

Mr. Water. Not less than 6 per cent. Do you think if it was 
one railroad that we dealt with, that 1t ought to be compelled to 
take less than 6 per cent? If we had only one railroad ? 

Mr. Sms. It depends upon the conditions on that railroad. 

Mr. Watrrr. Assume that we had only one railroad, and it is 
serving the public. Do you think it ought to be compelled to make 
less than 6 per cent? 

Mr. Srus. If it does not earn it, it ought not to have 1 per cent. 

Mr. Water. How can it earn it, except by the rates fixed by legis- 
lative authority? Then, under your reasoning, you would allow the 
commission to fix rates that won’t produce 1 per cent, and then say, 
“That is all you are entitled to, because that is all you can earn.” 

Mr. Sims. It is within the range of rates that are reasonable for 
the shipper to pay or the community or industry to bear. 

Mr. Watrter. There is nothing in our plan that prohibits the com- 
mission from making any rate it thinks reasonable between any two: 

oints. We only say that on the aggregate of 10,000 articles, moving 
etween a million points, that the total revenue shall not be less than 
6 per cent upon the property investment account. 

Mr. Sims. Is this a correct statement as to the actual demands, 
the fundamental demands, of your plan, that Congress shall deliver 
a peremptory mandate to the commission requiring it to consider the 
results of rates in the aggregate, and never permit the rate structure 
to reach a level where the rate would produce a net return of less than 
6 per cent on the combined railway investment ? 

Mr. Water. No; that is not the way to put it. 

Mr. Sms. Is not that an accurate statement ? ' 

Mr. Watter. No. ‘i 

Mr. Sims. It has just been sent out by authority of your people. 





RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1033 





_ Mr. Watrer. You put it this way 

| Mr. Sms. I am reading. 

) Mr. Watrser. That Congress shall provide the level. 

| Mr. Smus. No, it says make the mandate. I call that a command. 

There is no discretion about it. 

| Mr. Watrer. You may call it whatever you like. I am using my 

- own language here. 

/ Mr. Sims. It leaves no discretion. 

Mr. Watrer. It leaves discretion to the commission as to what 

_ the rate on any commodity shall be between any points. It is only 
the aggregate net revenue that I am talking about. 

Mr. Sims. And if all the aggregate was such that the industries of 
that section, or a substantial portion of them, would suffer if you 
made the rate as high as your mandate of minimum calls for, then 
the community is injured, though the stockholder or bondholder may 
be benefited. 

Mr. Water. But the stockholders and bondholders of a railroad 
are not asking anything which will injure the industries of the 
‘country. You assume what is not and will not be the effect of it. 

The industries are willing to pay this return in the aggregate; we 
would be shortsighted if we undertook or could get for a year or two 
years what would dwarf the transportation of next year, because 
this investment is made for all time. 
_ Mr. Sms. Now, take the Tennessee Central—that is a concrete ex- 
ample—take the investment in that road. Do you think the indus- 
‘tries are going to exist if they had to pay 6 per cent on it? 

Mr. Water. Nobody has asked that any such legislation as that 
be passed, as to the Tennessee Central or as to any one railroad. It 

is the 259,000 miles of railroads, the two and a half million of freight 
cars, all the roads, the terminals, the rights of way and tunnels, 
railway property of every description, that we are talking about— 
all collectively—to get 6 per cent; no individual road. 
| The Cuarrman. Judge, will you excuse me for a moment? I 
want to make an announcement, because I have an appointment. 
To-morrow, at 10 o’clock, we will hear Mr. Johnston, and after he is 
| 











through we will hear Mr. Beach, and we hope that we can finish both 
to-morrow. 

Mr. Johnston, you have copies of your bill. It might be well if 
you would distribute them to-night among the membership of the 
committee, so that they could have the benefit of a little study before - 
you go on the stand. 

Mr. Sims. Mr. Chairman, I have known Mr. Walter for a long time, 
and it was the temptation to get from him the information that I did 
not have, so as to te able to reach the conclusion he has reached by 
having him to give me his views, that has caused me perhaps to ask 
More qtiestions on a matter which might not be regarded as import- 
ant, has caused me to question him as far as I have. As I say, it 
was a great temptation, more a temptation than anything else, but 
I will refrain from asking any further questions. 

_ Mr. Winstow. Are there any further questions to be asked? If 
“not, we will consider the committee adjourned. 

__ (Whereupon, at 4.45 o’clock p..m., the committee adjourned until 
to-morrow, Friday, August 15, 1919, at 10 o’clock a. m.) 








i 





1034 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Commirrer on INTERSTATE AND ForEIGN COMMEROE, 

House OF REPRESENTATIVES, t 

Friday, August 15, 1919. — 

The committee met at 10 o’clock a. m., Hon. John J. Esch (chair-~ 
man) presiding. 


STATEMENT OF MR. FORNEY JOHNSTON, ADVISORY COUNSEL 
FOR THE NATIONAL ASSOCIATION OF OWNERS OF RAIL- 
ROAD SECURITIES, BIRMINGHAM, ALA. 


The CuarrmMan. The committee is ready to hear Mr. Johnston this” 
morning. Mr. Johnston, give your name and address and whom) 
you represent. 

Mr. Jounston. Mr. Chairman, for the record, my name is Forney 
Johnston, residence, Birmingham, Ala., and I appear here as one of 
the advisory counsel for the National Association of Owners of Rail- 
road Securities. 

In presenting this bill, Mr. Chairman, [ think it proper to state 
to the committee the general attitude and the necessity under which 
this association has been impelled to formulate and present its views 
to the committee. It is in no sense a volunteer in this matter. It 
feels that it is acting in response to an unavoidable public duty, not 
merely as citizens interested in the welfare of the United States and 
in the solution of this grave problem, but in the discharge of a more 
immediate duty to its fiduciaries. f 

Mr. Walter has stated to you that the membership of the associa- 
tion included the owners or the representatives of the owners of a very 
large part of the outstanding railroad securities. A large part of 
that representation is by mutual savings banks, insurance companies, 
and other fiduciaries who owe a definite obligation to their fiduciaries - 

One of the members of the committee asked Mr. Walter if the 
association had any interest other than that of seeing that the returns 
on the securities held by its members were paid, thus enabling them 
to receive either the bond interest or a reasonable return upon then 
stock. It has a very much greater and graver interest in this situa~_ 
tion. It is common knowledge that under the laws of a great many 
States there are restrictions against the retention by trustees and 
savings banks of securities which have not a certain established value | 
rating of credit, worked out through the past performance of the 
issuing company in the payment of dividends. It is obvious that if 
that limit is transgressed, if those regulations are not complied with 
by the company from any cause whatsoever, those companies holding 
those investments in a fiduciary and strictly limited capacity under 
the laws of their States, must dispose of them or withdraw from 
further purchases. 

If this situation, as it now promises, proceeds to the inevitable 
result, in the event that Congress should not sustain these carriers, — 
and, incidentally, their securities, this would mean the dumping upoti 
the market of incalculable amounts of existing railroads securities. 
This would result, of course, not only in a collapse of the credit of 
those roads and in the values of their securities, but a crash into all 
other values of other securities which are outstanding, and therefore 
the membership of this association has an immediate and profound 










| 
| 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1035 


) concern, over and above the mere selfish return on existing securities, 
‘in seeing this situation sustained and in urging upon Congress in every 
“way in which it can constructive legislation which will avoid the nec- 
| essary consequences sure to follow present conditions, if present con- 
‘ditions are permitted to continue to their inevitable end through 
congressional inaction. : 
_ There is another and quite as important a duty to which this asso- 
ciation and the investors in railroad securities must respond, and that 
| Is to submit to this committee their views as investors as to what is 
| mecessary to keep them in the market as investors. They do not 
| appear here in the attitude of asserting that if Congress will not adopt 
| legislation which they consider, m their view of the matter, necessary, 
they will withhold investing any further in the securities of the rail- 
| roads of the United States, but they do say that acting largely in a 
/ fiduciary capacity and not being permitted that discretion under 
} which an individual owner would be authorized, under the law, to 
| take his chances of profit or of loss, they are limited by the fiduciary 
| capacity in which they act and which these vast investments have been 
| made in railway securities; and they must express to Congress their 
- utmost concern, if these securities are not to be stabilized by the ex- 
| ercise by Congress of its power and its duty and responsibility under 
the Constitution to regulate and sustain interstate commerce, lest 
| they be no longer permitted, m the preformance of their trusts, to 
‘invest further in these securities. And it is from this standpoint, 
| and not from a standpoint of mere self-interest, that they appear 
| and earnestly present their recommendations for the constructive 
| exertion by Congress of its great power and responsibility. 
When they accompany that appeal, as they do, with the conclusion 
| arrived at by the association that the situation can not be worked 
; out except ieaaati a regulation of earnings, through a restriction 
to a fair basis of the returns on railway investments, they do believe 
} that they should not be subjected to the erroneous criticism which 
| asserts that they appear here for the purpose of pereetna ee an 
/ unsound railway fabric or on a mere sordid basis of trying to exact 
out of the shipper the maximum amount which can be taken; and 
we do not think, Mr, Chairman, that any such suggestions, coming 
| here as the association does with a free expression of its convictions 
| that this can be, worked out only by a limitation of its own earnings, 
| if treated as a mere security holder, or that any such criticism should 
| proceed from, for instance, our friend, Mr. Plumb, who comes before 
ongress not with an offer on the part of those he represents to sur- 
| render any past constitutional right or inviting any limitation or 
| regulation upon their rights, but, on the other hand, with the defiant 
{| insistence that the whole railway fabric should be turned over to 
_ those whom he assumes to represent, and without any corresponding 
| offer of concessions or restrictions upon their ultimate, personal, 
| selfish interests. iS A 
| For those reasons we believe that the association, In presenting 
| its plan or its proposals, is not properly subject to the criticism of 
acting from self-interest. It is, just as this committee 1s, responsive 
to a paramount public duty. 1 beg to assure the committee that 
‘it is upon that theory that we have proceeded throughout in this 
| Matter, and if its efforts in setting up a general conviction among 
| the investing public, a widespread opinion, that the time has come 





1036 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


when it is proper to consent to a reasonable regulation of earnings, 
if it has been able to contribute in that way or otherwise in its efforts 
to assist in working out this problem, we believe the association will 
have responded to a duty which is encumbent upon all citizens of 
this republic. 

We think it proper to state to the committee the general theory 
on which we have proceeded in formulating these suggestions, not 
in order to admonish the committee of our views as to the law, but 
that they may know the theory on which we have approached the 
matter, in order to determine whether or not it is sound. 

We have assumed at the outset that it is the purpose of Congress 
to proceed to extend and perfect the system of regulation begun in 
1887 rather than at this time to experiment with drastic, economic 
revolutions. Upon that theory, I think it is proper for us to say at 
the outset, so that nothing which may be suggested here can be 
interpreted as any criticism of the Interstate Commerce Commission, 
that we have as a primary conclusion believed that the powers of the 
Interstate Commerce Commission should be radically extended. 
We recognize that there has not been, since the establishment of 
the commission in 1887, any breath of scandal or any reflection upon 
the official integrity of a:single member of the Interstate Commerce 
Commission. We propose extensions of its power that go beyond 
the suggestions of the Esch Bill, so when we refer to unsatisfactory 
practice which has accompanied railway rate regulation in the past, 
it is in no sense intended as a hostile criticism of the commission or 
of its personnel. As a lawyer, I can not fail to recollect that the 
first chairman of the Interstate Commerce Commission was Cooley, 
the great jurist of the West, who brought the mantle of John 
Marshall to the Interstate Commerce Commission at its very mncep- 
tion, and we believe that its earnest efforts to proceed within the 
express limits of the policy laid down by Congress has justified the 
unbroken confidence of Congress in the commission. 

Our chief suggestion is based upon the certainty that now is the 
time for Congress to define its policy toward the railroads on some 
more constructive theory than that of rate depression stopping only 
at the dead line of the fifth amendment. 

The primary responsibility of course is upon Congress under the 
commerce clause. The power, which carries with it the duty, to) 
regulate commerce is not conferred upon the commission but upon 
Congress. The very term implies that in ‘‘regulating’’ Congress 
must promote, preserve, and protect, and that implies the obligation, | 
we think, in delegating vast powers, to the commission, including 
almost the power, I may say, indeed, the power of life and death over 
these transportation systems, for Congress to lay down restrictions 
upon its agency that will require the latter in exercising those powers 
to stop short of destruction. 

The constitutional guarantee against the taking of property which 
is set up in the fifth amendment is not the only limitation upon the 
power of Congress and upon the power of its agencies in the matter 
of regulation. The power to regulate implies within itself, and before 
you reach the question of confiscation under the fifth amendment, 
conservation and protection, and it is not appropriate in handing 
over this great power of regulation to the Interstate Commerce Com- 











RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1037 


| mission, to permit it to proceed to the point of destruction and stop 
_ there merely to avoid the fifth amendment. 
~ We think, Mr. Chairman, that it is reasonable to ask, when you are 
| proposing now, as you do, and as we do, vast extension of the powers 
of the Interstate Commerce Commission, that there should be a 
_counter-balance through the congressional declaration of 2 definite 
' policy which in times past the Interstate Commerce Commission has 
not felt it was in its power to recognize. You now propose that the 
Commission shall have much wider power than the power to regulate 
| Tates or rather to suspend rates, because they have no power under the 
, fifteenth section of the act, either as it now stands or as proposed by 
the Esch bill, to do anything other than suspend or reduce rates 
) which have been actually filed—their action is brought into motion 
) only when an unjust and an unreasonable rate in violation of the 
commerce act is filed by the carriers, and then their power is restric- 
tion or suspension. It is not an affirmative or constructive power 
they are given, however desperate the situation of the carriers, and 
| 16 is not proposed by the Esch bill, as I understand it, that the com- 
| Mission be given any power whatsoever of initiation or advancing 
| Tates—except, perhaps, in isolated cases of discrimination. The 
commission has only negative and restrictive power, and we think 
that when these vast extensions of administrative power are conferred 
‘upon any tribunal, it is only just to the subject of that regulation 
that some limit upon the exercise of that power should be laid down 
| by Congress in addition to the fifth amendment which permits regu- 
‘lation to the point of confiscation and destruction. 

You propose not only to regulate the issue of railroad securities 
| but how every dollar realized by their sale may be expended. You 
) go vastly further than that. You suggest that the commission shall, 
t the future, not only have the power of regulation with reference to 
| the basis for interchange of equipment between carriers and the rates 
| or charges for the use of those facilities which in their corporate 
| discretion the carriers may provide, but you now propose to give the 
commission the power to control their discretion as to the supply of 
cars and equipment, and the number and movement of trains, and 
that means power over the service of transportation, and further than 
| that sweeping and absolute power over the conduct of these carriers 
| you propose to give the commission the power to control. and require 
extensions of their trunk line railway systems. Meee 

I may say a word as to that power without in any sense criticising 
| any of the terms of the Esch bill, for I think the committee is entitled 
to the extent to which we have been able to analyze its provisions to 
have the benefit, at least, of our own views as to the constitutional 
theories or the propriety of the various clauses presented by the 
Esch bill. This power of forcing the extension railway systems, 
| we think, without being here to oppose it if coupled with mandatory 
corresponding obligations on part of the commission, reaches the 
imit of constitutional authority. . 
| There is no doubt of the power of a State, before Congress has 
‘taken control of the subject, to require carriers to perform the rail- 
} Way duties which they have clearly assumed. That embraces ser- 
| vice along the line and within what you might call the curtilage of 
the several railroads. They can be required, where the extensions 
| are public in their nature, to construct sidings, even if the construc- 


152894—19—vor 1——66 











1038 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. { 


tion may be mainly for the benefit of a single industry. They can 
also be required to make connections at their own expense, but you 
vo further than that. You go further than what Justice Hughes 
called in the North Dakota Case (236 U.S. 595) the performance by 
the carrier of the duty assumed by its original undertakings, and 
propose to authorize the commission to require the carrier to make 
extensions of its system, obviously for the purpose of avoiding the 
construction of competitive lines upon a wasteful basis, and pro- 
tecting interstate commerce from unnecessary duplication; but this 
might impose upon the carrier an obligation which it has never 
expressly or implicitly assumed. 

The CHarrMAN. You have a doubt as to the constitutionality of 
that provision in the bill requiring a carrier to make extensions if, 
for instance, such extension was beyond the grant contained in the 
company’s charter. I suppose most charters contain limitations or 
fix the termini of extensions 4 ’ 

Mr. JoHNSTON. Yes, sir. 

The CHarMan. It is your thought that if the commission required 
an extension beyond the extension of the termini fixed in the charter 
we would be going beyond the Constitution ? 

Mr. Jounston. That is the thought, Mr. Chairman, not that we 
are in any sense opposing the results, but we are merely suggesting 
to the committee the desirability of considering further whether that 
would not extend the duty originally assumed by the Carrier, 2g 
Justice Hughes said, its oricinal undertaking; the engagement which 
it assumed when it undertook to perform a public service. He 
pointed out in that case, as I recall, and I have no doubt you gentle- 
men are familiar with it, that if the carrier assumed to render only 
passenger service the State could not require it to transport freight. 

The CHAIRMAN. Would this authority on-the part of the commis 
sion to require extensions beyond the termini fixed in the company’s 
charter have any effect upon the sale of securities which would he 
required in making such extensions ? . 

Mr. Jounston. Obviously, Mr. Chairman, if the Interstate Com- 
merce Commission is given the power in its discretion to require a 
railroad to make a major trunk line extension—because there is nc 
limit to this power as the proposed act stands, unless it shall he 
shown to interfere, as I recall the expression, with the ability of that 
carrier to discharge its public obligations—now, if the commissior 
can show that the carrier ordered to extend its system could dispose 
of securities to make that extension, I should not say that its 
order requiring the extension would be restricted in any sense by 
that qualifying clause, and we would be confronted with the situation 
of a carrier having undertaken to perform the business of a publi 
service company between, for illustration, Washington and Balti 
more, required to extend its line to Philadelphia or to Annapolis 0. 
to Harrisburg, or in any direction that the commission might re 
quire, and that is imposing a duty which the carrier did not assum 
expressly or impliedly, in undertaking the service of transporatio 
and that.is the reason why we think it might be desirable for the co 
mittee to consider that question, and if it is thought necessary ti 
preserve that clause to restrict it within plainly constitutional limi 

But the point I make immediately is not a criticism of your purpos 
or of the idea or of the power, but to call to the attention of the co 









___RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1059 
Mi 

\aittee that when you are giving to the commission not only the 
‘ower of life and death through the stoppage of rates and the control 
frates, but propose to sta the corporate management in broad 
telds within which it has formerly exercised its discretion, and will 
/aus change the original undertaking assumed by the stockholders in 
atering into that enterprise, you are giving such sweeping, drastic, 
nd unlimited powers to the Interstate Commerce Commission as to 
/vake it necessary for you in some way to provide by a definition of 
\ohiey which wil retain that such wide power shall be exercised only 
|nder conditions that will result in a reasonaple return, and not in a 
|} iwsuit for a return one point more than confiscation. 

| To say that a carrier shall be required to expend $50,000,000 or 
/100,000,000, and then remain in the bread line before the Interstate 
\ommerce Commission in order to receive a reasonable return upon 
|he investment it has made, Mr. Chairman, is going too far in the 
rocess of regulation. 

We have not the slightest objection to any regulation which may 
je considered as desirable by the committee, provided you will lay 
/own a policy which will not reproduce the situation of the past. 
}Vhen you recall, as was directed to your attention by Mr. Walter 
}esterday, that the additional investment in railroad properties since 
|907, when the commission was given jurisdiction over the accounting 
|ystem of the carriers, has increased by $6.000,000,000, you may dis- 
jer what the condition would be. Now, let us see if any commensu- 
(ate return has been realized on that $6,000,000,090 invested since 
}907, as shown by the exhibits introduced into the record by Com- 
jlissioner Clark. He showed that the return in 1907 was 5.68 per 
}ant, or that the ratio of the net operating income to the proverty 
jiwestment account was 5.68 per cent. The commission, I might 
\ty in passing, has referred to that with satisfaction as not being 
| byious y an unreasonable return, because, if it was, it was at all 
‘mes charged with the duty, by acts of Congress, to reduce uareason- 
tle returns. But taking 5.68 per cent as the return in 1907, what 
/as been the result of the plowing in of $6,000,000,000 addition al ? 
One would expect from the situation of utter immorality which 
Tr. Phimb says existed in the property accounts at that time that 
16 railroads could not earn relatively as much money on moonshine 
ad water as they could by plowing in $6,000,000,000 additional. 
ne would expect that every dollar of real cash that has been intruded 
| t0 the investments since 1907 would result in larger relative earnings 
jit the result has been the contrary, and instead of maintaining the 
tio of 5.68 per cent, or increasing that ratio, if we subtract the 
venue in 1907 from the net income in 1917, we will find that the 
‘idition of $6,000,000,000 of new money has resulted in a revenue of 
})out 4 per cent upon that additional $6,000,000,000. That of itself 
| Sufficient to demonstrate that the situation which Mr. Plumb 
jiggests as existing in 1907 does not exist. So when you are con- 
onting the American railway systems with power on the part of the 
)MMission to require and force capital additions to property accounts, 
tending even beyond the curtilage of their limes, and beyond the 
JWritory necessarily incidental to and obviously dependent upon the 
‘aim line as constructed by the carrier, then, I think that obviously 
tere should be a permanent declaration of policy by Congress con- 
sying a reasonable assurance to the investing public that the addi- 
as 

“@ 










—— 












1040 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


tional investment should have an adequate return without a lawsui 
and generally an unsuccessful one to secure it. 

Mr. Merrirr. I would like to ask you how you get that figure ¢ 
4 per cent on the additional $9,000,000,000% Where does that 4 pe 
cent come from ? 

Mr. Jounston. If you take the net operating income in 190' 
as shown on page 44 of volume No. 1 of these hearings, you will fin, 
that the operating income was $760,000,000, in round number; 
while in 1917 it was $986,000,000. Now, subtracting the operatin 
income in 1907 from that in 1917 gives you the added net operatin 
income achieved between those periods and as a result of the plow 
in of $9,000,000,000. Of course, it is all merged in one investment} 
and it can not be said that $1 invested before 1907 is separate from 
dollar invested after that date, but it is persuasive as showing tha 
by reason of responding to their public duties and plowing 7 
$9,000,000,000—— 

The CHAIRMAN (interposing). Are you not mistaken in that figur 
of $9,000,000,000? Was it not $6,000,000,000 ? | 

Mr. Jounstron. I beg your pardon. I will correct that. It ij 
$6,000,000,000, but I have worked it out on the basis of the correc 
figures, which are less than $6,000,000,000. for 1917. Nine billio: 
is a mistake. 

pene CHAIRMAN. The Interstate Commerce Commission has show 
that. 

Mr. Jounston. And I think Mr. Walter stated that it wa 
$6,000,000,000 yesterday. 

The CuarrMan. I think he did. 

Mr. JoHnsTon. So that, basing it on less than $6,000,000,000, 0 
$5,543,953,545, that bemg the figure I employed as the difference 
between 1907 and 1917, you will find that the ratio of additions 
net operating income to that of added investment is a fraction ove 
4 percent. As I recall it, it was 4.12 per cent, or something of tha 
sort. Now, the investments made prior to that date are certainl 
comparable, in a broad sense, to the investments made after that time 
Bear in mind that the added investment of over $6,000,000,00 
represents only 23,075 miles of new railway, of course it also include 
added equipment. The ratio of new capital, therefore, has been a 
the rate of over $200,000 per mile, whereas the ratio of mileage con 
struction to the property investment account in 1907 was onl 
$55,000 or $60,000 per mile. I do not stop to work it out exactly 
Of course that means that there is an increased and continwn 
necessity for unproductive improvements, such as grade separatio 
and great terminals expenses, and if it were ever necessary that. th 
new investment or new money which is to be required by the 
carriers, if they are to perform their public functions, should b 
protected, it is necessary now. ‘There was never a time when it we 
more essential that they should be protected in some measurab. 
certainty that when required to put in a dollar that dollar will hay 
a fair chance in the struggle for existence. : 

It is upon that theory, with this tremendous extension of th 
power of the Interstate Commerce Commission imminent, that 
think it is imperative that Congress should lay down some measure ¢ 
restriction upon the action of its administrative and essentiall 
ministerial agency other than this bare prohibition against the tak 

























RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1041 
|f life and destruction of property which is reflected ih the fifth 
|mendment, because under the fifth amendment there is no other 
striction laid down and there is no other margin of safety provided 
xcept that your agents shall stay the knife of regulation short of 
/estruction, and in-order to find relief under the amendment, you 
, ust prove to the courts that the regulatory action is utterly destruc- 
‘ve and will take the heart out of the transportation system of the 
\Inited States. There is no other restriction which you have laid 
own to limit this agency to which you are proposing to extend 
silarged life and death powers over the great systems of trans- 
ortation. 

, Mr. Sus. In that connection, Mr. Johnston, I may have misunder- 
jood Mr. Walter, but I understood him to take the position that if 
jae rate does not give a fair return upon the investment of the railroad 
(is unconstitutional, and therefore void. That being true, how can 
|ay regulating body require a rate, or how can Congress itself require 
rate that produces less than a fair return upon the property devoted 
|) public use ? 
| Mr. Jonnston. The best way I can answer. that is to say that the 
juestion of a fair return and the question of confiscation have been 
iustrued as synonymous, so far as the lower extent of the power is 
meerned. When the suggestion is made in rate hearings that the 
mmission has crystallized a level of rates which will give less than 
fair return, as it has been interpreted by the courts, and when the 
ulroads have entered upon their struggle for fair rates, they are 
ynironted with the assertion that they have not conclusively met 
1e burden which is put upon them of proving that their property is 
mfiscated. In short, fair return and confiscation have come under 
le present law to be interchangeable terms. 
We say that Congress in making these enormous extensions of the 
wer of the commission, and in view of the great burden to be im- 
sed upon the investing public in extending the railway systems, 
ould provide for the investors a wider margin of safety ‘than is 
forded by this issue of life or death. It is as though the fifth 
nendment stood over a patient who has been anesthetized as an 
ligation upon the surgeon merely to keep him from expiring. I 
unk that the time has now come for Congress to say that this 
tient should not be reduced to suffer in extremis before becoming 
ttitled to protection. We believe that the duty and responsibility 
imarily resting upon Congress are to conserve, to promote, to pro- 
ct, and to preserve, rather than simply to prevent death or save 
om destruction. The difference in this situation is very clearly 
ustrated by the opinion of the commission itself in the Western 
vance Case, which was reported in the Twentieth I. C. C., page 307, 
@ quotation being from page 317, where the commission stated: 
We must not regard too seriously, however, the effort of railroad counsel to establish 
‘S Commission in loco parentis toward the railroads. We must be conscious in our 
| asideration of these rate questions of their effect upon the policy of the railroads, 
d, ultimately, upon the welfare of the State. This country can not afford to have 
or railroads, insufficiently equipped, unsubstantially built, carelessly operated. 
» need the best of service. Our railroad management should be the most pro- 


‘sive. It should have wide latitude for experiments. It should have such encour- 
ment as would attract the imagination of both the engineer and the investor. 


I might interject there, Mr. Chairman, that, with the existing rail- 
ad situation and confronted with the bare possibility of inaction by 
ie 


1042 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Congress, there would have to be a tremendous amount of imagina 
tion in order to interest anybody in the railroad situation. 

Mr. Sms. My question was this: If the rate does prevent a fai 
return upon the investment, is that, in and of itself, unconstitutional 

Mr. Jonnsron. Subject to certain qualifications, such as were pre 
sented in the case of the Tennessee Central, I believe, to which yot 
referred, that is correct. But we do not think that the Constitutio. 
cuarantees a fair return. It guarantees that the agencies set up b 
Congress may not, by reason of their regulations, prevent a fai 
return. It does not guarantee them against the results of competi 
tion, but your congressional statutes require competition and super 
sede any efforts among the carriers as between themselves to ovet 
come destructive competition, and that, coupled with the presen 
situation, practically does work out dangerously near to the resul 
of death on the part of a substantial number of carriers in the Unite 
States under the present system. | 

Mr. Sims. Broadly, my question was whether or not a law o 
rate that provides nothing over and above the cost, plus mainte 
nance and depreciation charges, is confiscatory within the meanin 
of the law? ) 

Mr. Jounston. Obviously, if the rate does deprive the carrier of 
fair return, rather than the general conditions or competitive cond 
tions which might result in the depressed condition. The point mad 
by the commission in the opinion in the Western Advance Case, ¢ 
which I am complaining as applied to the future, is to be found i 
the concluding sentence: | 

We are not the managers of the railroads. And no matter what the revenue the 
may receive there can be no control placed by us upon its expenditures, no improv 
ments directed, no economies enforced. 

Now, this policy is proposed to be abandoned in the adoption ¢ 
the complete system of regulation, which it is undoubtedly withi 
the purpose of this committee, and in which we heartily concur | 
adequately safeguarded; but in the extension of this wise permanetr 
policy of regulation begun in 1887, you are now pee the commis 
sion in a substantial sense in loco parentis. The Roman father coul 
extend the process of regulation to the pomt of death itself. Th 
commerce clause contemplates no such savage result. We ask yo 
to say to this commission that in regulating these carriers “you mu 
allow a margin of safety between the point of destruction conte 
plated by the fifth amendment and that condition of healthy growt 
which would still leave a reasonable rate fabric from the standpoi 
of the general public and transportation as a whole.” ‘ 

That is the reason why we ask for a definition of policy which Wi 
not confront the carriers with this indefinite and impossible burde 
of proof of showing confiscation with which the commission has ¢d 
fronted them. You will recall the expressions used in the varit 
opinions of the members of the commission, they say that it has 16 
been “‘conclusively”’ shown that the carriers need this higher revenw 
(Commissioner Meyer, Fifteen Per Cent Case, p. 331.) tn effect the 
say, ‘higher costs have been shown, but we are not conclusive 
shown that they will have the unfortunate results that the carrlé 
suggest that they will have.” Again, it was said that it does n 
necessarily follow that the depressed tendency exhibited by a prove 
declining ratio would have the adverse results that the carriers ( 


| 
br 
y 





ee 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1043 


gested that it would have. Denying relief on so grudging and re- 
‘Tuctant an hypothesis they said, in effect, in the Fifteen Per Cent 
‘Case, ‘we will watch this month by month and see if it has that 
“yesult.”’ When conditions followed all of these great rate cases to 
‘the point where it was obvious that the rate fabric had to be lifted 
-and should have been lifted at the outset, the commission granted 
| aed us part, or else tardily extended the limited relief originally 

anted. 

That is the general history of all of these great rate hearings if I 
haye interpreted them correctly. I do not speak in any sense as a 
rate specialist, and my comment upon the commission, I can not 
repeat too definitely, is made with the utmost deference for their 
obyious effort to respond to their public duties, and still keep within 
the law by avoiding the determination of question of public policy, 
which they have repeatedly said is an authority for the Congress 
and not for the commission to exercise. Bringing that thought right 
down to date, Commissioner Clark has said to this committee that 
now is the time for Congress to lay down the policy and say whether 
‘or not these properties should be restored to their owners on a com- 
‘pensatory basis which would make them as a whole self-supporting, 
‘and enable them to pay the reasonable cost of transportation and a 
reasonable return upon their investments, or, whether they should 
‘be operated on a level of changes inadequate to make them self- 
‘supporting, the deficit to be paid out of the United States Treasury. 
‘It is obvious that the time has come for Congress to set up a policy 
‘other than that involved in the final limit of destruction, which has 
‘Deen the only policy heretofore existing and which has been due to 
the fifth amendment to the Constitution. 
Mr. Denison. Your theory is that Congress should now adopt a 
‘policy under which the Interstate Commerce Commission would be 
‘charged with the duty not simply of preventing destruction but of 
promoting prosperity ? 
Mr. Jounston. That is a fair statement of the suggestion. 

Mr. Dentson. Now, with the chairman’s permission, I want to 
‘ask you a question of law which I think has some bearing upon the 
provisions of the Esch bill. The Esch bill authorizes the Interstate 
Commerce Commission to require carriers to make extensions, to 
‘build switches to private industries, etc. Now, in the State of 
‘Illinois it has been uniformly held that no carrier or no railroad 
‘company can condemn land to make connection with any private 
industry. If the Interstate Commerce Commission should order 
a railroad to make a connection of that kind, and if, under the laws 
of Illinois, there is not the power of condemnation, what would be 
the result ? 
Mr. Jonnston. Well, I think if it is a public service, or if it is 
‘essentially a public use for which the power of condemnation is 
‘proposed to be exercised—that is to say, Ui it is In any sense to 
‘used as a siding for the storage of cars for the service of the public 
generally, it would be a public use, and, undoubtedly, Congress can 
‘authorize the carriers engaged in interstate commerce, by authority 
“of an act of Congress, to proceed with condemnation for such public 
“use. But in the Danville Case, I think it was, they held that where 
‘the siding is essentially for a private industry or invloves merely a 
“private service, and is not a part of the general public utility of the 









1044 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


railroad company, that would be forcing the condemnation of private 
property for private use, and, therefore, unconstitutional. I see no 
reason why that rule should not obtain. a 

Mr. Denison. Attempts have been made to get switches con- 
structed by railroads to coal mines, for instance, and other kinds of 
industries, but: the constitution of the State of Illinois does not 
permit the condemnation of rights of way for connections of that 
kind, and I was wondering what would be the result if the Inter- 
state Commerce Commission ordered a railroad to make such a 
connection in the State of Illinois. 

Mr. Jonnston. Undoubtedly, if the commission in its order re- 
quired such siding as an extension of existing public railroad service, 
and made that extension responsive to general public use, the Con- 
gress could in proper cases authorize that to be done, notwithstanding 
restrictive or inadeqaute legislation within the several States; but it 
would have to be for public service, and it would have to be a part 
of the public railroad system, and not essentially or exclusively for 
the service of an individual, or for private use, because, of course, 
neither under the constitutions of the States nor under the Constitu- 
tion of the United States can power be given to a railroad to take 
private property for a private use. 

Mr. Sims. Mr. Johnston, believing, as I do, that you are a competent 
authority, I want to ask you whether or not in your opinion that 
limitation in the Constitution against the confiscation of private 
property applies to property owned by the Government of the 
United States itself? 

Mr. Jounsron. To prevent its taking the property for a different 
public use ? 

Mr. Sims. No. You have referred to the property of a railroad 
company as being confiscated if you do not allow a rate that will 
enable it to make its operating expenses and pay depreciation, fixed 
charges, etc., plus a reasonable profit on the investment. Now, in 
your opinion, does this Constitutional limitation against the appro- 
priation of private property apply to property owned by the Goy- 
ernment of the United States and used for such purposes ? | 

Mr. Jounston. I presume you have reference to a Government- 
owned transportation system, and you have asked whether 

Mr. Sims (interposing). Suppose the Government owned all of the 
railroads of the United States, and the Government fixed a rate that 
would result in a loss upon the investment: Would that be within 
the constitutional limitation ? 

Mr. Jounston. Undoubtedly the Government would be the sole 
dispenser of its own bounty, and could make rates that would be 
destructive of the success of the system, and absorb the loss by 
taxation. 

Mr. Sims. If it should result in loss, the Governnient would have 
to collect the loss from the taxpayers ? 

Mr. JoHNsTON. Obviously. 

Mr. Sus. But there is no rigid limitation. _ 

Mr, JoHNsTon. Obviously; there is no limitation upon the power 
of the Government to use its own property as it sees fit. I might 
say that it is an unsound constitutional theory to suggest to Congress 
the purchase and operation of these railroads under the commerce 
clause. I give full recognition to the fact that under a combination 





RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1045 


xf the postal, military, and commerce clauses there is the power, 
put it 1s an unsound extension of the commerce clause, which confers 
apon Congress the duty and responsibility of regulating commerce, 
so say that Congress can absorb, monopolize, and conduct commerce. 
[t is not a sound constitutional theory to proceed upon. Now, if 
you proceed upon the military theory and base the right of Congress 
upon that, it would be done merely because that was a technical 
yxcuse for it, and it would not be within the spirit of the Constitu- 
ion. | 

Mr. Sims. We have invested hundreds of millions of dollars of 
Federal collected tax money in order to help localities in the con- 
struction of ordinary highways that would otherwise be a burden 
pon them. 

_ Mr. Jounston. That is a very wholesome encouragement of local 
leyelopment in response to the necessity for highway transporation, 
vhich I do not criticize. 

_ Mr: Sms. As a matter of fact, in making that contribution to the 
yulding of highways, the Government does not anticipate any 
veturns or compensation of any kind for the amount so expended. 

Mr. Montacus. Do you wish to leave without qualification your 
statement made in response to Judge Sims’s inquiry that the Gov- 
wnment can do anything it desires with its own property, or would 
you say that it can do anything it desires within its legislative power ? 

Mr. Jounston. Of course, that is a very necessary limitation. It 
nust be within constitutional limitations. 

_ Mr. Montague. For instance, it can not take the property of this 
vapitol, or it can not take any of these buildings and give them to 
you or to me. 

Mr. Jounston. I do not think it could, unless it were in discharge 
4 Some express or implied obligation to us. My recollection of the 
Sugar-Bounty case is that the court held that where the sugar 
rowers had complied with the invitation of an invalid act of Con- 
sress, Congress could make good its obligation under that invalid 
wet. In short, the United States may constitutionally discharge a 

noral obligation. , 

Mr. Montacue. The Supreme Court of the United States held that 
ihe legislature of the State of Illinois could not authorize the munici- 
ality of Chicago to give away the beds of the lake to certain railroads. 
Che State holds this property in trust for the people, but it could not 
rive it away, the court roldins that such legislation was ultra vires. 

Mr. Jounston. Now, since you make that suggestion, that is the 
heory on which we have proceeded in saying that anything that 
ooks like a direct distribution of excess earnings recaptured from 
‘arriers who are fortunate enough to earn them to less favorably 
ircumstanced railroads 

Mr. Monracuz (interposing). I am suggesting that at this time 
imply that you might have in mind that distinction if there should 
ve any analogy between the two things—that is, whether if the rail- 
oad property was owned by the Government it was competent 
-or the Government to give it away without any return or considera- 
lon. | 
_ Mr. Jounston. I should say that unless the property was self- 
Upporting it would be subject to the gravest doubt whether or not 
Jongress could tax or exert the power of taxation and give the results 












b / 
1046 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 
: 2 
of that taxation to anybody else in cases where it is not pursuant to 
some well-recognized Federal governmental necessity or obligation. 
I donot see on what theory you could tax any man to give me free 
transportation from here to Baltimore. If that is not taxation, or 
the exercise of the power of taxation, for private use, individual 
use, or un-American use, then I do not know what it would be. 

Mr. Sms. Suppose Congress should make an appropriation of 
$200,000,000 to be used by the respective railroads in the respective 
States in order to enable the railroads to render a better service than 
they otherwise would—— . 

Mr. Jounston (interposing). Undoubtedly the military and post 
roads clause would justify assistance to those instrumentalities, and 
anything that the United States can do through its own direct action 
it can do, was held in the case of McCullough v. Maryland, through 
subordinate agencies. It can adopt existing agencies for the purpose, 
and assist them, but whether it can do that by specific imdividual 
appropriations which would ignore the principle of classification 
and would not observe a uniform principle to be laid down in the act, 
would be an entirely different question which I would hesitate to 
give a definitive opinion upon without having investigated it. 

But, Mr. Chairman, another reason why we think it obligatory 
that there should be some protective policy laid down arises out of 
the existing situation. We find that the annual maturities of funded 
debts and obligations running for more than one year of the railroads 
are about $250,000,000. I think, to be accurate, it is $228,000,000. 
That is according to the estimate of Poore’s Manual for the year 1919. 
The one-year notes, or less than one-year notes, are normally about 
$250,000,000. They are estimated now for the year 1919 at about 
$427 000,000, due, of course, to obligations to the United States for 
loans in anticipation of the payment of the Government rental, and 
which will be, of course, diminished when the rental is paid. The 
normal amount is about $250,000,000, and that will be increased 
above the normal this year. Additions and betterments amount, as 
I am informed, to about $573,000,000. The railroads will continue 
to have enormous new capital requirement recurring each year, 
without providing at all for the program of extensions which were 
referred to in one of the opinions in the 15 per cent case in 1917, in 
which it was estimated that’$1,000,000,000 a year would be needed 
by the transportation systems in order to equalize the needs for 
internal transportation facilities, to meet the necessities of our foreign 
trade, and to balance the wide extension of our merchant fleet 
equipment. Yet we confront that tremendous annual capital 
requirement with a depressing, rationing basis of dealing out suste- 
nance to these carriers. That point was made by the hs par 





members of the Commission in 1907, in protesting against this purel 
statistical and month-to-month process of dealing with the railroad 
systems. 

You can not build railroad systems on the sole protection afforded 
by the fifth amendment. You have got to set up some margin 0 
protection which will be based on the results of regulated operation 
rather than upon law suits. | 

It was asserted by several of the members of the commission in th 
1917 Rate Increase case and has been made evident in other case 
that the time has arrived for the definition of a policy of Congres 


oe Ae 


iP ~- 


~ § 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1047 


_ toward these carriers that would more suitably meet the necessities 
of transportation. My recollection is that they denied in one of the 


eat rate advance cases that the impairment of credit and probable 
umping of American railroad securities was sufficient to induce the 


- Interstate Commerce Commission to assume powers not responsive 


to the mere rate by rate analysis compelled under the 15th section of 
the act and suggested that any change in policy must proceed from 


_ Congress. 


With these overwhelming financial requirements approaching it is 


_ obligatory that there should be some constructive definition of policy. 


What should that be and what rate of return? Mr. Chairman, you 
asked Mr. Walter an intensely pertinent question, with reference to 
the policy of defining the 6 per cent level. You asked, if the 6 per 


cent level were put into force by this Congress, would succeeding 


Congresses not be elected on the basis of a lower level? We say that 


it is impossible for Congress to enact a lower base level that would 


sustain transportation or stand an attack in the courts. We have 


suggested what we believe is the irreducible minimum that is neces- 
sary either to sustain American transportation or pass fire before the 


_ Supreme Court of the United States were these carriers combined in 


one ownership. Under our plan the 6 per cent level would produce 


only 54 per cent to be retained by the carriers, according to the test 
_ applied to the class 1 carriers representing an overwhelming portion 
of mileage and investment and service. It would produce, to be 


retained by them, 5.52 per cent upon their property account, the 
balance of the 6 per cent level being recaptutured from carriers with 
excess earnings for expenditure in the public interest by way of 
insurance against death or sickness of employees or by investment in 
cars to be owned by the public and to be operated in their sole interest. 


The amount remaining in the treasury of the carriers is only 5.52 


per cent. 


It is unthinkable that any Congress or that people anywhere would 


insist Hive Congress setting up a level that would produce a return 


on the 


asic American industry of less than 5.52 per cent upon the 


fair value of the property operating for the public use. It is unthink- 


‘able that the people would require any such thing, and it is impos- 


sible that the Supreme Court would sustain any level more destructive 
than that; and so in representing our request for relief against certain 
disaster we have adopted not what we should like to see the railway 
investment rewarded by, but what we believe is the irreducible 
minimum necessary to prevent the destruction of property, and that 
is the minimum below which no court would ever sustain a level as 


~ being compensatory or as constituting fair return, if the roads of the 


rh 


United States were consolidated and could test the question. 
We all realize very vividly the suggestion which has been made that 
6 per cent in some years might be the equivalent of 54 per cent in 


_ other years, but it is 54 per cent now that we propose to retain and 


not 6 per cent—after allowing for excess earnings reduction. We 
propose under this plan, as you will see when we reach that particular 


"section of the bill, that new money would go into the property account 


at cost. Ifa 5 per cent security could be sold at par we would not 


put that on the books of the carrier earning more than 6 per cent 


on a 6 per cent basis, although the carrier would be entitled to some 


reward for producing that additional investment and administering 


1048 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


it. Wedo not ask that though, but we would reduce that new money ~ 


to the 6 per cent basis and write it in the corporate account of that 


railroad on a 6 per cent basis. I trust the committee will be certain 
that an adjustment to that end is one of obvious ease. 


Auditors and accountants connected with these railroads say to © 
me that it could be written on the accounts at 95 or 96 or 97 or what- — 


ever it is that a 5 per cent par security would amount to when trans- 
posed to a 6 per cent basis. So the question as to the cost of capital 
would accommodate itself to the actual result and there would be 
no secret or hidden profit to the railroad system in permitting a 
constant 6 per cent level. Of course, it is obvious that you should 
not change the rate of return on a 50-year bond that is sold on a 
6 per cent basis, because at some idyllic time in the future new capi- 
tal may be obtainable at 44 or at 43 per cent. If the carriers sold 
it on a 6 per cent basis they have to pay interest on that basis 
and it can not be changed according to the state of the weather or 
the money market. For that reason we think the sound program is 
to accommodate the cost of money to the actual situation as it 
develops. 

Why is the level of 6 per cent also obligatory from another stand- 

oint? There has been a great deal said about the weak: lines. 

hat is the situation now? We find there are 56 carriers now under 
Federal control, as will appear from these reports of the Railroad 
Administration introduced by Mr. Walter, which are not earning 
their operating expenses. Those 56 earriers operate a mileage of 
over 46,000 miles. They serve a great population; a very large 
percentage of the population of the United States is served by them. 
There are only 20 of the 150 reported carriers which are earning 
their standard return. The deficit for the current year responsive 
to those 150 carriers and not taking into consideration the large 


number which I am advised are not covered by that exhibit will, if 


it proceeds on the same ratio to 1918 as shown by the first six months 
of 1919, amount to more than $530,000,000. 

It is obvious that something has to be done to take care of the 
carriers not earning anything like the 6 per cent level. There were, 
as I recall, 120 carriers in the prewar three-year period, referred to by 
the shippers before this committee as the peak earning period of the 
American railroads, there were over 120 carriers, with a mileage of 


over 170,000 miles, serving a large majority of the pean of the 
t 


United States, that earned less than 6 per cent on their property 
accounts. Consideration has to be given to these carriers in working 
out any rate-level and if the American people ask Congress to estab- 
lish a primary rate level of less than 6 per cent, which works out 
only 5.52 per cent retained in the treasurers of the carriers, if you 
put that primary level down to any less than 6 per cent you might ds 
well force what has been very definitely stated before this committee 
should be the policy of Congress and that is the reorganization of 
the carriers earning less than 6 per cent on their property accounts, 
because applying these figures to the class one railroads we find that 
a total of 83 carriers, applying the 6 per cent level to the prewar 
period would have earned 3.84 per cent; that all of those not pushed 


- 


i 


over or pushed upon the 6 per cent level, less the recaptured portion, — 


would have earned an average of 3.84 per cent upon their property 
investments. They operate a mileage of 64,000 miles or 25 per cent 


~~ 


7 





F -_ ~~ 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1049 


of the mileage of the United States. It is unthinkable that our 
_ people would ever ask the American Congress to set up a rate level, 
_ accompanied as we propose by rigid limitations prohibiting excessive 
_ and unnecessary earnings, that would force 64,000 miles under the 


conditions of 1917 or even the 46,000, as shown not to be earning 
their operating expenses to-day, into a status of immediate reorgani- 
zation and chaos, which would certainly result from any lower level. 

I do not think that it would be of particular interest to the com- 
mittee to go into the cases of specific railroads, but my recollection 
is that the only one which was mentioned by your members was the 
Tennessee Central, was it not? Judge Sims asked if Mr. Walter 
thought the public would ever stand for a rate level or a rate of 


| return that would enable the Tennessee Central to earn 6 per cent 


lant 


_ upon the property investment. 


Mr. Sims. I had primarily in mind the service. | 
Mr. Jonnston..I understand. Let us take that as an illustration 


and see what the application of the association’s plan would produce 
on the Tennessee Central and see whether or not it is an extraor- 


| 


dinary benefit to that carrier. 

We find that the property account of the Tennessee Central for 
the average of three years was $19,717,592. Its actual ratio of in- 
come to property account for the average of those three years, the 


_peak of American railroad prosperity, was eighty-three one hundredths 


of 1 per cent. This 6 per cent level which the association proposes 
| would lift that to the staggering total of 1.12 per cent on the invest- 
| ment of that road resulting from a 6 per cent level of rates in its 





! 


region. Is it possible that anyone could ask a level of rates that 


would produce less than 1.12 per cent on that railroad or less than 
the average of 3.84 per cent upon 83,000 miles of railroad above 
Mentioned? And so, we say, Mr. Chairman and gentlemen of the 
committee, that when the suggestion is made that we are trying to 


guarantee 6 per cent upon the railway investment or the railway 
property, that assertion is based upon a fundamental misstatement 


of what we propose. If any less is suggested than we propose, it 


would merely invite Congress to assume the indefensible attitude of 
writing a rate into the act which would never be sustained by the 
courts as being constitutional and which I do not believe would ever , 
be sustained by any substantial portion of our people as a question 


ol public policy or as a square deal. 


If this is not done, if this level is not set up, what is the alterna- 
tive? The alternative is to force reorganization. The suggestion 
has been made to the committee here that the situation can be 
worked out much more easily if the nonprofitable carriers are elimi- 
nated from these rate hearings. In every single one of them the 
statement is made— 

If you appeared here only on your merits, the case would be very different, but you 
come along with an affluent carrier, and of course, we can not give you relief. 

Perhaps the exact language of the opinions would be illuminating. 

In the 1915 Western Advance Case (35 I. C. C. 561): 


* * * if only the more necessitous of the carriers in this proceeding were pro- 


‘posing these increases their plea would come with greater force than it does when 


- coupled with their more fortunate rivals. = 


b 


1050 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. J 


So, in the 1917 Fifteen Per Cent Case, at page 315: 


The needs of certain weak lines, however, cin not justify a course of action that 
is unwarranted by the condition of the large number of strong and successful lines, 
This record shows that many of the carriers are in a most prosperous condition. 

How illusory that conclusion proved is shown by the fact that 
instead of an income ratio of 5.81, as estimated by the commission, 
the class 1 roads earned 5.22 and at the conclusion of the year the 
commission found it obligatory under conditions well within the 
recollection of this Congress to grant advances denied in June, 1917, 
The point here is that the commission has uniformly denied adequate 
relief because of the coupling of ‘‘affluent”’ carriers in the general 
equation. What of the 120 railroads earning less than 6 per cent on 
their 170,000 miles; of those which averaged only 3.84 on their 
83,000 miles, of the 56 not earning operating expenses on their 
46,000 miles to-day ? 

We think it is absolutely essential to sustain American transporta- 
tion that some process be worked out which will take into considera- 
tion the earnings and necessities of these carriers and not force them 
into a process or reorganization immediately after the return of the 
railroads to private ownership, which would unsettle and destroy 
American financial stability. 

A great deal has been said about a half dozen carriers; as to what 
rate of return would be produced on their investment by the operation 
of the Warfield Plan—roads like the Alton. ‘You will find that all 
those would earn less than 6 per cent, from the average of 3.84 all the 
way down, like the Tennessee Central at 1.12, and so on. 

The question arises not whether you would be doing too much for 
the railway systems, but whether or not you would be doing enough. 
I say there has been quite as much criticism as to whether or not you 
would do enough for those roads as there has been that this plan 
would produce too great a return; and we say as to those roads with 
low earning power, that if you are going to force reorganization, if 
you are going to encourage consolidation of railroad properties, that 
you do it on a basis of some fair assurance that they will be relieved 
of this continual warfare in the struggle for rates, this continual 
controversy with shippers, this continual suspicion on the part of the 
Interstate Commerce Commission that they are getting too much; 
and then you will encourage an orderly process of reorganization so 
that these railroads will be able to adjust their budgets to a wholesome 
future and to work out their destiny in the service of the public on 
some basis of security rather than that of utter chaos and distress 
which has existed among them in the past few years. 

Mr. Sims. Do you think that any new, capital will go into the 
Tennessee Central, if your plan is adopted, with a view to any return? 

Mr. Jonnsron. I certainly do not think it would be possible. 

Mr. Sims. Then, your plan would not be salvation for the Tennes- 
see Central ? . 

Mr. Jounston. We do not think that new capital will go into it on 
any such basis. We think that the only method that would invite 
new money would be the adoption of a policy which would produce 
an assured return for the present capital and permit the existing 
investment to absorb the losses on its existing securities by inviting 
new capital on a funded basis or something of that sort. 






- RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1051 


_ Mr. Chairman, with $13,000,000,000 of railway investment in 
1907, is it possible that that investment, which produced the Ameri- 
can railway system and brought the United States out of the wilder- 
ness and which was encouraged by Congress on a basis of the pioneer 
and produced such wonderful results, is that investment now asked 
to surrender its own right to a fair return on its investment from 
this time on in favor of the new capital which must be ploughed into 
these properties in the future? 

It is upon all of these considerations that we say we believe that 
the time has come for Congress to lay down a different formula and 
to say what the policy shall be. We believe it to be obvious that the 
rate level which will leave in the treasuries only 5.52 per cent has 
been so repeatedly approved by the commission itself as to be no 
longer subject to criticism. As I stated a few moments ago the 
stommission referred to the earning of 5.68 per cent on the property 
account in 1910 with approval. It thought that the ratio of 5.86 
‘per cent which was estimated as the prospective net income in 1917 
was an assurance of desirable railway prosperity, and they pointed 
‘out in that case that they supposed that the ratio of return on the 
Southern roads and on the Western roads would be over 6 per cent, 
and obviously they approved those levels, otherwise it would have 
been the imperative duty of the Interstate Commerce Commission to 
reduce the rates producing those levels if they had not thought those 
rates were fair and reasonable under the circumstances. 
| So we find in these great rate cases the commission approving and 
referring with satisfaction, as showing desirable railway conditions, 
‘to practically a ratio of over 6 per cent and we ask for a net of 5.52 
per cent; so that.we come before the committee backed by repeated 
findings of the Interstate Commerce Commission approving 5.68, 6.12, 
‘and even the rate of return in 1916 of 6.17 per cent, which they pointed 
out as sound. 

Just one point before entering upon the discussion of this bill. 

| With reference to the existing process of rate readjustments, you 
will recall that in the 1914 case, as a result of the denial of general 
telief in 1910, but with a reservation on the part of the commission 
that the carriers might be entitled to reopen the matter or to file rates 
suggesting advances in the event that the optimism of the commission 
proved erroneous, the ratio dropped from 5.68 per cent, like a plummet 
‘to 4.12 per cent in 1914, with a slight relief in the year 1913, and when 
‘the carriers, in order to prevent that situation, revised their tariffs 
for increased rates in October, 1913, the commission then thought it 
‘best to inaugurate an inquiry on its own responsibility, rather than 
‘as responsive merely to this suggestion for a rate increase as shown 
‘by the filed schedules. There was dissent, very strong dissent, within 
the commission itself as to the right or authority of the Interstate 
Commerce Commission to inaugurate any such general inquiry. The 
mnly power under the present act or under the bill introduced by the 
‘chairman or the committee print is the power to suspend or reduce 
‘rates where the rates proposed are in violation of the act as being 
‘axcessive, unreasonable, or discriminatory. 

How can a general rate increase be set up under the existing law! 
‘Obviously, one railroad can not file a new schedule of competitive 
rates without reference to the other competing carriers. You now 
force them to do that. You now force them to a violation of the 








1052 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Sherman Act, to a conspiracy to increase rates and to file those in- 
creases before you set the machinery of the Interstate Commerce Com- 
mission in motion to determine whether they must have additional 
revenue. <A carrier can not file an increase in a competitive rate 
without going over to its competitor and saying, ‘‘ You file the same 
rate.’ We say that we do not propose to change the process of per- 
mitting the carriers to initiate changes and readjustment of rates; but 
when it comes to the question of a general readjustment necessary to 
enable the carriers as a whole to survive, we insist that the commission 
should not be permitted to remain quiescent and thus force violations 
of theSherman Actby the carriers, but it should be required, on its own 
motion, to set into a motion a process for the establishment of a level 
of rates necessary to sustain these carriers, and that this new method 
be extended so that the commission shall have due regard for the 
railroads as a whole by a provision for a limitation on earnings, which 
will encourage the commission to provide levels that will more nearly 
take care of the carriers as a whole. Otherwise the roads operatin 
their 46,000 miles that are not earning their operating expenses, an 
the 120 carriers with 170,000 miles that subsisted in 1917 on less than 
6 per cent, will have to die upon the doorsteps of the Interstate Com- 
merce Commission in an effort to obtain revenue which will be respon- 
sive to their situation. This relief is now denied, because they are 
forced to approach the commission arm in arm with carriers earning 
adequate revenue. The result desired by Mr. Plumb is the drowning 
of a majority of the carriers in the United States under averages. 
That is the contention of so many of the shippers in theserate hearings, 
and I respectfully submit that is the effort of Commissioner Clark, who 
produced figures on this hearing to show that the total surpluses were 
never so great as in 1917, that the average prosperity was never s0 
great as in 1917. I think it was only in response to a suggestion by 
Mr. Winslow that he then produced the figures showing that there 
were over 80,000 miles of railway operated by 91 companies which 
paid no dividends in 1916, and sowe find that a very large percentage 
of the American railways are now being smothered and ignored undet 
this practice of citing or averaging in the prosperity of others. This 
disastrous result can be avoided only by adopting the regulation 0 
excess earnings which will encourage and permit a level of rates thal 
will enable many indispensable systems to survive. 

The Cuarrman. Mr. Johnston, do you believe that the carriers 
should be permitted to initiate rates so far as their own systems att 
concerned and that where general rate increases are involved tha 
the commission should have the right to initiate ? 

Mr. Jonnston. I think that would be a fair provision, a wWist 
provision. That is the proposal that we make; we also give effect t 
the suggestion approved by Mr. Clark that on the restoration of thest 
carriers to their owners they shall be permitted to initiate rates fo 
a time only after approval by rate committees under rules and regi 
lations. to be established by the commission, which would have fly 
supervision over the inauguration of rates by the carriers for ti 
period necessary to avoid destructive competition in the reduction 0 
rates, but the method which you suggest, Mr. Chairman, we think i 
essential to any permanent system of regulation. , 

If it is the pleasure of the committee I will take up the bill that w 
have prepared. | 





RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1053 


' ‘The Cuarrman. Mr. Merritt would like to ask you a question. 

_ Mr. Mererrr. I recollect that Mr. Commissioner Clark in the 
eourse of his testimony spoke of weak roads which never could pay 
on their securities or their capitalization. . 

Mr. Jounsron. Yes, sir. 

_ Mr. Merrirv. Is it your view that reorganization would be better 
‘to scale down fixed charges, for instance ? 

| Mr. Jonnston. We think, Mr. Merritt, that if the system of rate 
sonstruction is based on actual valuation, not on the stocks and 
sonds, drastic reorganization becomes unnecessary. Although there 
as been a steadily increasing ratio of bonds to stock, that has been 
orced by the necessity for borrowing money on a bond basis rather 
vhan securing new investment on a stock basis; but if you adhere 
‘igidly to the property account as a basis for rate making, prohibiting 
‘ts increase except under the supervision of the commission, the 
juestion of readjustment as between present outstanding securities 
of existing corporations is not a process that would disturb the entire 
ailroad fabric. Now, this proposal of forced reorganization without 
phange in the rate method forces them under the hammer. If Con- 
4ress takes no constructive action and provides no remedial legislation, 
ihese roads will be forced to reorganize on a basis of which God only 
snows the result. There can be no sound reorganization forced by 
jorizontal disturbance to the railway fabric. 

_ Mr. Chairman and gentlemen of the committee, Mr. Clark in sug- 
gesting this process of reorganization stated that in his opinion any 
‘ailroad that could not sell its stock at par when the issue of that 
‘tock had been approved by the Interstate Commerce Commission 
inder your program for the regulation of securities, of which we 
ipprove in its substantials, ought to be reorganized. Now, I ask this 
sommmittee how any railroad, confronted by any such situation as now 
Biers it, could hope to sell its stock at par, and if any such policy 





d 


forcing reorganizations of all the railroads in the United States 
hat can not sell their stock at par is to be the policy for the future, 
hen we respectfully suggest that that policy should be declared by 
yongress under the commerce clause of the Constitution and should 
lot be the result of a policy put into effect by an administrative 
wency created by Congress, because it is too radical and extreme 
md destructive and overwhelming to American railroad prosperity 
0 be left to the discretion of any mere administrative agency. 

Let mealso call to your attention the formal statement issued by one 
f the members of the commission, and in order that I may not be 
hought for one moment to be criticizing the commission, when you 
ee the powers that we request Congress to give the commission, we 
aust be cleared of any suspicion of having any criticism of their 
bility to perform these great functions when properly and adequately 
‘mited, let me read a brief paragraph from one of their statements. 
tow, bear in mind that the Government itself is losing certainly 
600,000,000 a year on the operation of these properties. All of the 
Teat systems in New England are failing to earn. their aperalins 
Xpenses. ‘There are only 20 earning their standard returns, an 
et with that situation of appalling disaster, and with $228,000,000 
f funded debts maturing annually, confronted by note obligations 
unning for a year or less amounting to over $400,000,000, with an 


152894—19—vo1L 167 





———- 


1054 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


obligation to produce over $500,000,000 a year for additions and 
betterments at a normal rate of progress, and with the necessity, if 
American transportation is to keep step with the necessities of the 
future, of at least $1,000,000,000 per annum for that purpose, here 
is what this member of the commission has stated: 

When the railroads are returned, Congress, by appropriation of the necessary moneys, 
should provide for payment to them of the agreed sums to which they are entitled. 
Return to them the moneys taken from them by the Government and restore them to 
their owners in the same condition as when taken over. When this is done, the 
railroads as a whole will resume their normal functions on a most prosperous basis. 

Now, is it possible, gentlemen of the committee, that such mindless 
optimism is to be declared as the policy of Congress toward the 
railroads, with 20 of them not paying their operating expenses 
and with the whole earning only about one-third of the standard 
rental. That is so utterly destructive that we can not imagine that 
Congress will thus deal with its wards under the commerce clause, 
which gives you the great power and the equally great responsibility 
of protecting and conserving these wards against the destructive 
optimism such as the expression of that hopeful, honest belief by a 
member of the Interstate Commerce Commission. 

Mr. Merritt. Mr. Johnston, I am trying to clarify my view with 
regard to this weak-roads situation. I gather from what you haye 
just been saying that your view is that under the rule of rate-making 
you lay down, the question of overissue of stocks-or bonds will not 
in any way affect the rates or the service, which is what the public 
is interested in. Am I right about that? 

Mr. Jonunston. I think that is correct, sir. We think it has a very 
remote relation to the situation under the process which we propose 
which considers only the fair value of the property employed in the 
public use and not how the owners of that property have agreed 
among themselves to divide up their priorities or to issue stocks ot 
bonds, or otherwise. 

Mr. Merritt. It has been stated here by some of the gentlemer 
who are interested in the Plumb plan that bonus stock and the issue 
of stock dividends, and so on, constantly call for a higher rate. | 
could not follow that argument myself, and I am asking you whethei 
in your view, under your plan, the issue of stocks would have any 
effect on the rates which the railroads should demand. 

Mr. Jonnston. We must concede that the issue of securities ha: 
some bearing upon the carriers’ credit and, consequently, upon it 
operations. Otherwise, there would be no power in Congress t 
regulate the issue of securities. If there were no relation, the courts 
would say that Congress in attempting to regulate securities hat 
overstepped the line of regulating those affairs which have soni 
bearing on interstate commerce. You would have no such power 
but we think there is some relation. The issue of stock may aflee 
its credit, but so far as the rate level is concerned or the necessity of | 
readjustment of rate levels, we can not see how it would affect thi 
real question, whether we issue 2,000,000 pieces of paper to represe 
this property here [indicating] or 1,000,000 pieces of paper to repre 
sent 1t—it is just as if you would strike out the par value of all stocl« 
The outstanding certificates would merely represent their relati 
proportion of ownership and would have nothing to do with th 
question of rates or reasonable return upon the property, and I 
not think that the question of a constitutional return or that a 


* 












| RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1055 
principle of rate-making would be in the least conditioned upon the 
issue, now or in the future, of securities. 

| All we are concerned with in the matter of outstanding stocks, and 
‘it is a very important question, is whether or not in reducing the 
‘excess earnings of the affluent carriers, as the commission has called 
them, you would prevent them from paying their customary divi- 
‘dends and force a disturbance of general market conditions when it 
‘Is imperative that that should not be done in this crisis. Under the 
operation of this plan they are all permitted to pay their customary 
‘dividends, and the amounts which are recaptured are obviously from 
‘surplus and unnecessary to sustain the carrier in carrying on its 
‘public duties or preserve its credit. One of the most conspicuous 
‘Instances of excess earnings reduction is the Lackawanna. I believe 
jthe reduction of surplus in case of the Lackawanna under this plan 
would be about one million and a half; but it would still be enabled, 
as I am definitely advised, to pay its customary dividends, and, as 
‘you will see upon an analysis of the bill, its credit and its ability to 
jserve the public is literally assured not through any guarantee of 
‘rates or returns but through its ability to lay its case before the 
Interstate Commerce Commission; and if it is necessary it is to be 
permitted, under rules laid down by the commission, to set up sur- 
pluses upon its own books, not to be capitalized for the pury oses of 
‘rate making or to establish a rate level. So we feel that every strong 
road is protected in its situation and in its ability to render public 
service. How it could be adversely affected as to outstanding stock, 
now or in the future, we do not see. 

Mr. Sims. Mr. Johnston, I would like to ask you this question. 
High authority in the railroad world for 10 years or more, and for 
‘a number of years before the Euroyean war, stated that in order to 
zive the development to the country in the way of railroad service 
that it ought to have it would require investment in new proyerty 
or in new construction of about $1,000,000,000 a year for a period 
‘of 10 years. Now, the war has not reduced the necessity for addi- 
tional railway construction, but under prices now prevailing, and 
which will probably prevail during the next 10 years, the ccst will 
oe double what it would have been in the past 10 years. Now, you 
ix a rigid return upon the dollar value of the -roy erty, for instance, 
J per cent on the property investment.. Now, the proyerty invest- 
nent for this new construction, being a capital burden double what 
she same amount of property would have cost if done prior, dces not 
‘louble the necessary transportation facilities in which this money 
's invested. An engine, for instance, now would cost twice what 
t would before, but an engine can not possibly yerform double the 
Jervice that it did before, and how is a rigid percentage placed upon 
ihe capital investment, measured by dollars, going to give a return 
‘or the actual service performed that it would have given; that is, 
he same rate, 6 per cent, prior to these conditions, and how do you 
ake care, by your plan, of what seems to be an inevitable situation 
‘acing the country ? 

Mr. Jounston. That works both ways, Judge Sims. There were 
413,000,000,000 put into t he railway enterprise before 1907, and there 
‘vere many millions of dollars put in after 1907. When a tie was 
jut in this property at 25 cents and it had to be replaced at 50 cents 
ir 75 cents or $1, there was no expansion of the property account. 





















1056 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


That was a mere replacement of an existing item in the property 
account, and if you want, during the few years which are ahead of 
us now before the restoration of what may he called the equilibrium 
after this war, the excess value of improvements to be discounted 
because of thé@ high cost, then it would only be proper to go hack 
to 1907 and bring up the values already plowed into this property 
in the past since that year; and we think the balance would be 
overwhelmingly on the side of the railway investment as now reported ; 
and so far as that investment is concerned, on this very statement 
of the commissioner, which asserted that the railreads would resume 
their normal functions on the most prosperous basis the moment 
they are turned back by the Government, it is stated here: 

The value of the railroads of the country as computed by them is about 
$18,000,000,000. Add to this what the Government is now obligated to pay the rail- 
roads under the Federal control act in order that they shall be restored to their owners 
in as good physical and financial condition as when taken over, a conservative esti- 
mate is that the total cost of the transportation systems of the country would not be 
jess than $20,000,000,000. 

That is their estimate, and I have no doubt it represents the correct 
view. | 

Mr. Wrinstow. Who was the commissioner who made that state- 
ment ? ¥ 

Mr. Jounsron. Mr. Winslow, I will verify which one of two 
commissioners this was. I will say it was handed to me by the 
private secretary of one of them in the Interstate Commerce Com- 
mission Building, and lest I made a mistake as to the one, I would 
rather verify it to see whose statement it was. | 

The CuarrMAN. If it is the article which was released within a 
month, I think the members of the committee have a copy of it. 

Mr. Jounston. Yes; I have no doubt of that. 

Mr. Sanpvers of Indiana. Is that the statement which advocated 
a continuance of governmental control? : 

Mr. Jounston. Oh, no. I think it was Commissioner McChord, 
but I am not offering it in a spirit of criticism, and rather than meur 
any possibility of making a mistake I will have it verified and i 
necessary correct it in my correction of the transcript. 

Mr. Sims. Mr. Johnston, you replied to my question and I thank 
you for the elaborate reply you made, but it does not seem to me t0 
cover the situation as I see it, and I may not see it correctly. Service 
is what the people have got to have, the movement of traffic. Now, 
if service facilities can not be produced equal to capital investment 
compared with the former price, how are you going to avoid a very 
ereat increase in rates if you have a fixed minimum capital return! 
How are you going to keep that up when you put in $2 when if 
used to be necessary to put in only $1, and $2 can not render more 
transportation service than $1 did before? How are you going t¢ 
prevent an increase of rates, regardless of conditions on the whole 
property, and render a return of not less than 6 per cent on property 
or on improvements made by the railroads when the capital account 
for the same amount ot facilities is more than double? 

Mr. Jounston. Why, Judge Sims, of course, that is a mere ques 
tion of cost, and, of course, the shipping public has protested, and | 
think they are sincere in it, as a general proposition, that they are 
willing to pay the cost of transportation whatever it is, and we ait 











RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1057 







10w asking Congress to lay down a program which will remove any 
suspicion that the trarisportation service is getting inordinate re- 
‘urns. We think that if you accompany a reasonable assurance of 
‘eturn for the new money, whatever it costs and it must go in at cost, 
‘with a limitation on earnings, that at the next hearing for an increase 
‘n rates instead of having five pages of names of protesting shippers, 
‘with a tremendous mobilization against any readjustment of these 
‘ievels, however inevitable it is that there must be some readjustment, 
‘you won’t force the carriers and the management of the carriers and 
the shipping public into this unnecessary attitude of antagonism or 
leave the commission under this unnecessary state of suspicion as to 
‘what will occur if it makes reasonable readjustments, and we urge 
‘that Congress not turn these properties back—not discharge these 
deretofore warring interests with an admonition to continue their 
warfare; but we do urge you to make it possible for them to proceed 
along the same channel and together work out this great problem. 
{t can not be done if you are going to force the carriers for every new 
Jollar you are going to require them to expend under this tremendous 
|pxtension of power of the Interstate Commerce Commission, to 
‘struggle in this bread line, as I have called it, before the Interstate 
Commerce Commission in year after year of unsuccessful efforts for 
veneral relief necessary to produce a revenue responsive to that new 
mvestment. 

_ Mr. Sms. Then all future improvements, assuming that for the 
ext 10 years they will cost double, will have no relation, or not an 
equal corresponding relation, to the rates of freight charged to the 
extent that it is moved or carried by this new investment. 

Mr. Jounsron. It goes on the books at just what is costs. if itis | 
$1.40 compared with $1 in 1916, or $2, 1t goes on the books at $2. 
When these insurance companies invest trust funds that represent 
the fortunes and the happiness of 40,000,000 people of the United 
States, their investments should not be impaired in order to produce 
transportation, and if these investors are, to be invited to put new 
money into this enterprise it certainly should go in there with an 
Ipportunity to earn a reasonable return, when you are assured that 
t will not earn over a reasonable return upon the basis on which we 
wre asking this matter to be settled. 

_ Mr. Sots. But you are increasing capital liabilities out of all pro- 
portion to the increase of actual property. 

| Mr. Jounston. To the increase compared with what? Compared 
with what it was in 1907, yes; but it is actually what that property 
's worth to-day. Otherwise, the commission would not allow it to 
0 upon the books, because they are to scrutinize first the security or 
irst the purpose of the proposed issue, and then they scrutinize its 
xxpenditure, and then if they put it down on the books on a different 
oasis from that which it actually cost, the man that made that entry 
‘ssubject to prosecution, because the commission has admonished the 
accounting forces, as I understand it, that they can not take the 
‘nstructions of an executive, but are directly responsible for the way 
n which they put these items upon their accounts. 

Mr. Sms. Mr. Johnston, I had no reference to fraud in the accounts. 
Tam presuming that the money is actually spent, but can an engine 
sosting $100,000 carry twice as much property as one costing $50,000 ? 
_ Mr. Jonnsron. No; but it-is entitled to ¢ouble the return in esti- 
‘Mating transportation cost. 





















1058 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Sims. That is, the persons who made the investment in the 
engine, of course, morally would be entitled to a fair return upon the 
investment ? 

Mr. Jonunston. Certainly, sir. 

Mr. Sims. But what I am talking about is that it necessitates and 
will bring about a pyramiding of “capitalization in excess of pyra- 
miding the service rendered. Of course, if an engine costing $100, 000 
can render more service than two that cost $50, 000 each 

Mr. Jounston (interposing). It is rendering a $100,000 service 
as against a $50,000 service. The cost of the service reflecting the | 
cost of the engine is double. 

Mr. Sms. But not the movement of property or the transportation, | 
and that is what the country as a whole must have. | 





Mr. Jounston. And must pay for. 

Mr. Sims (continuing). Or else go into a state ofcommercial de- 
cline through lack of development. 

Mr. Jonnsron. If they do not get the $100,000 engine, they will 
go into a state of commercial decline very much more rapidly than_ 
if they get the $100,000 engine and pay a corresponding cost for 
the service rendered by that engine. 





Mr. Barxuey. Mr. Johnston, suppose within a certain number of 
years the railroads as a whole should invest $1,000,000,000, $500,- 
000,000 of it being for replacement and $500,000, 000 for new equip- 
ment. Would the 6 per cent that you advocate be based upon the 
total $1,000,000,000 or only upon the $500,000,000 for new e que 
figuring the $500, 000,000 for replacement just as if it ned been 
substituted for pro erty already existing ? 

Mr. JOHNSTON. Lanse that with considerable diffidence because 
it involves an accounting matter which I state, subject to correction,” 
I will have it verified and if I find I am in any sense erroneous, will” 
correct it, My understanding is that replacements which are) 
strictly replacements are charged against operation. It is mainte- 
nance, and it does not affect the property account at all. As I ma 


G 


fi 


some time ago, if a tie cost 25 cents under the 1907 basis and was put 
in at $1 as a renewal or replacement of an existing item in the road 
and equipment account, it does not change that account in any” 
particular. 1 

Mr. Barxiey. And the 6 per cent then would be based upon the 
old account. f 

Mr. Jounston. Necessarily so. ; 


Mr. Barxuey. Just as if the new property had not been put inj 


as a replacement ? ; 
Mr. Jounston. That is my understanding. 
Mr. Barxury. But all additions that are charged to new equipment 


would form a basis for the estimation of this 6 per cent return =) 
you advocate ? 

Mr. Jonnston. That is correct. : 

Mr. Winstow. Will you check that up with your accounting dad 
partment, please. 

Mr. Jonnston. I will be very glad to do that. 

(The committee thereupon took a recess until 2 o’clock p. m.) 





RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1059 
AFTERNOON SESSION. 


At;the expiration of the recess the committee resumed its session. 
The CHarrMAn. The committee will come to order. 
“It has been arranged to have Mr. Beach take the stand at this 
ime so that he can be released. I will state to Mr. Johnston that 
he appearance of Mr. Beach at this time will not interrupt his 
estimony as it will be printed in the record. 

Mr. Jounston. I am-very glad to know that. 

The Cuarrman. We will now have Mr. Johnston resume his 
tatement. 


ITATEMENT OF MR. FORNEY JOHNSTON, ADVISORY COUN- 
SEL FOR THE NATIONAL ASSOCIATION OF OWNERS OF 
RAILROAD SECURITIES, BIRMINGHAM, ALA.—Resumed. 


The CuarrMan. You had reached the point where you were to 
sresent the features of the bill? 

Mr. Jonnston. Take up the bill; yes, sir. Have the members of 
he committee copies of the bill which have ink notations on the 
yaracraphs so that they can more easily refer to them ? 

The CuarrMan. I think we have. 

Mr. Jonnston. Taking up, first, section 1, that of course provides 
hat the United States should be divided into rate-making districts. 
That involves nothing novel or necessary to discuss. 

Paragraph 2 of section 1 provides for the allocation of railroads 
cording to the discretion of the commission in order to work out 
he results intended. | 

The third paragraph has reference to the establishment of rate 
evels which we have discussed. We have already stated, referring 
0 paragraph 38, that the rate level should not be less than 6 per cent 
© such greater rate of return as the commission may find to be 
easonable and necessary in the public interest in commerce. That 
evel would have produced a net rate of return of 54 per cent on the 
Jass 1 railroads if that level had been in effect in the 3-year prewar 
yeriod—after the recapture of excess earnings from sundry carriers. 

Paragraph 4 defines the property investment account. I might 
ay at this point that all of these provisions are very much more 
xtensive than they would be if prepared as usual by Members of 
Jongress. There has been so much misapprehension as to what the 
roposals of the association were that it has been necessary to make 
t perfectly plain by a very careful statement and restatement, if 
1ecessary, in the bill both as to what it does propose to accomplish 
ind what it,does not propose to accomplish. So, we define the 
wroperty investment account. You will observe that all the defini- 
ions which follow make use of the terms of the Interstate Commerce 
Jommission- The accounting items enumerated in defining pEeR ay 
nyestment account on which the rate level is to be computed include 
1othing for working capital and nothing for material and supplies; 
t does not provide for any return whatever on these large accumu- 
ating items. My information is that materials and supplies will 
tmount to four or five hundred million dollars and that the net 
yalance between the liquid assets and current liabilities of these rail- 
‘oads, which constitutes their necessary working capital, will amount 


1060 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 

to several hundred million dollars more. So we are setting up a 
factor for rate making which takes no account of and makes no 
return upon this tremendous sum necessary for the operation of the 
railroads. 

How does the Plumb plan treat that delicate subject? It pro- 
poses a corporation which has no capital, but brains, we are told. 
Obviously, brains can employ capital to run a railroad, but they 
can not run it without capital to go along and, as it were, to lubricate 
the brains. The Plumb bill provides that the Secretary of the 
Treasury shall do all things necessary to carry the plan into effect 
and the institution that is to operate the roads shall make use of the 
funds placed in its hands for the purposes stated. Obviously, there 
is intended the right to receive unlimited capital from the Treasur 
of the United States for use as working capital. We say that there 
is no estimate in the Plumb bill for a return upon that working 
capital or even if there were, we take it that any plan for the opera- 
tion of the railroads would require funds necessary to perform the 
transportation service, which would amount to $500,000,000 or 
$1,000,000,000 without stopping to refer to the statement. 

Mr. Barktey. The bill does not say the Secretary of the Treasury, 
but uses the word ‘‘President’’ can do all that is necessary to carry 
out the act. 

Mr. Jounston. I thought it was the Secretary of the Treasury. 

Mr. Barxey. It is the President. 

Mr. Jounston. I am glad to be corrected on that. 

Beginning with the first new paragraph, numbered 6, on page 4of 
the bill, and the succeeding paragraphs, they define ‘‘net railway 
income’’ as used in this proposal. Those terms were very well settled 
in their meaning, as expressed in all.of the great rate advance cases, 
but we thought it necessary to set them out, so that there could be 
no confusion in anyone’s mind as to what was meant by ‘‘net railway 
operating income.’’ I think they are not subject to any comment. 

The CuarrmMan. It follows the accounting system authorized by 
the Interstate Commerce Commission ? 

Mr. Jounston. That is it. It follows it exactly. The fifth new 
paragraph, on page 4, which is numbered 10, asserts a fundamental 
principle, and if the committee will indulge me, I will read that: 

It being impracticable to establish a level of uniform rates and charges within com- 
petitive areas which will sustain sundry carriers indispensable to the communities 
served by them, without enabling more favorably situated carriers to receive revenué 
from such rates, negligibly as to each service but in the aggregate substantially and 
unreasonably in excess of the aggregate over a fair return upon its property, unless 
regulated in the interest of the commerce of the United States as a whole, it is hereby 
provided that, subject to the exceptions and conditions of this act, no carrier subject 
to the provisions of this act shall be authorized to receive and retain for the trans- 
portation services rendered such proportion of the rates and charges collected by it 
as ped yield in the aggregate more than a reasonable return upon its property invest- 
ment. 

That is necessary to avoid the criticism so widely circulated, suéh 
as in the recent statement of Judge Lovett, that once an earning 
under a lawful rate has been covered into the treasury of a carrier, 
it is immune from recapture except through processes of taxation. 

That is perfectly true, if it is put into the treasury free from any 
lien or any right that makes the receiving of that revenue conditional. 
I think that the Supreme Court of the United States, in the Sinking 





RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1061 


Fund Cases, where the effort was made by statute to apply a surplus: 
already accumulated in the road’s treasury to a sinking fund to pay 
‘the obligations of the roads under inquiry to the United States, 
distinguished between income and property which had been covered 
into the surplus of those carriers in the past, and the right of the 
United States to control that surplus in the future and make it 
‘responsive to the obligations of the carrier. 

| _Now we say here, beginning with the adoption of this program,. 
that every rate and every dollar that goes into the treasury of these 
carriers goes in conditionally; that this level was not made to suit the 
necessities of the more affluent carriers—and in the use of that word I 
follow the terminology of the Interstate Commerce Commission.. 
The level was not established because that particular carrier had any 
right to any such level, because it was unnecessary to raise that level 
‘to enable it to earn a reasonable return or to perform its public 
functions. On the contrary, Congress, in order to protect and pre- 
serve transportation as a whole, lifted that level to take care of more 
necessitous carriers. Obviously the earnings pressure resulting 
{trom the lifting of the rate is a contribution by the public through 
Congress to the more affluent carrier in excess of their reasonable 
necessities and their reasonable revenue, which Congress can say 
‘“‘we pay over to you conditionally, and impress it with a trust in 
favor of transportation, and subject to recapture by the United 
‘States when your operations shall have demonstrated that these rates: 
‘constituted more than was necessary to work out a fair return upon 
the investment.”’ 

Mr. MontacuE. Is it your contention that that is necessary in 
order to regulate the commerce of the country ? 

Mr. JonnsTon. Obviously, sir; that there is no other human method 
which is possible, or which can be devised, which will permit the Inter- 
state Commerce Commission or Congress to meet the existing situation 
With the Baltimore & Ohio not earning its operating expenses, with 
the Union Pacific earning 130 per cent of its standard return, and 

with that sort of disparity of results in almost every region of the 
United States—take the Southern region, and we find, as | recall, the 
Southern Railway operating upon about 25 per cent of its standard 
return, and the Coast Line earning about 78 per cent. When Congress: 
asks the Interstate Commerce Commission to deal with that situation, 
it puts up an impossibility to the Interstate Commerce Commission just 
asit has put up an impossibility to the Interstate Commerce Commission 
‘in the past, and every effort to work out a level of rates that will enable 
both of these classes of carriers to survive will encounter the old 
objection that if any lift in rates is made, it will produce, as was said. 
in the 15 per cent case, the echoes of which have not yet died out, in. 
ordinary revenue for the affluent railroad. It is urged, in effect: 
“Why increase rates when the Lackawanna is already earning more 
than necessary for it to earn a reasonable return? It is very pros- 
erous; you come here chained together, walking step by step; there- 
‘fore you can not have relief, although you can not get in any other 
way.” : 
iP the affluent carrier says, ‘‘I won’t join you in a violation of the 
‘Sherman Act and advance rates and file our new schedules establish- 
‘Ing advanced rates,’”’ then a more needy competitor can not come into 
‘court and ask any advance at all, because if it did, the result would 
\be that all traffic would go over the line having the lower rate. 






















1062 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


So we say it is impossible to fix any level of rates that will enable 
transportation as a whole to be sustained without working out this 
process for the recapture of excess earnings. ‘The commission, no 
matter how formidable the language that you put in there, knows that 
it can not fix reasonable rates which will not make an extraordinary 
surplus for the affluent carrier, and I do not think the Congress has 
any right to expect the Interstate Commerce Commission to commit 
suicide, and that is what it would amount to. 

Mr. SanpeErs of Indiana. Is it not the effect of this provision which 
you have just read to establish two standards of rate fixing? You 
establish one standard by statute, and then you provide that the 
strong carriers shall collect that, and that they may, in the event o 
receiving a large profit, keep one-third of the earnings. That is the 
statutory standard. 

Mr. JoHnsToNn. Yes. 

Mr. Sanpers of Indiana. Now, in the provision which you have 
read here, the carrier can not keep any more than what is a reason- 
able return, and that is entirely an indefinite and intangible thing, 
subject to change by the commission. 

Mr. Jounston. It is. 

Mr. Sanpers of Indiana. And of course the commission has always 
been limited in fixing rates, so that it could not provide such rates as 
would not yield.a reasonable return, and this is a hard and fast rule 
that the carrier, no matter how splendid its work, could only keep that 
amount. In other words, is this not fixing the whole constitutional 
standard as the minimum ? é 

Mr. JoHnsTon. That would be an absolutely unanswerable sugges- 
tion if it were not for the succeeding section and for our full recogni- 
tion of the fact that it is not within the province of Congress to say 
finally what a reasonable return is. That is a question for the courts. 
We say that, prima facie, 6 per cent on property is a reasonable return, 
eliminating now from consideration the rate level and dealing with 
the question as to how much of the rates produced by that level each 
carrier can retain, which is an entirely different proposition. We 
think that you must fix the rate level at such a level which will sustain 
transportation as a whole in exerting your power under the commerce 
clause, but-your policy as to how much of the resultant of that level 
you are to permit each carrier to retain, is a different question, and 
not necessarily to be worked out on the same figure. You might 
set up 7 per cent, but we make it flexible, and we say that, prima facie, 
6 per cent plus one-third of the excess over 6, is the maximum reason- 
able rate of return, but we know that Congress can not lay that down 
absolutely, so we say that any carrier has the right at any time to 
have recourse to the commission and to the courts in cases within 
their respective jurisdiction, to demonstrate that the prima facie 
reasonable rate of return of 6 plus one-third of the return over 6, 
is not reasonable, and that it is entitled to retain a larger part of its” 
excess earnings. 

Mr. Sanpvers of Indiana. I understand that. 

' Mr. Jounston. Does not that answer the suggestion ? 

Mr. Sanpers of Indiana. No;itis not clear tomy mind. Now, you 
say here, ‘‘It is hereby provided, that subject to the exceptions and 
conditions of this act’’—is that phrase that you mean 

Mr. JoHNSTON. Yes. 





RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1063 
~ Mr. Sanpers of Indiana. ‘‘No carrier subject to the provisions of 
this act shall be authorized to receive and retain for the transportation ~ 
services rendered such proportion of the rates and charges collected 
by it as may yield in the aggregate more than a reasonable return upon 
its property investment.” 3 
You think that standard is qualified by the subsequent standard 
which permits retention of one-third ? 

Mr. JoHNSTON. Yes; it does, and it is necessarily so. 

Mr. SAnveERs of Indiana. All right. 

Mr. Jounsron. And for that reason J think there have been some 
doubtful suggestions in other plans suggested to Congress which 
attempt to fix an absolute restriction upon the-earnings of carriers. 
Now we concede that that can be done as a push off, as a prima facie 
proposition, but there is no power in Congress to define the absolute 
maximum right of return on the part of the carriers. The courts 
must be open to determine whether Congress has put an arbitrary 
restriction, and for that reason we make it flexible, and therefore we 
think constitutional. 

' And that, I believe, answers the inquiry that Mr. Winslow pro- 
pounded yesterday, to the effect that when stock—you may call it 
stock, but under our plan it is investment in the property account— 
of, say, a million dollars par value, was demonstrating an obvious 
earning value of more than that, whether or not the Supreme Court 
will treat earnings in the past as the basis for determining value. 

_ I think that the right of property to earn a return should be based 
on a reasonable rate system, regulatory system, such system as is 
necessary to sustain transportation as a whole, and that the property 
of these affluent carriers should be translated to that system in deter- 
mining the value on which it is entitled to a constitutional return. 

But for that reason it does not necessarily follow that because 
some of them have earned 26 and 30 per cent in the past, they should 
be permitted to capitalize that earning value in establishing their 
constitutional earning power before the commission or before the 
courts. We have given full consideration to that, and I think that 
we have protected it so that this bill may not encounter any con- 
stitutional objections upon the propositions which we are putting 
forward. 

I think it is proper to suggest that we believe that in this time of 
imminent crisis it would be disastrous if doubtful constitutional 
theories or plans involving many years to work out valuations or 
condemnations or consolidations, compulsory consolidations, were 
seriously urged. Any equation of that kind would be merely leaving 
the railroad situation in chaos, and it is for that reason that we have 
found it absolutely obligatory, in making any recommendations, 
earnestly to suggest to Congress that they take the existing agencies 
of transportation as they now stand, and proceed with the regulatory 
power of Congress directed upon those existing agencies, rather than 
expect that the sun is going to stand still for the 10 years while we 
work out these condemnations and the refunding of the railway 
investments with its billions of dollars. 
And it is for that reason that we have tried to suggest a simple 
plan which, if adopted, does not make impossible the subsequent 
adoption of Mr. Plumb’s plan or of anybody else’s plan for con- 
solidation or absorption or otherwise; but, on the contrary, if any of 


1064 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


those suggestions are once entered upon, the Sixty-sixth Congrees will 
have set in motion a force which can never be stopped, and will 
have taken a step which can never be retraced. 

Mr. Sims. Mr. Chairman, may I ask the gentleman a question? — 

The CuarrMan. Yes. 

Mr. Sims. Now take one of these prosperous roads that will earn 
more than 6 per cent and more than the 7 per cent—8 or 10. Now 
the service is compulsory on the part of that road; it must accept all 
the traffic offered, and it must accept it at the rates fixed by the 
rate-making body. 

Mr. JOHNSTON. Yes. : z 

Mr. Sims. But it is unlawful for them to retain the proceeds of 
that service, which is exactly in proportion to the service rendered 
by any other railroad which carries it the same number of miles. 
Then you propose to make it unlawful for the roads to retain over 
and above a certain amount, and also make it unlawful for them not 
to earn the excess. They must take the traffic, the traffic which 
makes the excess, and it 1s unlawful to keep the fruit of that which 
by law they are compelled to do. 

Mr. Jounston. I think your definition of the word “‘unlawful”’ is 
not proper. 

Mr. Smus. Not authorized by law. 

Mr. Jonunston. I do not think so at all. I think Congress says to 
these railroads that ‘“‘ We find it necessary to establish a level of rates 
which you are not entitled to on your individual case, in order to 
sustain transportation.”” If you do not concede that Congress has 
the right to say that, then the power to regulate commerce might 
as well be stricken out of the Constitution. If you can not exert 
the only process, if you can not give effect to the only process to 
enable Congress to regulate commerce and sustain it as an existing 
agency for the public, then there is nothing in the commerce clause, 
For that carrier is admonished that ‘‘We have, without reference to 
your necessities, and over and above your necessities, either to give’ 
you a reasonable return or to enable you to render the public service: 
which you have assumed; we are voluntarily giving you revenue’ 
which you have no constitutional or other right to retain. You! 
receive that conditionally, and in order to be certain that you haye’ 
gotten adequate results we wait until the year’s operations are con- 
cluded, and then we measure your reasonable return by the results,’ 
instead of trying to guess in advance what will be a reasonable rate’ 
for you to receive.”’ 

Instead of using the inch measure of each separate rate, we use 
the result measure, which is absolute in its accuracy; the other is a 
mere prophecy. We have been making rates by piecemeal, based 
on the prophetic idea as to what will result, and it has been established 
in the very great rate-advance cases that the Interstate Commerce 
Commission has always guessed wrong. They thought in 1910 that 
there was no reason for advance in rates, and the income ratio dropped 
from 5.86 in 1910 to 4.12 in 1914, until it was seen that the bottom 
was dropping out, and then they found that their optimism had 
been erroneous, and then granted more general relief. 

The CuarrMan. You realize in 1914 war intervened, which, of 
course, knocked out all prophecies ? | | 





RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1065 | 


_ Mr. Jonnston. But it was 4.92 in 1911 and 4.69 in 1912—a little 
more in 1913. Beginning with 1917, with the rate-increase case of 
1917, we found the same profound state of optimism in March, or 
‘ather in June, when the opinion was rendered, and it said that the 
ncome ratéo for the year would surely equal 5.81. Partial and 
nadequate relief was granted, and in a short while it was found that 
nore general relief had to be given. In other words, it is difficult 
io secure relief from the commission, because of its great reluctance 
30 rate advances, with which I sympathize, because I see that under 
the existing system it is impossible for the commission to take any 
shance on giving too much revenue to some of the carriers under 
any rate level that would keep other roads out of bankruptcy. 

_ I can understand the extreme hesitation that they would have in 
baking any chances; and it is for that reason that the commission 
nas always failed to meet squarely the situation, as was well illus- 
trated in the July, 1914, case, where they say: ‘‘We can not give relief 
a0w, we will wait and see,’ and one reason assigned for denial of 
relief was because the property investment account for the fiscal 
year preceding had not been filed, showing its importance as a factor 
in determining the necessity for increase in revenue; yet in Decem- 
ber they saw that the conditions on which a denial of general relief 
had been based had not been properly hypothesized. It is that 
process of reluctant scrutiny and grudging relief that was referred 
to as the month by month and purely statistical reluctance on the 
part of the majority of the commission, which was criticized by one 
of the dissenting commissioners in the 1917 case as being wholly 
imadequate. ‘‘We are facing a much larger problem and it must 
be approached in a much broader way.”’ 

We think that the removable of the indefensible results feared by 
the commission in relation to the possibility of excessive earnings will 
Jo away with constant depressing factor in the railway situation, 
and when we lay that possibility of excess earnings on the table 
before Congress and say ‘‘We surrender this ancient prerogative, 
because we realize that it is necessary to surrender that in order to 
preserve the system of transportation in a sound condition;” when we 
surrender any hope of excessive return, of speculative return, trans- 
ferring the whole railway investment from the pioneer and from the 
adventurous investor to the class represented by Mr. Beach, where 
solidity and safety is the necessary criterion, incidentally reducing 
naterially the money cost charged against transportation, we say 
that this recognition and concession should be accompanied by this 
reasonable assurance, worked out through a minimum rate level. 

Mr. Simms. Mr. Johnston, if I understand you, and I am anxious to 
understand you, you mean that if a prosperous road is limited to the 
sarnings mentioned in this bill, not exceeding 63 per cent on its 
property investment account, but by giving an unusually good sery- 
ce, it attracts an increased amount of traffic and passengers, and 
therefore if it can get over and above the amount prescribed it will 
make an extraordinary income as against the competing line for the 
same service, but whenever you limit this income of what it may get 
gut of the work it does and the service it renders to an arbitrary 
amount, you will reduce its efficiency exactly in proportion to the 
reduced inducement; is not that natural to suppose that such a thing 
will happen ? 


™~ 
1066 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Jonnston. We think there would be enough of the excess 
over 6 per cent left with the carrier to stimulate its energy. If 
Congress thinks that one-third is too small a proportion, we would 
welcome its expression of policy to that effect. We have presented 
ourselves here in the attitude of suggesting what I repeatedly said 
this morning is the irreducible minimum. If in your judgment you 
consider that amount to be inadequate, we would be glad to see 
Congress make it more than one-third, and that is a matter in which’ 
we do not in any sense attempt to lay down a fixed measure of 
distribution for Congress. It is for you to say whether one-third 
or one-half or three-fourths is necessary to continue this incentive. 
We present the principle and make the statement that any level less’ 
than 6 per cent, with a net reduction to 54 per cent remaining in the 
treasury of the carriers, would be destructive to transportation. | 

Mr. Sms. | can not find any reason or any justification for taking 
all over one-third or all over two-thirds, providing the company 
rendering proper service under law, under regulation, and not being 
permitted to refuse to accept traffic, and by compulsion that they 
are compelled to earn a revenue which they are not permitted to 
retain the fruits and benefits of, growing out of the compulsory 
service. 

« Mr. Denison. Don’t we do that in the excess profits tax now? — 

Mr. JonnsSTOoN. You do that certainly with the excess profits taxes, 
and there has been no suggestion in any of these excess profits tax 
programs with which I am familiar that infringes on a reasonable 
return at the outset, which is left exempt from excess profit taxation. 
It is 8 per cent now, is it, or 10, the part that is immune? 3 

The CHarrMaAn. Eight. | 

Mr. Jonnston. Hight. Now, we can not see why there should not 
be a certain immunity to railway investment which you have recog- 
nized in the application of your tax system. We place this immunity 
at 6 per cent. 

Mr. Sims. Don’t you think if the excess profits have reached a 
point where it takes all that the industry earns over and above that, 
that the industry has ceased to earn it? 

Mr. Jonnston. Yes, [ do; but I think you go just as far as possible 
with your tax schedules before you get to the point of taking all of 
the profit. You do not get to the point of a tax of 663 per cent, 
which we start off with the railroads at the 6 per cent level, until the” 
earnings are enormous; so the basis of reduction upon earnings” 
worked by our proposal is very much more drastic than the schedule: 
of excess profit taxation. Yet the plan fully recognized the principle 
of incentive. | | 

Mr. Sanpers of Indiana. Under that plan, it would always be am 
incentive to the strong road, because it is a percentage and not a 
exact amount ? 5 

Mr. Jounston. That is it, exactly. 

Mr. Sanpers of Indiana. And they would always receive at least 
one-third of what they earned ? i- 

Mr. Jounstron. Yes, at least one-third of all excess over and above 
the 6 per cent. [ 

Mr. Montacur. Let me see if I understand you, Mr. Johnston, 
what you mean by “irreducible minimum.” You mean an irredu- 
cible minimum as applied to the entire commerce of the country? — 
























Ci) 
4 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1067 


Mr. Jonnston. That is it. 

Mr. Monraaus. As a unit? 

Mr. Jounston. That is it exactly. 

_ Mr. Monracur. And in that unit there are various factors, and 
none of them can be efficient unless they earn the amount which you 
put as an irreducible minimum ? 

_ Mr. Jonnston. As a whole. 

Mr. Montacusn. As a whole, and that it is essential to the com- 
merce of the country that they should do that, or you can not regu- 
late the commerce of the country ? 

Mr. Jounston. That is it exactly. 

Mr. Montacur. But above that, it is not essential, but in order 

to encourage greater efficiency you do give them a percentage of the 
return ? 
_ Mr. Jonnston. That is it exactly. Instead of asking the Congress 
to begin the division of the excess at 7, 8, 9, or 10 per cent, we took 
the minimum, we began dividing it at 6. We have been very much 
criticized for that. That is a matter of wise policy for Congress 
to determine, whether we start the division too low, whether the roads 
ought not to be permitted to retain 7 per cent before they begin to 
divide with the Government. That is a detail. We have not felt 
it met the necessities of the situation or our grave public duty to 
come before Congress on a trading basis. We have frankly said 
that unless you adopt this 6 per cent level, which will produce 54 
per cent as a whole and only 3.84 on a very large number of the car- 
tiers—some half of the class one railroads of the United States— 
you will destroy the railroad transportation system, and all that you 
feel to be within your discretion in sustaining the country’s under 
the broad injunction of the commerce clause, over apd above that 
minimum is a matter for you to consider. It is not one for us to 
some and say that ‘if you go lower than that, you will destroy us”’ 
if a higher level is under discussion 

Now, to disavow the general impression that the press has not 
seemed to be able to get rid of—certainly not in its headlines, when 
they speak of a 6 per cent guarantee—we have set up this clause at 
the bottom of page 4, that provides— 

Nothing in this act contaified shall be construed as requiring the commission to 
agtablish rates or levels of rates which will enable all carriers subject to the act to earn 
} per centum per annum of their respective property investments, or as asserting that 
any carrier is entitled to more than a reasonable rate of return for each service per- 
formed, notwithstanding that the aggregate of such returns may not produce net operat- 
ing income equivalent to 6 per centum on the property investment; but the commis- 
sion is hereby directed to establish and maintain from time to time rate structures 1n 
the several regions that will enable the railroad carriers in each region, as a whole, to 
sar an ageregate net operating income equal to not less than 6 per centum upon their 
2ombined property investment accounts, such aggregate rate of return-being hereby 
. hee the minimum required by the carriers, as a whole, to sustain their credit 
wd service. 


We think that is a definite rule for rate making. We do not think 
that the general recommendation to the commission to give due 
regard to operating cost changes in the slightest particular the situa- 
tion as it exists and has existed, and existed to bring about the 
present situation. It is more a criticism of the Interstate Commerce 
Commission. 


f 


1068 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Commissioner Clark was very frank to say that 1t would not change 
their rule in the slightest particular, or that it would not change their 
rule at all, to quote him accurately, if I recall his language; that they 
‘had always given due consideration to these matters. 

So that if you put that into the act, it will merely embody a sus- 
picion on the part of Congress that they have not given consideration — 
to the cost of labor and materials in determinmg reasonable rates 
although the Constitution had been thundering that for over a 
hundred years. It does not change the situation in any sense; it is 
not a definite rule for rate making and does not set up that margin of 
safety before you run into the fifth amendment and its prohibition’ 
against confiscation, which we think it necessary to sustain transpor- 
tation in this crisis. 

Mr. Monracue. Do you call this mandatory or directory ? 

Mr. Jounston. That undoubtedly would be mandatory, to the 
extent that it would be practicable. The plan proposes that the 
6 per cent level shall be maintained as nearly as practicable—‘‘as 
nearly as may be.” To that extent it is mandatory. Net operating 
income of 6 per cent upon the average property investment during 
the prewar three-year period amounted to approximately $1,030,- 
000,000, as I recall the figures. We know that the commission can_ 
not set up that objective and produce exactly one billion and thirty 
million, as Commissioner Clark seemed to thmk would be obligatory 
under this policy. He says that it is impossible, that the condition of” 
crops, the density of traffic makes it impossible to forecast a certain 
return. We do not require that. We say that certainly the com- 
‘mission can adjust its sights to a practical standpoint. 

There has never been any criticism of the commission as to its 
power to adjust or readjust rates, and I am certain that Commissioner 
Clark does not intend to come before this cémmittee and suggest 
that if the Railroad Administration sees fit to grant an imcrease in 
wages, $800,000,000 or $400,000,000, that they can not produce the 
necessary revenue to meet that expense; and when anyone attempts 
to say that the commission could not so readjust rates as to meet 
the increase in cost of wages or any other increasing item, it is merely 
to admit that the Interstate Commerce Commission can not make 
rates that will render a fair return upon the property. 

And how in the name of all that is reasonable can the Interstate 
Commerce Commission produce a reasonable return on property 
investment which the Gaiatiaton requires when that reasonable 
return is a matter of discretion, and is not fixed, if they can not 
produce a reasonable return that is definitely fixed by the act? | 
can not conceive how it is possible to use an indeterminate objective 
such as ‘‘reasonable return” and produce definite results, when they 
can not take a determinate factor such as a statutory 6 per cent 
Jevel and produce a definite result. > 

Mr. Montaaun. You then think the Interstate Commerce Com-+ 
mission has discretion to exercise that mandatory command ? | 

Mr. Jonnsron. It is not so much a discretion as that they are 
instructed to use their best judgment in producing a given result; 
and where they are given a definite objective we have the greatest 
eonfidence in the ability of the commission to reach that objective, 

ind in their endeavor to carry out any instruction from Congress. _ 

Mr. Montacun. You think you could mandamus them to comply 
“with the mandate ? | 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1069 
_ Mr. Jonnstron. Well, I think that would come within the ordinary 
orocesses of appeal, just as you can go into court now, if they destroy 
you with a rate that they set up, as being confiscatory under the 
ifth amendment. I think there would be an appeal from the com- 
nission if they plainly set up a rate level which was in violation of 
their instructions from Congress, to whom they are responsible. 
{t would be simply an administrative question, and we have not the 
slightest doubt of the Commission’s carrying out the admonitions of 
Jongress in that particular. 
_ The fourteenth paragraph provides that the commission shall pre- 
scribe reasonable rules and regulations for the determination, recap- 
jure and application in the public interest of the earnings of the 
‘espective carriers subject to this act in excess of the allowances to 
se permitted under the conditions provided herein. That is, in 
iddition to the standard return of 6 per cent. 
Now, I think that answers completely Commissioner Clark’s 
hhoughtful inquiry and suggestion to the committee that there exists 
i certain discretion in management as to what operating expenses 
are, and he doubted, to some extent, I believe, whether that would 
10t work out a diversity in results with different carriers. 

Now, certainly the commission, if it saw fit to lay down and pre- 
scribe the ratio of depreciation, of maintenance, or to enter into the 
nore intimate control of the accounts of the carriers in establishing 
ihis policy, could require uniformity or prescribe regulations, and if 
any railroad exceeded the ratio for maintenance and depreciation, 
yr other expense permitted by the commission, of course it could 
ise its own surplus to do anything that it wants to that is proper, 
yut it would be in the same situation as a taxpayer now is under the 
ncome-tax laws when he gives a bonus, or as a corporation when it 
tives a, bonus to its executive officers or other employees. Congress 
loes not say that it shall not give that bonus, but it says that it shall 
lot treat that bonus as an expense of doing business and that it can 
10t pay bonus out of the money due the United States. It can pay 
t out of its own part that it is entitled to retain, and, in the same 
vay, if the carriers should exceed the rules and regulations that the 
sommission may prescribe, they might do it out of their own portion 
# the fund that they are entitled to receive. 

Paragraph 15 prescribes that whenever two or more carriers are 
mited or owned in one interest through the ownership by one of 90 
der cent or more of the stock of the other or others, or are combined 
ir consolidated as authorized by this act or otherwise, they shall be 
onsidered and treated as one carrier in applying the provision of 
his section as to excess earnings and their accounts combined if 
hey report separately to the commission. — 

Under the sixteenth paragraph if is provided: 

The process of recapture is hereinafter referred to as excess-earnings reduction. The 
und so produced is referred to as the excess-earnings fund. The rate of reasonable 
turn upon property investment account, whether 6 per cent per annum, as 
‘xed generally by this act, or whether established at a greater rate aiter hearing at 
‘he instance of any particular carrier or carriers, will be referred to in this act as the 
‘tandard return. 

’ Then we provide that the carrier shall retain one-third of the 
‘xcess. We have been very severely criticized for a savage reduc- 
ion of the affluent carriers’ earnings for not making provision for 


152894—19—vot 1 68 





~~ 


1070 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


unexpected contingencies. We think that contingency is fully taken 
care of by the eighteenth paragraph, which is at the bottom of page 
5. Wesay: 

In addition to such one-third carriers receiving excess earnings may be permitted, 
under the direction of and in accordance with regulations to be prescribed by the 
commission and when and to the extent found desirable in the public interest, to 
set up and maintain on their books, before the excess-earnings reduction shall apply, 
such corporate reserves as a margin of safety for the protection of their credit and against 
years of subnormal volume of traffic, or for working capital, or for unproductive im- 
provements, or otherwise in the public interest, in assisting in the sound financing 
or efficiency of such carrier as may be found desirable by the commission, but not to 
be capitalized for determining rate levels or standard return. 


That, of course, would be subject in all respects to the regulation of 
the commission, and we think fully meets the question of stabilizing 
their returns in years of Sabaseinlceite and that the proposals are 
not subject to the criticisms mentioned. | 

The succeeding clause, which is paragraph 19, page 6, of section 1, 
applies the same principle to carrier losses due to acts of God. You 
will all recall, for instance, the disaster in the Ohio Valley, that 
required an expenditure by the B. & O. of some four million dollars, 
was it not? We think that is an extraordinary casualty, in the same 
class as an earthquake or other disaster likely to affect transportation 
at any point in the United States, and it would be very well to let the 
commission set up a part of the excess-earnings fund to the extent 
that it may have made allowance for such item in setting up the rate 
level necessary to produce the minimum return on the property 
investment of carriers in the several regions as a contingent fund for 
carrier losses due to the act of God. But it is necessary for us to 
show the radical distinction between this proposition which we 
advance of setting up corporate reserves on the books of the carriers 
earning an excess revenue over a reasonable return, and the process 
by which the transportation conference of the chamber of commerce 
has applied our process of excess-earnings regulation. 

The latter proposes to set up contingent funds, if I understand it 
correctly, and the carriers, in reaching toward the 6 per cent level of 
earnings, draw upon those contingent funds. To that extent it is a 
direct distribution of those funds to those carriers, and to ascertain & 
carrier’s condition it is necessary to refer to two sets of books and to 
two organizations. It is extremely complicated. We believe that 
every carrier ought to stand on its own bottom, after you have estab- 
lished a general rate level, and under the proposition that we make 
there would be set up on the books of the carrier its own reserves 
which belong to it, but which are not capitalized for the purpose of 
rate making; and it would not be necessary to go anywhere else t0 
determine that carrier’s financial situation or to speculate as to what 
the status of this contingent fund.is. We think that is a distinction 
which is along intensely practical lines and is in the direction of sim- 
plicity, and that it is in line with the effort which we have made 
throughout to avoid complexities of any kind. | 

The excess-earnings fund, paragraph 20, on page 6, we provide for 
its distribution: 

The excess earnings over the standard return and such allowances in addition thereto 
as may be authorized pursuant to this act shall be paid over by each carrier earning the 
same into the excess-earnings fund, under regulations to be prescribed by the conr 


mission, to be employed or expended under its direction in the public interest 12 
railroad transportation as herein authorized. 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1071 


And in paragraph 21 we suggest the division of one-half of the 
ccess to labor, one-half to to constitute a revolving fund, which 
ould be the special property of the United States to be adminis- 
wed, as Mr. Walter explained to you, in the purchase of what are 
dw private cars, or any other facilities of transportation, and oper- 
sed at cost, thus reducing operating expenses and providing equip- 
ent for the weak lines, for the short lines, which now have great 
ficulty in times of congestion, and which we think would constitute 
publicly owned pool of equipment on which all of the carriers could 
raw, under the administration of the Interstate Commerce Com- 
ission. 
One word with reference to this proposal as to labor. I believe, 
rough, that Mr. Walter made that perfectly clear, that this distri- 
ition should go, according to our theory, to the labor in each rate- 
aking region earning the excess. We believe that the question of 
ages should be decentralized. We can not too earnestly recom- 
end and suggest that the principle of setting up a horizontal wage 
tale all over the United States as a result of treaties arrived at in 
ie city of Washington is destructive of industrial conditions in the 
fferent sections of the country. To require the same wage scale 
_the southern territory, with its mild winters, with its lower cost 
‘living, that is set up in congested centers where conditions are 
ically different, immediately sets up a corresponding wage return 
' employees in other industries, and constitute a tax on industry in 
lose sections remote from the consuming markets, which is equiv- 
ent to an embargo upon them. 

There was a time when the Birmingham district made iron—and it 
as in 1914 and 1915—the Woodward Iron Co. made iron there for less 
ian $6 a ton, because the cost of labor was cheap. It is far removed 
om the great iron market, and needed the differential; but now the © 
ittsburgh district is able to make iron cheaper than the Birmingham 
strict, for the simple reason that the cost of materials has not 
lvanced relatively so much as the cost of labor, which has ad- 
unced with leaps and bounds, and has absorbed the differential 
hich previously existed in favor of that territory. 

That is a condition which will exist until the labor question is de- 
mtralized, as we propose it shall be, by requiring employer and em- 
Oyees to make application through the regional commissions for 
meiliation on these questions of controversy. The tendency would 
: to decentralize these disturbing issues rather than to concentrate 
here in Washington. With all of the details of that suggestion, of 
urse, you are familiar. 

There is no complication as to this revolving fund to be expended 
the public interest under the jurisdiction of the commission. We 
ggest, if it meets the approval of Congress, that this association, 
e trustees of the National Railways Association, shall have charge 
the administration of that fund as provided for generally in para- 
aph 23 on page 7, as follows: 

In the administration of such fund the commission may make use of such agencies 
itmay deem proper and may delegate so much of its ministerial functions relating 
areto as it may find expedient, subject to the supervision and direction of the com- 
ssion and to such regulations as it may prescribe in the premises; unless or until 
ne other specific body is designated by Congress for the purpose. Any misappro- 


iation of said fund or any part thereof or of any property into which the same oa 
‘converted, and any wrong, destruction, or hindrance done to any property in which 


‘ 


1072 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


it may be invested or the use thereof shall constitute an offense of the same characte 
and be punishable under the same circumstances and to the same extent as in th 
case of other moneys or properties constituting general property of the United State: 


And the succeeding paragraph confers upon the Interstate Com 
merce Commission plenary authority and power— 
to make and enforce all necessary rules and orders to carry out the purposes of thi 
act, also to make such extraordinary or horizontal rate adjustments of general applica 
tion or such adjustment applicable to any class or commodity within any State, area 
or otherwise, as it may find necessary, reasonable, and proper to sustain without inte: 
ruption or disorganization the railway commerce of the United States during the perio 
of transition following the relinquishment of Federal control or to meet any emergence) 
which may thereafter arise, or in any emergency endangering the public interest 0 
convenience or any national emergency found by it to exist, maintaining as far a 
found compatible with the public interest the general relations of rates contemplate: 
by this act; and, for the purposes stated, it may, with the consent of any carrier in 
volved, assist, direct, or conduct its operations and properties in whole or in part 
but without any liability, responsibility, or obligation upon the commission or th 
United States, other than as a charge against the operation, and may exercise suc! 
powers either directly or through any proper agency, under the direction of the com 
mission, as it may determine or as may otherwise be provided by law. 


We suggest that the commission shall, as promptly after th 
passage of the act as practicable, and in anticipation of the relin 
quishment of Federal control, prepare for the adjustment of rate 
on the general basis directed by this act, and shall inaugurate thi 
same as promptly after Federal control as the conditions warrant 
The commission is affirmatively charged with responsibility to see ti 
it that the carriers subject to this act shall be accorded rates or genera 
levels of rates in the different rate-making districts sufficient t 
enable them as a whole to earn a rate of return not less in any ever! 
in the aggregate than the standard rate of return as defined in thi 
act. 

_ Now, on page 8, paragraph 27, we suggest as an indispensabl 
necessity that the standard rental shall continue until these rat 
levels become effective. | 

I think that Commissioner Clark stated to this committee tha 
transitional remedial legislation is imperative. As I recall hi 
testimony, he said at one point that it is necessary for Congress ti 
determine the policy, whether the roads should be made self-sup 
porting or whether they should operate, and any deficit resulting |) 
paid out of the United States Treasury. He said it was impossit 
to believe that they would be self-supporting, if returned withow 
remedial legislation, if | understood him correctly. 

IT have read you the different opinion of one of the other cont 
missioners, but it is just as reasonable to expect that the dead wil 
spring to their guns on the battlefields of France as to expect thes 
railroads to be self-supporting when they are returned to their owner 
under present conditions. We believe that it is a situation whic 
will result in unparalleled disaster, unless the standard rental i 
continued until such time as the commission shall certify and fk 
with some proper authority that the rate adjustments contemplatet 
by this act have been put into effect. Of course, during that interim 
when any railroad is receiving the standard rental, we think that i 
it earns any excess over the standard rental, it should be covered imc 
the treasury, and that by applying for the continuation of the stand 
ard rental, it should agree that anything above that return shoul 
be covered into the treasury. — | | 











RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1073 


| Mr. Sms. You are of the opinion then that the standard return » 
it the standard rental that the Government is paying out of the 
/reasury, regardless of whether it is earned or not, shall continue 
ter the roads are returned until the railroads are able to make 
et a sum equal to that. Is that your idea? 

| Mr. Jonnston. Until the proposed remedial legislation is put 
‘ito effect. ; 

+ Mr. Sus. It would not be remedial unless it furnished a return 
‘yaal to that which the Government is now paying? 

| Mr. Jounston. Yes; that is very true. 

| Mr. Sims. How long a time do you think the railroads under pres- 
/1t conditions—could it reasonably be expected that they will pro- 
\ace an earning equivalent to the present standard return after they 
|re taken over ¢. 

| Mr. Jounston. Just as soon as the Interstate Commerce Commis- 
}on sets up a level of rates that will sustain transportation in America. 
| Mr. Sims. In other words, if the Interstate Commerce Commission 
jill mcrease rates immediately so that the earnings will equal the 
‘mount paid by the Government at the present time, that then the 
‘aranty would stop ? 

| Mr. Jounstron. Certainly. 

| Mr. Srrs. Then what pressure is there going to be upon the Inter- 
/ate Commerce Commission to tell it to do it, when if it will not do 
capital gets its earnings and the people who pay the freight and 
jassenger fares get a lower rate, then there would be a great amount 
|| pressure by those who have to pay the increased rates on the 
hiterstate Commerce Commission not to give those rates, because 
ley are not needed to capital and would be a charge upon the rate 



















jzyer ? 

Mr. JOHNSTON. There may be some such short-sighted policy on 
jie part of the shippers, but now the burden of that policy is on the 
jilroads and it will destroy them, and somebody is going to stand 
|, and if the commission will not carry out the mandate of Congress 
‘iat they shall put a proper rate level into effect as rapidly as con- 
| tions will permit, for Congress can not say what day it shall go into 
\fect, the railroads should not suffer. The sole question is whether 
ju will permit the commission to exercise its discretion from the 
/andpoint of the general public interest in accurately adjusting this 
(tuation, or whether you shall dump these deficits indefinitely on the 
lilroads and destroy them, either by letting these deficits be ab- 
}rbed by the railroads which would be required to sustain all of the 
ificit, and thus force their immediate bankruptcy, or whether you 
ice the same result through the other process, suggested by Com- 
jissioner Clark as possible, by loans out of the Treasury upon gilt- 
ee security. 

Now, it is unthinkable that secured loans to the railroads to meet 
erating deficits would help the situation permanently. I do not 
ink there is any proposal on the part of the employees that their 
‘eessary additional expense of living, which they say makes wage 
fereases obligatory by loans from the Government on gilt-edged 
‘curity, and | do not think transportation should be asked to meet 
ese deficits by loans from the United States Treasury on gilt- 
‘ged security. That is merely postponing the day of reckoning and 
%~ meeting the situation. 


' 
—- CO 


1074 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Sims. What is the reason it would not be a good thing for the 
country and for the owners of the railroads themselves, and for the 
public in every way, for the Government to continue to operate the 
railroads, getting all the Government makes out of them, if it makes 
anything, as long as it has got to carry the load that the railroads 
do not make under private control? Why not accept Mr. McAdoo’s 
—I believe it was approved by Mr. Hines—recommendation, for 
which | introduced a bill, that the railroads remain in the possession 
of the Government for 3 years or 5 years or some period, until the 
Government reimburses itself and the railroads get a fair return— 
then you have the condition adjusted, and it gives the public an 
opportunity to make back something already lost, as long as the 

overnment is forced to guarantee a return that you anticipate the 
railroads can not make out of the rates which you are liable to get 
out of the Interstate Commerce Commission ? 

Mr. Jounston. The only answer to that is that the American 
people are not in favor of a continuation of Government operation. 

t is conceded by all parties to be enormously expensive. To follow 
out the suggestion. that I believe you made very pertinently to Mr, 
Walter yesterday, the sooner you can get these railway companies 
restored to an efficient basis of operation, the less damage to trans- 
portation the Government or whoever has to sustain it will have to 
sustain because of the existing state of facts. 

Mr. Sms. That is on the theory that the private companies will 
operate more efficiently and more economically than they do now? 

Mr. JoHNnsTon. Certainly. Does not that answer the question? 

Mr. Sims. But Mr. Walter stated very distinctly that operating 
railroads during peace conditions is a different thing from operating 
them during war conditions. Is it not a fact that it is being shown 
that this deficit is decreasing from month to month, without increas- 
ing rates? Now, it seems to me it is the part of wisdom to let these 
practical railroad men who are in charge of the railroads, men taken 
from the railroads, and who are now reducing the deficit, to continue 
in operation of them as long as a guarantee is necessary to the holdeis 
of the securities. You represent the security holders, and the 
security holders are absolutely protected by a continuatoin of Gov- 
ernment operation, and why, from the standpoint of the security 
holders, you should want to direct every method of procedure neces- 
sary in transportation operation I can not understand. 

Mr. Jounston. Of course, the security holders think the property 
should be returned just as promptly as remedial legislation can be 
enacted, and that this anomalous situation should not be continued 
indefinitely; and because they think that the properties can be re 
established very much earlier under private operation, with adequate 
remedial legislation, than under a continuance of this situation. _ 
Mr. Smus. Is not the paying of a guarantee out of the Government 
treasury, by the taxing power, an anomalous situation ? 

Mr. JouHNsTON. Yes. 

Mr. Sims. Why do you want to continue one anomalous situation, 
when you are not willing to take the risk of another such situation—=— 
Mr. JoHnsTon. For the simple reason that the railroads are not 
responsible for the rates that are not adequate to sustain transporta- 
tion. ‘Transportation is the cheapest commodity on the market. 
As Mr. Clark said, a ton of any given commodity now buys more 





i RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1075 


transportation than at any other time or in any other country in the 
‘history of the world. That is a condition for which the railroads are 
not responsible; they are not responsible for the inadequate rate 
fabric. They are satisfied to have an adequate return, but Congress 
‘Is more concerned with excessive returns to the other pivotal indus- 
tries, and if the railroads had an adequate return they would not ask 
for guarantees or anything else. If the Interstate Commerce Com- 
mission had said, ‘‘We will produce rates that will give an adequate 
return,” it would be unnecessary to have guarantees. It is simply a 
question of policy for Congress to determine. 

Mr. Sms. I understand, as a matter of course, that the Govern- 
‘ment would have the right to increase the rates, just as the Interstate 
Commerce Commission has and the railroads themselves have; but, 
‘being operated as a unified, coordinated system now, they will be 
dissolved immediately, as soon as they go back, and the Government 
will lose several hundred million dollars if you turn them back under 
‘the plan which you yourself devised. In other words, you are not 
willing to risk private ownership at its own risk, to restore normal 
conditions, but you must have a guarantee of the return upon the 
‘property investment account. Yet, you are representing the holders 
of the securities. I can understand the executives, who are operating 
the railroads and have to produce transportation and have to take 
care of the SA le but the argument from the security holders 
does not appeal to me, to have any moral force behind it. The 
‘rights of the security holders are already secured by the property 
‘itself, and I can not see what interest they have in the policies of the 
owners of the railroads, or in the question of how the former makes 
his money to pay the debt which is a lien upon the property which he 
operates. ‘The insurance companies and savings banks have bought 
these securities and hold them; they do not sell them, and that is the 
‘Dest evidence on earth that they think they are good. 

Mr. Merritt. They can not sell them now. 

Mr. Srus. Why didn’t they sell them? They could have sold them 

if they had been careful about their busmess 
Mr. Jounston. I do not think, Mr. Sims, it would do any good for 
‘me to repeat here that the association feels a very grave public 
esponsibility to try to sustain transportation and to work out a 
‘situation that will enable them both to retain the securities and to 
‘invest enormous additional sums for capital in the future. 
Mr. Sms. To the extent that they are owners of stock, my observa- 
‘tions do not apply, but inasmuch as their holdings are nearly alto- 
‘gether secured, they are mortgage securities, so to speak, I can not 
see why they should be interested in every little operating detail, in 
‘the divisions of return, and in the amount that those who actually 
operate the property shall receive in earnings. 

Mr. Jonnsron. There is just one answer to that, and we think it 
! is reasonable. If these roads are pushed into private ownership 
‘without remedial legislation, as Mr. Commissioner Clark has definitely 
suggested here, you bring about a crash in the railroad world, and 
‘neither bonds nor stock are worth anything while they are in the 
process of the bankruptcy which would result. 

Mr. Sms. But if the Government holds the railroads, I do not see 
‘any bankruptcy for the security holders. 











~~ 


1076 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Jounston. I understood you to be arguing against a Govern-— 
ment guarantee. | 
Mr. Sms. I am, unless you carry Government facility, resource, 
and power with it. | 
Mr. Jounston. It is simply a question of policy for the committees 

of Congress to determine. | ‘ 

Mr. Sims. For instance, here is this so-called Cummins bill, which - 
is supposed now to restore the power of suspension on Government 
initiated rates in their very inception, and yet holds the Government 
responsible for not initiating, and subject to suspension if it does 
initiate them, and that looks to me like it is certainly a very hard - 
condition. 

Mr. Jonnston. That is a question with which we have not at-— 
tempted to deal, of course. : 

Shall I proceed now, Mr, Chairman ? | 

The CHarrMAN. Yes, Mr. Johnston. You have an hour and a half. | 

Mr. Jounston. I think I can conclude in that time, Mr. Chairman. © 

Mr. Wessrer. Mr. Johnston, Judge Sims propounded a question to _ 
you: Why should not the Government be permitted to continue the 
control of the railroads and earn back a portion of the money that 
has been lost in the operation of the railroads under Government 
control. Does not this fact stand out, that the Government, took the 
railroads over of its own initiative, as a war-time necessity, the 
Government entered into contracts with the railroad companies, © 
fixing the basis of compensation, the Government has control of the 
railroads, and if there is any deficit it is not the fault of the railroads; — 
and if the Government pays the railroads what it agreed, under a” 
valid contract to pay, do you known of any rule of law or of morals 
that would justify the Government in keeping those roads until they” 
made up the losses resulting from their own contract and from their ” 
own operation ? 

Mr. Jounson. That is not contested. I think it would shock the 
conscience of the civilized world if the United States turned these 
railroads back in any such condition as they now exist, without 
stabilizing that situation which they have deliberately brought about, 
as a matter of policy, that of paying deficits by taxation rather than 
by rates; that it would be inexcusable punishment to the railroads 
to be confronted with the results of the exercise of that policy. , 

Mr. Wesster. It must be borne in mind that the railroads under 
Government operation and control have failed to sustain themselves. © 
To permit them to make up that loss by continuing the control would — 
be rather like the experience of a Washington farmer who sent a 
carload of cattle to the Chicago market. The cattle got there at a_ 
time when the market was glutted, and when the cattle were sold they — 
failed to bring the charges. The commission brokers sent the owner 
a statement for the deficit and asked him to please send a check.” 
The cattle raiser wrote back that he did not have any money, but that _ 
he would be glad to send them another carload of cattle. . 

Mr. Jonnson. ¥ think that is exactly it. Section 2, page 9, the’ 
suggestion is that the Federal controlled rates shall remain effective 
as the minimum rates, subject to the action of the Interstate Com-— 
merce Commission, until the commission shall find and declare that” 
it is compatible with the successful and orderly operation of the car-_ 
riers in interstate commerce for normal processes in the making and | 


| 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1077 
taking effect of rates to be resumed, either in specified rate making 
‘districts or as a whole. In other words, we are absolutely certain 
that on the relinquishment of Federal control, state rates will im- 
‘mediately become operative; that it 1s necessary to suspend that 
result, certainly during the time of any adjustment of the rate situa- 
tion by the Interstate Commerce Commission and until the latter, as 
amatter of fact, shall ascertain that normal conditions are sufficiently 
restored to say that the ordinary processes of rate adjustment within 
the State shall proceed. 

In the meanwhile, we do not say that State commissions or States 
shall not proceed to initiate changes in the rates, but merely that, in 

the event of appeal, the taking effect of those rates shall be suspended 
until the Interstate Commerce Commission shall say whether that 
change shall be put into effect. 

We think that that is a very necessary transitional remedy against 
‘the resurrection of statutory rate fabrics that are entirely out of 
line with the interstate rates in effect, and would enormously burden 
Interstate commerce. I think there is a North Dakota statute which 
‘is said to be only a fraction of the general level of rates prevailing in 
interstate commerce, and if that statute came into effect immediately 
on the return of the railroads to private ownership, it would be a 
great burden and would interfere with the rate adjustment which 
‘any program of legislation is necessary to put into effect. 

We lay down the general principle, in paragraph 3, section 3, on 

‘page 10, and the succeeding paragraph of that section, that the Inter- 

‘state Commerce Commission shall, as promptly as possible, put into 
effect adjustments of relation between interstate and intrastate rates, 
and that they shall have the right ‘to promulgate orders and regula- 
tions which will maintain a fair relation between interstate rates and 
intrastate rates. 

A more concise statement of the situation is section 3, on page 10, 
to the effect that intrastate rates observed by carriers for like and 
contemporaneous and comparable service in transportation in inter- 
state commerce, or for a like kind of traffic under substantially 

‘similar circumstances and conditions, must correspond with the level 

of interstate rates. ‘‘All such lower intrastate rates or bases of rates, 
with the exceptions hereinafter authorized, are hereby declared to 
discriminate against and unlawfully burden mterstate commerce, 
by reason of such relation, without reference to the reasonableness 
‘per se of the respective rates or level of rates, or any question of 
specific discrimination as against interstate points, localities or 
individuals.” That proviso is suggested as a result of the Shreveport 
decision, and, followmg that, the Illinois case, which seem clearly to 
‘point out the necessity, before there can be any action upon intra- 
‘state rates by the Interstate Commerce Commission, for showing 
‘that there is discrimination between localities, or particular classes, 
or commodities, or shippers; the Interstate Commerce Commission 
‘must be able to point out a specific discrimination as against an 
‘interstate locality, individual or commodity. Unless they are able 
. to show that in sufficient detail to make a definitive order as to those 
-eertain, particular rates, it is doubtful if they have the power to 
bring about general adjustments. We think the Esch bill contem- 
‘plates general burdens and extends that doctrine. 


1078 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


It is also our recommendation that the mere difference in relation 
between comparable rate levels within a State to the interstate rate 
jJevel most nearly corresponding is sufficient to show a burden upon 
interstate commerce. Of course, there are bound to be exceptions 
to that. There must be exceptions made in the case of special rates, 
where ‘they are not unreasonable and where the ironing out of those. 
special rates would work hardships, such, for instance, as com- 
muters’ rates and similar tariffs approaching any of the great ter-| 
minals. It would be unreasonable, perhaps, to force a general level 
of rates of that character; or rates, for public road materials, or 
special rates in which the public is interested in their maintenance, 
It would be unreasonable to have an ironclad regulation that would | 
prevent those equalities from existing subject to approval by the : 
‘Commission. 

‘So we say that those special rates might be permitted where the 
general level of rates within that State is found by the Commission | 
‘to be fairly equivalent to the interstate rates which are most nearly 
comparable. 

‘We do not propose to interfere with the exertion by the States of © 
‘their power to readjust rates within their borders as best suited to 
their local conditions, provided that the Commission finds that the 
general level of rates maintained within the State is compensatory 
-and on a basis equivalent to that of the interstate traffic. 

Mr. Sanpers of Indiana. This question of rates and jurisdiction 
‘of the several commissions is important, no matter what plan you 
are considering, and I want to ask a few questions about this proposal. 

As I understand the act, the first rate structure that would be put_ 
into effect would be put in by the Interstate Commerce Commission, 
limited by the mandatory provisions of this act, with reference to. 
‘what it must yield. Now, as a matter of practice, does the Interstate 
Commerce Commission make out this schedule? Suppose you have 
the Pennsylvania. The Pennsylvania Line has many intrastate 
transportation acts. In making out that schedule, would this 
commission include the rates and charges for those intrastate transpor- 
tation transactions ? 

Mr. Jonnston. It would be obvious they would have to take that 
anto consideration. 

Mr. Sanpers of Indiana. I am not figuring on what the would) 
‘have to take into consideration. In making out this schedule, when . 
it promulgated this schedule, that is to yield in the aggregate 6 per 
cent for all the carriers, when they get to a specific territory, will the 
Interstate Commerce Commission, in making out this schedule,” 
include intrastate rates ? 

Mr. Jounston. I should imagine that they would. That, of 
course, would be a question of readjustment of rates, a technical 
question for the commission, and I would hesitate a great deal in 
expressing my opinion as to how those highly competent gentlemen 
would proceed to work out that result. But 1t presents no difficulty. 
‘They undoubtedly have the power under this act to define, down to 
the last requirement, the situation of intrastate rates necessary to 
produce this general level, assuming that they would occupy a proper 
relation to the interstate rates, but they might prefer to work it out 
through instructions to the commissions of those States, and say 
““You must produce such and such a rate level,” or they might la 


fH} RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1079 


| down a certain basis and work out their details within the States, as 
\ we contemplate here, through coordinating the work and the juris- 
) diction of the two commissions, State and Federal. We suggest that 
» the Interstate Commerce Commission shall have the power, by rules 


-and regulations, to coordinate their respective jurisdictions, and 


_ certainly they can make rules obligatory upon the States or they can 





» assert the direct authority conferred by this act to work the proper 


» result. We think it would be difficult and impracticable to limit 


the commission as to the means they must follow in discharging 





making the levels correspond. 


vi functions: It is nothing but a question of equalization and 


_ Mr. Sanvers of Indiana. You would have a definite function here, 
upon the Interstate Commerce Commission, to obtain a minimum 


_ revenue ? 


Mr. JoHNSTON. Yes. 
| 
| 
| 


Mr. Sanpers of Indiana. It seems to me there is a good deal of 
confusion about where you are locating jurisdiction to fix these 
rates. I can understand, by reading the provisions of the bill, how 
the Interstate Commerce Commission could ultimately have the 
determining of whether the State commissions have dovetailed 
their rate structure properly imto the rate structure of the Inter- 


' state Commerce Commission, but it does not seem to me that the 


statement of the bill clearly and concisely gives the Interstate Com- 


-merce Commission power, by a unified plan, to carry out these 


rather general provisions that they must obtain a definite revenue 


minimum, 


Mr. Jounsron. I will be glad to call your attention to pargaraph 3 
of section 2 on page 10, which reads as follows: 


The Interstate Commerce Commission shall, as promptly as possible, and not later 
than one year after relinquishment of Federal control, put into effect the general 
adjustment of the relations between interstate and intrastate rates contemplated by 
this act, and by order declare when the national emergency and when the welfare 
of the interstate commerce of the United States justifies the remission to the several 
States of their normal jurisdiction, initiative and effect, in the matter of intrastate 
tates, of carriers, subject to the provisions of this act, and may accompany or supple- 
‘ment such declaration with, and must from time to time thereafter promulgate, 
such specific findings, orders, rulings, or regulations as it may, on investigation or 
hearing, find necessary to preserve a just relation between the level of interstate and 
intrastate fares, rates, and charges, applicable under substantially similar or compar- 
able conditions, or necessary to protect interstate commerce from general burdens, 
or to protect localities, individuals, and particular classes of traffic from specific 
unjust discriminations or burdens with respect to interstate commerce. 


Mr. Sanvers of Indiana. That is a provision by which they get to 


at finally, but you have State commissions and interstate carriers 


engaged in intrastate commerce with the right, im the first place, to 
determine these rates, and then you have upon complaint or some 
sort of proceeding to find out whether they did a good job of it. 
What is the use of taking two bites at the cherry? Why don’t you 


provide, since this Interstate Commerce Commission must take over 


this vast amount of work and this great responsibility, why don’t 
_ you provide that they shall draw up a schedule covering every rate 
of these carriers, whether interstate or intrastate ? 
Mr. Jounston. If there is any possible doubt, Mr. Sanders, about 
that, we will be very glad to have it ironed out by specific statement 


in the bill, 


1080 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


In the third paragraph of the first section is the provision that the 
commission shall, as nearly as may be, establish and maintain 
freight and passenger rates, or levels of rates, or charges, in each 
rate-making district that will enable the carriers as a whole, allocated 
to each district and subject to this act, to earn, after proper allow- 
ance has been made for renewals and depreciation, an aggregate 
annual net railway operating income equal to not less than 6 per 
cent*-and so forth. + 

We recognize that it is absolutely essential that in working out 
these adjustments and in working out this situation, that the Inter- 
state Commerce Commission shall have plenary authority at any 
and all times to accomplish the objective. 

Mr. Sanvers of Indiana. I have my doubts, on reading the bill, 
whether you have done much more than draw a declaratory statute 
of the Shreveport case. I think that is what the Esch bill does. _ 

Mr. Jounston. If you will pardon me, I think it goes a little 
further in expressly giving the commission authority in case of a 
general burden, in addition to the necessity of showing some specific 
discrimination against a specific locality or class or commodity, and 
it very generally meets the criticism of the Supreme Court of the 
order in the Illinois case, which required the commission to specify 
the items to be changed and to RS the discrimination. 

Mr. Sanpers of Indiana. It occurs to me it ought not to be a 
question of either burden or discrimination. It is a question of the 
necessary limits that you have got to have and the necessary leeway 
you have got to have to effect a unified plan. 

Mr. Jounston. That is true, sir. Relationship 

Mr. SANDERS of Indiana. It just strikes me that it is very con- 
fusing on that point, and if you had hit straight out from the shoulder 
and given them power over all these rates, so far as interstate carriers 
are concerned, you would have had a working plan. 

Mr. Jounston. We would be very glad to analyze it a little further 
with reference to that suggestion. 

Hurrying on, Mr. Chairman, section 4, on page 12, deals with the 
question of consolidations, which we make sweeping, subject to the 
jurisdiction of the commission, when in the public interest and con- 
venience, and we repeal to the extent necessary the Sherman Act, 
the Clayton Act, and other antitrust acts. It gives both parties to 
the transaction corporate authority to enter into any such consoli- 
dation and provides for immunity from prosecution under that act, | 
or any of these acts, and applies that immunity not only to the 
parties to the transaction, but we extend it to their successors and | 
assigns, and so forth, so as to make it complete. 

I do not think there are any particular features of that section that 
I desire to call to your attention or that need any particular explana- 
tion. I 
Section 5 of the act at the bottom of page 13, suggests that the _ 
commission have jurisdiction over embargoes, permits, and over 
rerouting and diversion. It is our view that the Esch bill restricts 
the jurisdiction of the commission to emergencies and times of con- 
gestion of traffic, while under the proposed remedies which we 
suggest, we think that is a power that must be given to the commis- 
sion under ordinary circumstances; that is, power over the questions — 
of divisions, rerouting and diversions, in order to work out the general 
purposes which we are proposing. 








RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1081 


_ Further on, in the third paragraph, on page 11, which is the third 
paragraph in section 5, we concur in the suggestion that the Com- 
‘mission be given power over minimum tates, and we again refer to 
_ the question of rerouting and diversions, extending the emergency 
power which is conferred by the Esch bill, by this paragraph: 
__ The commission shall have the power to fix maximum or minimum or fixed or pro- 
| portionate rates or charges, and may prescribe the just and reasonable divisions of 
oint or through rates whenever it shall find that such action is fair or in the public 
interest; and shall have power to control routing as well as divisions, where found 
desirable in the public interest and consistent with the lawful rights of carriers, as 
_ where a choice of routes is available and revenue or full divisions from the haul is 
not required by one carrier involved to enable it to earn a fair and reasonable return 
upon its property investment as defined in this act, but additional revenue is desir- 
able for another railroad involved and to assist it in giving service or in earning a fair 
_and reasonable return, or is otherwise in the public interest. 
We see no reason why the commission should not be given juris- 
| diction to determine the routes where there is an alternative possi- 
bility of routing, extending the discretion that is now left with the 
shipper, or why we should not confer upon the commission that 
power, where it would give a carrier which needs it additional reve- 
nue and additional tonnage—there is no reason why, in the general 
public interest, the commission should not be given that power, 
rather than the power limited, as in the Esch bill, to times of definite 
emergency. 
Of course we propose that the existing rates in force at the time any 
_ shipment is started out must be protected to the shipper, if there is 
any diversion or rerouting as the result of an order of the commission. 

Section 6 of the bill is the security provision. On page 14 we pro- 
pose that the commission shall have full jurisdiction over the ques- 
tion of securities to the extent of the power of Congress over that 

subject, instead of suggesting a strict definition as to the particular 

ways in which securities may be issued or their proceeds invested. 

We propose in this section 6—not in the first clause, however—that 
_ the commission shall have the right to define; that it shall have the 
authority to prescribe, promulgate, and enforce plans and reason- 
able rules and regulations to prevent the issue by carriers subject to 
' the act to regulate commerce of securities or obligations, secured or 
unsecured, on terms that are unreasonably wasteful or improvident, 
, or for purposes incompatible with the public interests, as defined in 
the section; that is, where the issue or expenditure would impose 
_ undue burdens, duplication, or wasteful competition from being im- 
posed upon interstate operations. 

The only doubt that we have with reference to the provision of the 
Esch bill is that there is an undetermined question, so far as the 
Supreme Court is concerned, of the power of Congress in all par- 
| ticulars to regulate the issue of securities of intrastate corporations. 
We agree that the securities,have such a reasonable relation to the 
‘status of the interstate carriers as to make it subject to little doubt, 
but that Congress has power to take hold of the subject: but, there is 
@ question of doubt as to the extent to which that power may go. 
Cases could arise, which are so obviously internal in effect, where 
there would be no question of burden on interstate operation, which 
‘Inight upset the plan, if it purported to extend to all securities, and it 
‘is for that reason that we confine the power of regulation to the abso- 
lutely safe constitutional ground above stated, giving the commission 








1082 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


power to control this subject and to prescribe these rules and regula- 
tions wherever it is necessary in order to prevent undue burdens, dupli- 
cation, or wasteful competition from being imposed upon interstate 
commerce. It is obvious that this covers the wholefield. The statute 
ae stand, even if a regulation of the commission were held in- 

vali \ 

Mr. Sanpers of Indiana. Is it your understanding that the con- 
stitutional limitation that is put on Congress is that 1t can only deal 
with these matters when they become a burden or may become a 
burden on interstate commerce ? 

Mr. Jonnston. I think that is an accurate general statement of it, 
yes; if it is supplemented by the other expression, which is so fre- 
quently used by the court, that the regulation is proper if it has some 
direct relation to interstate commerce, and that relation is generally 
in preventing a burden or a potential burden. It states your position 
in a little different way. 

Mr. SanveErs of Indiana. I think that is too narrow a construction. 
Is not the rule this: that Congress has the power to regulate com- 
merce between the States, which is its plenary power, ‘and that it has 
the right to carry out different plans for regulation of commerce, and, 
under those plans, whenever there is anything in the way of State 
legislation that conflicts with those plans, the State legislation and 
State regulation must give way ? 

Mr. Jounston. That is obviously true, sir. 

But let us take this situation: The Supreme Court held, in the 
First Employers’ Liability Case, that the relationship between a 
strictly intrastate carrier, performing an intrastate service, and not 
with relation to the roadway of any other interstate agency, bore no 
such direct relation to interstate commerce as to bring it within the 
power of Congress. They held that membership in a labor union, 
made the basis for an act of Congress preventing the discharge by an 
interstate carrier of an employee because of his belonging to a labor 
union, had no such direct relation to interstate commerce as to give 
Congr ess jurisdiction over the subject matter. 

I can imagine cases where a carrier would issue a security which 
could have no possible relation to interstate commerce. For instance, 
suppose it bought an internal piece of property, used in nothing but 
local commerce, and it wanted to issue an obligation which did not 
constitute a ceneral corporation obligation of the railroad, but was 
merely an obligation to the extent of its equity in that property. I 
can not see how the purchase of that property or the issuance of a 
security, limited in that way, could either become a charge against 
the carrier, or set up a liability against the carrier of any kind. 
am not prepared to say that there are not sufficient instances of that 
kind possible to make it a question of some doubt in my mind whether 
you must not establish some relationship between the securities and 
interstate commerce before Congress can assume jurisdiction over it 
under the commerce clause. The Supreme Court has repeatedly 
stated that interstate carriers have not subjected themselves in all 
of their internal policies to the control of Congress merely by engaging” 
in interstate commerce. 

It is merely with an extreme desire to avoid suggesting anything 
that will run counter to any adverse construction that we have been 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 108% 





|more conservative in a statement of this regulatory authority than 
}has the Esch bill. 

| Mr, Sanpers of Indiana. Do you undertake to control any other’ 
| 3ecurities except stocks and bonds? 

) Mr. Jonnston. Oh, anything. We put the whole matter, without: 
|mitation, before the Interstate Commerce Commission, to prescribe 
‘rules and regulations and to enforce them. , 
| Mr. Sanpers of Indiana. As to stocks and bonds, any issue of 
stocks and bonds would have such relation’to the general subject as: 
to make them subject to the powers of the Interstate Commerce 
| Commission. 

| Mr. Jonunston. I should certainly think so. 

We think that the Esch bill is inadequate, in that it does not ex-~ 
| pressly authorize the Interstate Commerce Commission to permit sales: 
of stock at a discount. 

| Now, while Commissioner Clark said that any corporation that 
could not issue its stock at par should be reorganized, we know that: 
|i8 too Sweeping a suggestion, and that perfectly sound railway enter- 
|prises have not been and are not able to sell their stock at par. We 
‘think it is necessary, in providing an-interstate agency, for Congress’ 
| to say that the commission shall, in its discretion, permit the carriers: 
to sell their stocks at discount, of course making a proper set-up, 
either on their property investment account or as a special item upon 
the account so as not to prejudice that factor employed in determin- 
| ing the rate level. 

| Right there is a most important suggestion, which answers so many 
of the criticisms of our plan. 

I think it has been suggested that if we set up a 6 per cent level, 
and if it shall appear at some iridescent date in the future, that the 
railroads can get money for less than 6 per cent, that it would not: 
do at all to make a level which would produce for the carriers more 
than they have paid for the money; so we provide, in the cases of 
‘Carriers earning the standard return, that the commission may, “in 
like manner, require a corresponding adjustment for determining 
'the rate level or standard return, where new money is procured on a 
basis of less than 6 per cent.”’ 

In other words, as I think I stated this morning, if they can get 
money at 5 per cent or 4 per cent, it should not go into their property 
‘account to earn 6 per cent. Our provision is automatic, and we 
‘think it affords a complete answer to any suggestion that at any time 
‘in the future this money will earn more than it cost the carrier. We 
make no allowances for the energy and initiative and the cost of 
administering and acquiring and spending that new money which is 
to be introduced into the railway enterprise. 

Section 7 provides for the coordination of the work of State and 
‘Federal commissions and provides for review by the Interstate Com- 
merce Commission. 

» I desire to call your attention to section 8, Mr. Chairman, for 
‘several reasons. ‘The first is because of the importance in any system 
-of the joint use of terminals and facilities, and the second is an entirely 
one one, which I feel justified in mentioning to this committee. 
Im stating the proposals of the association to the Senate committee, 
‘and in all the expressions of the association and its representatives 
upon the subject, the association and its representatives have at all 








1084 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. } 
: . 
times advocated the joint use of terminals and facilities where found 
to be in the public interest. We desire to make good that suggestion, 
In formulating this bill and in presenting the tentative draft at the 
last session of Congress, in order that all these provisions might be 
understood and discussed, we embodied two sections in the bill, 
section 21 and section 22 of Senate bill 5679, Sixty-fifth Congress, 
Section 21 had reference to the continuation of an established service; 
it provided—I am quoting without: any effort on my part to quote: 
the exact phrdseology—that where, under any circumstances, car- 
riers had joined in an established public use, in the continuity of 
which the public had a substantial interest, and where that use was 
about to be terminated or withdrawn, or proposed to be withdrawn, 
the commission, in its discretion, could require its continuation or 
authorize its continuation on the application of any party, on terms) 
to be defined by the commission 

Now, there is a very wide field of application for that provision, 
and the most familiar one is the joint use of a terminal station by 
carriers. A new line has been constructed, and it has established its 
service as a Junior tenant of a terminal or station owned by a senior 
line. It has no terminals in that town; at the termination of the 
contract, either by its own volition or by expiration of the time of 
the contract, the question is whether it shall be required to continue 
to use that terminal or be required to construct another one. I 
recall a number of instances where there are trackage rights into a 
terminal over a senior road. Instances of trackage rights of that’ 
character are innumerable. I dare say there is not a community’ 
of any size in the United States in which junior carriers do not enter 
the community through terminals owned by other railroads. 

Now, if for any reason these intercorporate rights are terminated, 
it would throw an enormous burden upon commerce and require 
duplication of terminals and facilities. There is no doubt of the 
power of the commission, when two companies have joined together’ 
in dedicating their properties to a joint service, to require the con- 
tinuation of that service. There is doubt, where one carrier is nea] 
forming its services, of the right of public authority to require it to 
acquire new and additional facilities. | 

Other legal distinctions between the two cases are obvious, and we 
met those legal questions by two sections in the bill. The first one) 
was substantially as it is now, in section 8, the importance of which’ 
will be obvious from the first few lines: 

That when, under license or revocable or other temporary or terminable right or 
agreement or otherwise, any railway carrier subject to the provisions of this act shall 
have constructed, established, or maintained a facility or a service in interstate com- 
merce essentially permanent in its nature, or of such character as to give rise to a reas d 
able public necessity for the continuation thereof, such railway carrier, or any State 
or person interested in such service may, before or after the termination of the tem~ 
porary right or easement or before or after the termination or threatened termination 
of the service or proposed or threatened withdrawal from its public uses of the propa 
or facilities involved, apply to the commission for an order, and the commission shall 
have authority tomake an order requiring or authorizing the railway carrier whose 
service has been or is to be discontinued, to continue the same upon such terms and 
conditions and for such compensation, payable or secured, as the commission after - 
notice and hearing to such railway carrier and to the owner or proprietor of the property 


or easement to be subjected to the continuation of such use or service, if any, may 
determine. : 





iI RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1085 













_ It then goes on and authorizes the junior carrier to proceed, if 
\lecessary or required by the commission, by condemnation proceed- 
‘ngs under the order of the commission. 


__ The second paragraph of that section has reference to the iaugura- 
jon-of joint use, and is in part: 


__That whenever the commission, upon investigation on its own motion or upon com- 
aint or application, shall find that the joint use by any railways of any facilities of 
ransperattion is necessary or desirable in the public interest to facilitate commerce, 
nd will more adequately enable them or either of them to discharge their public 
‘uty, the commission shall be, and is hereby, authorized, and empowered by order to 
equire such carriers to enter into such joint use upon such terms as may be agreed 
‘etween them, and upon failure of such railway carriers so to agree within the time 
pecified in such order, the commission may enter an order fixing the measure of 
ervice or use to be granted by the owner of the facilities and the just compensation to 
’@ paid for such service or use, or defining the tacilities to be occupied and the terms 
or their joint usé. 





It goes further and suggests that they might be required to acquire 
‘Ven new property, where it is necessary, to enable them to perform 
heir public duty. 

_ When those sections were formulated Mr. Milton H. Smith, the 
resident of the Louisville & Nashville Railroad, conceived, for what 
‘eason I do not know, that section 21 of the tentative bill (S. 5679) 
vhich provides against the destruction of an established joint use, as 
tow embodied in section 8 of this bill, was intended to give the West- 
rm Union the right of condemnation over the lines of the Louisville 
¢ Nashville Railroad. He conferred with exectuive officers of the 

National Association of Owners of Railroad Securities, for which I 
ppear, and for which I was interested in formulating this bill, with 
ther counsel, and made some outrageous representations, to the 
flect that as a result of my interest as a local counsel of the Western 
Jnion in a controversy existing between the Louisville & Nashville 
nd the Western Union in the State of Alabama, section 21 had been 
urreptitiously included in the tentative bill and had escaped the 
ttention of other advisory counsel of the association, and he de- 
aanded its elimination. He was assured by the executive officers of 
he association, whom he approached in the matter, that the matter 
vas of no concern to the association, any controversy between the 
Vestern Union and the Louisville & Nashville, and that no such 
atention was intended by the bill; that the next time I came North 
ty attention would be called to the matter, and if there was any 
mbiguity in the section that it would be ironed out. 

I was communicated with in due course of time and came on, and 
1ade the section so that it could not be subjected to any such possible 
aerpretation. Although we have referred throughout this bill to 
earriers subject to the act to regulate commerce,” throughout, obvi- 
usly the whole title and purport of the measure has reference to rail- 
‘ad carriers; yet there is no reason why its application should not be 
‘bsolutely comprehensive if it is in the public interest, and if the interest 
{ the public is protected, and if the interest of all carriers are pro- 
acted; but Mr. Milton H. Smith was definitely admonished that 
aere was no intention of settling that controversy in this process 
‘hich we are now going forward with. The suggestion was made 
at if he desired his counsel to scrutinize that provision before it was 
introduced, in the revised and more carefully considered bill, that 
would be glad to confer with them. 


152894—_19—-voL 169 










ad 


1086 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


As a result of that suggestion as as soon as the bill was revised by 
us for your consideration, an interview was arranged, through the 
chairman of the board of the Louisville & Nashville Railroad, with 
the two general counsel of the Louisville & Nashville. I do not care 
to mention their names or to bring them into this controversy. After 
they had gone over this section and approved the idea of adding the 
word ‘‘railway carrier,’ which I had inserted in the revised draft, and 
made some immaterial extensions of that idea, inserting the words” 
‘railway’? at sundry points in the section out of excess of emphasis, 
they approved section-8 in toto, and I have their letter stating that 
the section was entirely satisfactory. It is before you in the exact 
form approved by those gentlemen. | . 

Notwithstanding that situation and of the assurances of the execu- 
tives and counsel of this association Mr. Milton H. Smith has printed 
a circular letter to Judge Stites, of the Louisville Trust Co., from whom 
he had secured a copy of the memorial being circulated by the 
National Association to be presented to Congress with reference to 
the affirmation of the principles advocated by the association, which 
he wrote Judge Stites, making these outrageous charges, to which I 
have referred, and he gave circulation to that letter, and I am advised 
he sent it to Members of Congress. 

That fact entitles me, Mr. Chairman, in explaining the provisions 
of this bill, to the privitege of denouncing his suggestions, not indeed 
that I was retained by the Western Union Telegraph Co. to work 
any such result for he insinuated rather than asserted that falsehood, 
but the idea that the provision was to be put in the bul with the hope 
of receiving, after it was put in, a fee from the Western Union Tele- 
graph Co. That statement or insinuation is so contemptibly false 
that [ hesitate to characterize it in its proper terms before this com- 
mittee. But I do wish to say this is an inherited controversy I have 
with Mr. Milton H. Smith, and if the process now proposed by this 
committee in the Esch bill, opening up the correspondence of the 
Louisville & Nashville Railroad under his direction had been im 
effect, or if the political accounts of that road prior to 1907 had been 
open to scrutiny wnen the Interstate Commerce Commission were 
trying to secure information as to its political activities, I feel confi- 
dent that then there would be grounds for difference between Milton 
H. Smith and myself on an inherited vasis without reference to this 
controversy with the Western Union Telegraph Co.; but I am per- 
fectly willing to acknowledge a controversy with that gentleman on 
my own account, and to say that of all the executives of all the rail- 
roads in the entire history of the American railroad system, there has) 
been no one who has been so persistent in his effort to debase legis- 
latures by the use of free transportation, and there has been no one 
so implacable in his enmity to any person who might oppose him in 
any particwar as Milton H. Smith of the Louisville & Nashville 
Railroad. a 

The whole development of the process of regulation, so carefully 
worked out by Congress and this committee from 1887 to the present 
day, is strewn with the results of the conflict between the commission 
and the insolent bourbonism of the Louisville & Nashville Railroad 
under his dominion; and even at this late day it is necessary for this 
Congress to take up its time and to burden itself with the enactment 
of clauses made necessary by the recalcitrant attitude of Mr. Milton 





| RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1087 
“Hi. Smith of the Louisville & Nashvilte Rauroad, such as the pro- 
‘visions of the Esch bill made necessary by his refusa! to. produce 
‘correspondence evidencing his practices. 3 
. I desire to say that, knowing that I have his opposition in any- 
thing that I have been instrumental in or have assisted in formulating 
tn connection with the railroad situation makes me know that we are 
‘right. It is characteristic of Mr. Milton H. Smith that even since 
_ the approval of his general counsel of section 8, he has sent telegrams 
to the executive of this association demanding that section 8 be 
‘eliminated entirely from the bill, and threatening that if not elimi- 
-nated from the bill he proposes to oppose it before Congress, and L 
presume that he proposes to oppose it by the same process of defama- 
, tion that he has already circulated before the committees of Congress. 
I, however, stand upon their sufficiency, their propriety, and their 
‘high public benefit. They are approved by his own counsel as being 
provident, and that is all that I care to say about that subject. 
trust that if he inaugurates any such effort as he threatens, that this 
“committee will be good enough to advise me of any further communi- » 
cation from him. I may be compelled to characterize him in plainer 
terms. | 

I make this statement with the utmost regret as to its necessity, 
‘and with the knowledge that it will be suggested that Mr. Smith is a 
very old man, and that I have not shown proper deference for his 
‘venerable years, but age is entitled to demand respect when it 
abandons the venom of defamation and at least assume a benignity 
‘which its implacable malignity in the past may belie. 

Mr. Sms. Do you mean there is nothing in the Esch bill, or the 

other bill, which permits any telegraph company to use the right of 
-way of the railroad company when it does not interfere In any way 
‘with the common carriers’ use of that right of way? 

Mr. Jounston. That subject is not dealt with, Judge Sims. 

Mr. Sms. I do hope it may be dealt with, with regard to the 
Western Union, or any other company, on such conditions as may be 
provided in the law. I live where the service has been taken away 
and is not functioning, and we have to telephone first to some point 
where there is a Western Union office or a Postal Telegraph office, 
and pay a telephone charge and then pay the telegraph charges from 
there on. If there is any way possible, I hope that any bull that 
“passes will contain something of that sort. | 
Mr. Jounston. Judge Sims, I hope you will permit the Western 
-Union and the Louisville & Nashville Railroad to fight out that 
question in some other forum. : : 

Mr. Sims. My constituents have been deprived of a service which 
they have had for many, many years. The rate has been doubled, 
and we have to pay both telegraph and telephone charge, so It Is not 
‘anything that concerns Mr. Smith. I do not care anything about the 
Western Union Telegraph Co., but I think certainly every railroad 
-company’s right of way in this country should be ud ect to such a 
utility as a telegraph line, unless it would seriously interfere with their 
‘road. If any compensation is due them, they should be paid a 
rental. I have lived several years under this condition of private 
operation of public utilities that are in conflict with each other. 

“Mr. Jounston. Mr. Chairman, we think that the Esch bull 1s 
probably too restrictive as to the joint use of facilities, in that 1t 








opel 


1088 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


seems to contemplate merely joint use of existing facilities. It does 
not, even if it is necessary in the joint service of the public by two or 
more carriers entering the same terminal, seem to contemplate 
requiring them to acquire, if I recall correctly, a different site or to 
join in the construction of a.new terminal. 

My information from technical railroad men is that the difficulty 
in the past as to providing joint terminals of enlarged capacity is not 
on account of expressed disinclination on the part of any of the 
necessary participants to the main idea, but arises out of their disa- 
greement as to the property and as to the conditions on which they 
shall acquire a new terminal and proceed with its use; and for that 
reason we submit that wherever it is necessary the commission might 
well be given authority to require the acquisition of terminal proper- 
ties, directly or through an independent corporation, participated in 
to such an extent as the commission may direct, both as to the 
original capital which may be required and as to the terms and 
conditions of their joint use. We think that result requires some 
extension of the provisions of the Esch bill, with which we are in 
thorough accord, subject of course, to the indispensable condition 
of a definitive rule of rate making which will protect the carriers and 
those whom you invite to invest in their securities against the fatal 
process of the present system of rate making. 

I think I can now dispose very briefly of the main suggestions of the 
other two features of the bill, regional commerce commissions and the 
National Railway Association. 

We think it is perfectly obvious that under the widely extended 
powers given to the commission by the Esch bill, which we heartily 
indorse, and the even wider extension of power, if the program of the 
association should be adopted, that the commission must be relieved 
of a great part of the routine and of the detail which would rest upon 
it. If they are to determine all questions as to securities, if they 
are to determine these vast questions of extensions, and control the 
expenditure of new capital, if they are to conduct these innumerable 
hearings, if their jurisdiction is to be enlarged to the point suggested 
by either of these bills, the members of the commission must be 
reheved from the routine adjustment of rates, and for that reason 
we have carefully worked out these provisions for relief. If the 
idea of regional commerce commissions should recommend itself as 
being sound to the committee, I trust that those provisions will be of 
some assistance. ; 

With reference to these regional commissions, we provide for 
their location, for their expenses, their administrative provisions, the 
question of the initiation of rates, and the coordination of the State 
and regional commissions, and in section 18 we require that wherever 
there is any controversy involving a certain number of employees, 
not less than 50 workmen, that the controversy shall be submitted 
for investigation and finding by the regional commission, before final 
action, whether affecting wages, terms, or conditions of payment or 
employment, wage or occupational differences of any kind, grievances, 
whether of the employees in question or of any other employees of the 
same or different employers, when any such difference tends to or is 
likely to interfere with, hinder, obstruct, interrupt, or burden inter- 
state commerce or any agencies thereof, temporarily or permanently, 
or interrupt the transit of the mails or property or communications 
of the United States. = 





RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1089 


__ In all of those cases we provide that the matter must be presented 
for conciliation by the regional commerce commission before there is 
‘any lockout or strike or walkout, and make it punishable for any 
‘such final action to be taken, either by a carrier or by the employees, 
‘or any controverted wage adjustment or change in conditions to be 
inaugurated pending the finding of the regional commission, acting 
as a board of conciliation. That is not compulsory, the finding is not 
compulsory; it works out only through cooling time and the power 
of public opinion. It decentralizes, as I formerly suggested, all this 
question of labor controversies, and removes these tremendous dis- 
turbances which result from an effort to settle all these differences 
in Washington horizontally for the entire country. It would tend to 
reestablish wages and conditions responsive to the local requirements 
in the respective regions, and we think it will have a most helpful 
effect on the situation in every particular. The finding is not com- 
-pulsory, except where both parties agree before any hearing that it is 
_to be compulsory then they must abide by the result. Both parties 
are given the right of appeal to the Interstate Commerce Commission. 
_ We can not see that the suggestion will subject the commission 
to any further responsibility than should necessarily rest upon it, 
conferring upon the rate-making power the final expression in the 

rocess of conciliation. By having the primary hearing and finding 

efore a regional commission we remove the immediate impact 
‘of these difficulties from the Interstate Commerce Commission, 
they reviewing it merely as an appellate body, although we provide 
‘that they may go into these questions either on the record presented 
to them, or de novo, on motion or on application of any party, if 
the commission thinks it desirable to hear 1t de novo. 

Those provisions, we think, constitute a most coastructive agency 
to lighten the enormous burden of executive responsibility that is 
now to be placed upon the Interstate Commerce Commission in 
determining these vast questions, the proper solution of which, in 
addition to their present work, would be overwhelmed if they are not 
relieved. 

We do not think that the commission, as soon as it understands the 

reatly added burdeas which would be cast upon it, either by the 
Rech bill or by the provisions which we suggest, can object to being 
relieved of the enormous routine to which they are now subject in 
the mere matter of rate readjustments. 

Mr. Sims. You say upon agreement to submit any wage contro- 
_yersy or any labor controversy, that if those are affected agree to go 
into this—I do not know just what you call that in the bill? 

. Mr. Jonnston. Arbitration. That is optional. It is this obliga- 
tion to submit to conciliation that is compulsory. 
, Mr. Sus. If they do not agree to go into it then it does not apply 
at all? 
| Mr. Jonnston. Oh, yes; they must submit it for its fiadings, and 
we call that ‘‘conciliation.”” Those findings are published, but they 
-are not binding: Either party can appeal, and when approved or 
modified by the Interstate Commerce Commission on appeal, it is stit 
conciliation, and public opinion is its only constraining factor. 
Mr. Srvs. But they must be submitted ? . 
Mr. Jonnsron. They must be submitted aud they must not stride, 
| and there must be no lockout or no reduction in wages by the rail- 


imal 


1090 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. ; 


road, or whatever the controversy is, until the announcement of the 
fin dings of the regional commission or the Interstate Commerce Com= 
mission, Mm ne event of appeal, which must be arrived at in 90 days 
and 150 days, respectively. 

Mr. Sane y Thy use the word ‘‘lockout?’’ I never heard of a 
railroad lockout, at least for many, many years; I do not know 
that I ever did hear of a railroad locking out the engmemen and 
conductors and employees of that sort. 

Now, I understand it is compulsory for employees to first submit 
it to this conciliation board, or commission, and then it is compulsory 
to continue service during how many days? 

Mr. Jounston. We provide that the regional commission shall 
reach its conclusions in 90 days. 

Mr. Srus. Ninety days, which is three months. 

Mr. JOHNSTON, Or 150 days if reviewed by the Interstate Com- 
merce Commission. 

Mr. Sms. That is as to the appeal ? 

Mr. Jounsron. I think that means 60 days in addition to the 90 
days. 

Mr. Smis. One hundred and fifty days after appeal ? 

Mr. Jonnston. No; I think it should be construed 60 days after 
ovens 

Mr. Simms. Then that would be five oninee Y 

Mr. Jounstron. That is correct. 

Mr. Sims. During which time—— 

Mr. JOHNSTON (interposing). If the respective commissions, took 
that long. 

Mr. Sms. In other words, it is compulsory to go into the arbi- 
tration ? 

Mr. Jounston. Yes; into conciliation. 

Mr. Sms. It is compulsory to remain in it until it is through, and 
if there should be a strike between these times that it would be a penal 
offense and subject to a fine of $1,000? 

Mr. Jonnston. Yes; that is correct. 

Mr. Srms. How far does that miss being involuntary servitude 
during that time? 

Mr. Jounston. I do not think the necessity of submitting the pro- 
priety of joint action to conciliation before the parties enter into any 
such joint action is any restraint of—any unconstitutional restraint 
of liberty. It involves a social right the regulation of which is within 
the police power of the State or the commerce clause where applicable. 

Mr. Srms. But before they strike it would be unlawful for them to 
strike without submitting it? 

Mr. Jonnsron. That is correct. 

Mr. Sims. Then it would be unlawful to strike during ine nace it 
may be under consideration by the primary board, and the one to 
which appeal is taken ? 

Mr. Jounston. That is the purpose. 

Mr. Sms. Then they must serve during that time, and they must 
serve for the wages they are then receiving ? 

Mr. Jounston. If you put it that way, yes; but they must not 
strike. 

Mr. Sims. They must serve. I do not mean one could not quit, 
could not get sick or something, but they can not as a body quit? 


~~ 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1091 


| Mr. Jonnston. That is it. 
| Mr. Sms. By concerted action, and it is made a criminal offense 
‘if they do? 
_ Mr. Jonnston. Precisely. 
| -Mr. Sims. Therefore.they must either never have the controversy, 
never ask for wage increases, or if they do they will be compelled to 
serve for five months at the wages then prevailing. 
_ Mr. Jonnston. Rather than strike. | 
_.Mr. Sis. Well, to strike just means quitting work, does it not, by 
- concerted action ? ae ’ 
Mr. Jounstron. No; it means, I think, something very different. 
me Mr. uae I do not understand that to strike means anything except 
to quit? 
| Mr. Jonnsron. No; it means to quit in concert with others with 
' the intention of returning when you have achieved your objective. 
| If you want to quit and go and get another job, this is a free country, 
| and I do not think any law could stop you from doing it. 
__ Mr. Sms. You can as an individual employee ? | 
/ Mr. Jounston. Yes. 
| Mr. Sons. But you do that by a concerted action 4 
Mr. Jounsron. I do not think it would be called a strike if they 

decided they did not like that railroad and did not want to work 
for it any more and pulled out for another employer. 

Mr. Sms. Suppose those representing that organization—con- 
ductors; engineers, firemen, or whatever they were—stated to the 
proper railroad officials, ‘‘We must have an increase of so much, and 
if not we are going to quit,” and set the limit of time withm a certain 
time, and said, ‘‘Now if you do not do it we will all quit work,” 
without saying anything at all about coming back and working or 
going to work for somebody else. Would that subject them to the 

penalty of this law, a fine of $1,000 and imprisonment ? 

Mr. Jounson. We do not think it is material. Suppose it did not. 
They would be in the attitude of having violated the statute calling 
for conciliation, and, according to my conception the public disap- 
_ proval of that violation, of the violation of the spirit of that statute, 
would be just as firm as if there had been conciliation and they had 
violated its terms. It would have the same effect so far as public 
opinion can be effective in that contingency. 

_ Mr. Sms. Do any of the other plans that have been presented have 

a provision substantially the same as this one, seekmg the same 
_ object ? 

Mr. Jounston. I am unable to suggest. 
Mr. Sms. You would not say they do not or do? 
Mr. Jonnstron. I do not know. 

- Mr. Wesster. Is it your idea, in leaving that feature of the plan 
to be enforced by public opinion, is it your idea of the best policy to 
be pursued, or is it based upon some doubt as to your constitutional 
‘powers to go further? RS ty 
-— Mr. Jounston. I do not see why, if you can compel conciliation, 

that you could not prevent any form of combination of action which 
might. be termed in the vernacular as “strike.” I do not see why 
prevention of that could not be made compulsory on the same basis 
as prevention pending conciliation. We realize, Judge Webster, 











1092 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. ( 


that that is a question of high public policy and we have felt that 
we should not anticipate the decision of Congress upon a question of 
that kind. We do not know what the attitude of the laboring men 
is as to compulsory arbitration. We think they should be consulted, 
of course, not finally, but it is.a matter in which we are entirely 
open-minded. We see the absolute folly of permitting these differ- 
ences to go headlong to strikes and irreconcilable difference without 
any intervening factor between them, and we have tried to formulate 
a provision accomplishing that objective, just as every other provi- 
sion in this bill, on the safest and most incontestable constitutional 
ground possible. . 

The final provision, or suggestion of the association, is in a great 
many ways, we think, of the utmost importance, and that is this 
proposal for a National Railways Association. Tt is called a cor- 
poration, but we trust there will be no public revulsion from the idea 
on account of the necessity for corporate organization. It is per- 
fectly obvious that the Interstate Commerce Commission is not only 
to have high judicial and executive functions, but there are a great 
many processes in the performance of its duties which are essen- 
tially administrative and where it would be most helpful to its mem- 
bers to have a trained and highly competent organization at their 
elbows which they could consult, or which could make recommenda- 
tions to them in regard to these intricate and technical railway 
problems. 

We think that if railway directorates are permitted to nominate 
within the respective regions their nominees to sit at that table, as 
trustees, with the Interstate Commerce Commission and talk over 
these things and give the Interstate Commerce Commission the 
benefit of their training and experience, the result would be tre 
mendously beneficial. While we do not in our recommendations 
hesitate to cut down executive prerogative wherever it seems to run 
counter to what we think is the advanced public interest in this situa- 
tion, we do believe, Mr. Chairman, that the private mies of owner- 
ship that has been in vogue in America, has developed operating 
talent and ability which is most commendable to the system and to 
the processes that the Congress has permitted to continue in the 
past. It would be of infinite advantage to transportation as a whole 
for those men, not paid by the United States, but representing active 
railway management and delegated by plurality selection from the 
carriers in these different regions, to sit on this public body to de- 
termine and recommend broad policies to the commission, or to per- 
form absolutely such duties as might be delegated to them. 

We propose that the National Railways Association should ad- 
minister this excess earnings fund in the purchase of equipment; 
we propose that the association should be permitted, if necessary, 
where there is a weak carrier, actually to guarantee its car equip- 
ment obligations and then enable it to purchase equipment, not on 
6, 7, or 8 per cent basis, but by reason of this undoubted credit of 
the National Railways Association, to buy it on a 4 or 5, or even a 
less percentage basis. Inter-carrier losses have been nega in 
He past and the association could abundantly secure itself against 
Oss. | 

You are confronted right now with the organization of a great 
corporation with a great caritalization to take over the Federal 


| RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1093 
\ 

equipment which has not been allocated to or accepted by the rail- 
‘roads. There is an infinite number of ways in which the National 
Railways Association could function subordinate to the Interstate 
Commerce Commission. [t is to be noted that in this we propose to 
Set up an active agency, not on the different theory of the suggestions 
_as to a department or board of transportation or any organization 
‘of that kind, which stands more or less at arms length from the 
Interstate Commerce Commission, but one that will lock step with 
it in the effort to attain a joint objective, and that is general railway 
efficiency and service in the United States. 

We believe it would be most helpful, and we have been amazed 
in working out the corporate functions which would have to be given 
‘it at the number of directions in which you have got to give it cor- 
porate powers in order to enable it to function in ways that would 
‘be most helpful. An examination of the provisions of section 20, 
and the following sections, will show that the infinite variety of its 
auxiliary services in coordination with the Interstate Commerce 
‘Commission. | 
| We think that it would be indeed most helpful. I believe that 
‘Commissioner Clark stated that he thought the permanent solution 
of the terminal question was for a local company to acquire the ter- 
‘minals, and for the trunk-line carriers to participate in their use on 
some fair and agreed basis. This association could function there. 
‘We know there are insuperable difficulties in acquiring terminals, 
jcorporate or statutory, or other limitations on individual carriers; it 
‘may be that it is highly desiraole in a great number of instances for 
this public corporation, functioning just as the Federal reserve bank 
or the Emergency Fleet Corporation, operated without profit and 
existing solely in the interest of transportation, to acquire by process 
of condemnation, such as we propose in this bill, the necessary ter- 
minals, docks, or other facilities and then draw the carriers into their 
joint use. 

The more the idea is dwelt-upon the more we think it will be seen 
that it has a wonderful auxiliary power to assist the Interstate Com- 
merce Commission, at all times functioning under its supervision and 
in accordance with its restrictions and limitations. I think of it as a 
clearing house for complaints between the public and the railroads. 
Instead of having to meet the interested or antagonistic action of a 
‘single executive mind the public would go before that association, 
comprised of the commission or its representatives and of these other 
‘men whose fitness for public service would be assured by their election 
by a plurality of railway directorates, and their representatives could 
‘say, “Here is a bad practice; one perhaps not within the regulatory 
power of the commission.”’ + Think of the tremendous assistance that 
could be in ironing out the differences that have arisen between the 
‘public and the railway systems of the United States. 

We advocate it on all of those grounds, not merely because it 
articulates with our suggestion for the administration of this excess- 
earning fund, but because it articulates with every desirable function 
Which has been suggested as the result of this wide discussion as to 
the few advantages of Government ownership and the generally 
admitted necessity for certain unified operations. It meets that 
situation; and while we have not suggested it here, becanse T think 
‘that at the time we formulated the proposal it probably did not occur 
to us, vet if it is desired to have labor represented among the trustees 





| 








- 


‘ 


1094 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 
¢ 
of that association, there is not the slightest reason why they should 
not be, or the shippers, who certainly have as mice interest in the 
railway situation. : 
We think it would be a valuable experience in.cooperation to draw, 
together the conflicting interests, particularly if this casus belli j Is. 
removed from between the railroads and the shippers which now: 
exists in all of these rate struggles, and which would be removed by 
the adoption of our proposed limitation on earnings and a definite 
rule for minimum rate levels which would provide some assurance to 
the carriers that they would be protected from adverse and destruc~ 
tive system which now exists. | 

I believe that I have presented a brief general summary of sections 
of the bill having reference to these high points. We have worked 
the whole out with sufficient detail to avoid any possible misunder- 
standing as to its terms. | 

This, Mr. Chairman, is a general discussion of tne bill, and [ desire 
to express my very great appreciation of your considerate attention 
throughout. | 

The Cratrman. I want to express the appreciation of the com- 
mittee to you and Mr. Walter for the very great paing and care you 
have taken in presenting this plan. ai 

Is it desired that Mr. Warfield appear later ? | 

Mr. Jounston. Later, if you please, Mr. Chairman; at your con- 
venience. 

The Cuarrman. 1 understood you, or someone, to have stated 
‘that he was engaged in the preparation of a memorial to presen to 
the committee ? 

Mr. JonHnston. Yes, sir; that is correct. | 

The Cuarrman. Have you any idea about when he will havell it 
prepared ? 

Mr. Jounstron. I should say within a week; it might be 10 days, 
but I should say at the expiration of a week, if it 1s acceptable to 
the committee. 

The Cuarrman. It is agreeable at any time. 

Mr. Jounston. We shall be glad to keep in touch with you and 
meet your convenience on that. 

The CHarrman. We will now recess until Monday morning at 
10 o’clock. | 

(Whereupon, at 4.50 p. m., the committee adjourned until Monday, 
‘August 18, 1919, at 10 o’clock a. m.) 


COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE, 
House or REPRESENTATIVES, 
Friday, August 15, 1919. 


STATEMENT OF MR. SAMUEL H. BEACH, PRESIDENT ROMY 
SAVINGS BANK, ROME, N. Y., AND PRESIDENT OF THE 
SAVINGS BANKS ASSOCIATION OF THE STATE OF se 
YORK. 


The CuarrmaAn. Mr. Beach, please give us your name and address. 

Mr. Bracu. Samuel H. Beach, president of the Rome Savings 
Bank, of Rome, N. Y., and appearing here for the Savings Banks 
Association of the State of New York, of which I am president. 


“4 


_™» RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1095 











__ Mr. Chairman and gentlemen of the committee, the only idea in 
(the minds of a great many people is, in regard to railroad securities, 
‘that they are owned and held largely by the very wealthy. They 
‘fail to take into consideration the fact that the major portion of the 
‘liquid wealth of this Nation consists of the small accumulations of 
‘the many rather than of the larger holdings of the few. 

| The Savings Banks Association of the State of New York, of which 
‘Lam to-day the spokesman, comprises in membership 139 of the 141 
'savings banks in the State. These are mutual savings banks. They 
‘have no stock and therefore no stockholders. The trustees serve 
entirely without compensation, and every dollar that a savings 
bank earns beyond the actual cost of doing business belongs to the 
depositors. It is natural that these institutions would meet with 
the favor of the people. In the State of New York one-third of the 
entire population of the State, including every man, woman, and 
‘child, are devositors in the savings banks. To be more exact, there 
‘are over 3,500,000 depositors and they have to their aggregate credit 
the enormous sum of over $2,000,000,000. There are similar mutual 
‘savings banks in 14 other States, 615 in all, which have 9,000,000 
‘depositors. 

_ The law requires that a savings bank shall invest the money 
deposited with it as speedily as possible in certain specified high- 
ol securities, and railroad securities are among those so specified. 
Now, how deeply are the savings banks interested in railroad securi- 
ties? Since the war we have talked so much in millions and billions 
that the mere statement of figures means little. So for the purposes 
of comparison I would call your attention to the fact that last Mon- 
day morning the newspapers carried great headlines announcing the 
death of Andrew Carnegie and in the subheadlines they carried the 
announcement that during his lifetime he had given away 
$300,000,000, and the size of the type indicated that $300,000,000 
was a large sum of money. Next day the newspapers carried a head- 
line that the aggregate cost of the foodstuffs which Canada and 
the United States had sent over to the war-devastated countries of 
Europe amounted to $700,000,000. The size of the type indicated 
that they considered that a large sum, but the amount which the 
Savings banks own of railroad securities is not $300,000,000, not 
$700,000,000, but it is $850,000,000. The resources of the 615 
‘mutual savings banks, and that means potential buying power, are 
$5,000,000,000 equal to one-half of the combined time and demand 
deposits of the 7,833 national banks in the country. Besides the 
savings banks depositors, there are 33,000,000 holders of life insur- 
ance policies, and railroad securities form a large block in the holdings 
of the companies which issue those policies. 

Then, we have the vast number, hundreds, say, of universities, 
who invest a portion of their holdings in railroad securities. Then, 
‘come the millions of depositors in stock savings banks, State banks, 
‘and national banks, each of which institutions holds a proportion 
of railroad securities. Then, there are the thousands of trust estates 
and millions of individual investors, so that 50,000,000 people, at 
least one-half of all the population of these United States, are deeply 
‘and vitally interested in having the railroads returned to their owners 
‘under such terms and conditions as will render the present outstand- 
ing bonds desirable to retain and future issues attractive as an invest- 
Ment. 














~ 


1096 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


I am here to-day to speak in favor of the plan which has been 
discussed here for the past two days, a plan which was formulated 
after months of study and deliberation and discussion by the National 
Association of Owners of Railroad Securities. 

The essential features of that plan, so far as we are concerned, to 
describe it very briefly, because you have already listened to eminent 
counsel on this subject, provides that Congress shall by specific act 
provide such rates for freight and passengers as will produce a return 
of not less than 6 per cent upon the combined property investment 
accounts of the roads in each of the three classification territories, 
While this average return of 6 per cent would not enable a road 
operating in a sparsely settled district to earn possibly the average, 
it would permit a railroad operating through a thickly populated, rich 
region to earn much more than 6 per cent and at first thought this 
seems inequitable, but to cover this point the plan contains the 
entirely original and easily workable suggestion that all the money 
which a railroad earns in excess of 6 per cent shall be divided into 
three equal portions. 

One of those portions shall be retained by the road that earns it. 
That makes an incentive for the executives of that road to do every- 
thing in their power to bring all the freight that their road can pos- 
sibly carry to its line. It forms an incentive for them to make their 
transportation service of the public so comfortable and so desirable 
in every way that passenger traffic will be attracted. In other 
words, 1t creates competition, and competition we must have if our 
railroads are to reach their highest efficiency. 

Another third goes to labor. That makes labor interested in 
handling all the freight possible and in having its road earn all the 
money it can, because labor profits directly in the excess earnings. 
Labor is entitled to its share of the excess earnings, and this plan 
provides for such participation. 

The third portion is to be diverted to such use as will be of benefit 
to the traveling public and the shippers. 

Ex-Senator Elihu Root, whose keen, analytical mind clarifies and 
illuminates every subject to the study of which it is turned, said in 
a letter to Mr. Warfield touching this plan, ‘‘I think you have put 
your hook into the key log of the jam.’’ No more terse or effective 
description of the conditions which obtain could be made than is 
expressed by those words of Mr. Root. We all know there is a jam. 
Every business man knows down in his heart that the Government 
operation or Government ownership of railroads never can be eithe! 
efficient or economical, and in a republic to the continued existence 
of which political parties are necessary, the making of a political 
asset of the vast number of railroad employees which our great 
transportation system has to have, would be a constant and grave 
menace to good government. 

It is our firm conviction that unless the railroads can be given 
reasonable return that it means their destruction and eventual 
Government ownership, unless, as Mr. Johnston so forcibly stated 
this morning, Congress shall exercise its duty to stop by act the knife 
of regulation short-of the heart of the transportation system of these 
United States. 1 

The question might properly be asked, not being a practical rail- 
road man, why am I here? That question is easily answered. I am 
here because I directly represent trust funds to the amount ol 


RETURN OF THE RAILROADS. TO PRIVATE OWNERSHIP. 1097 


$2,000,000,000, and when I say ‘‘trust funds’ I mean just exactly 
shat in every sense of the word. | 

| So ecarefuily has the Legislature of the State of New York safe- 
muarded and hedged about the deposits in the savings banks by 
sarefully drawn restrictive laws that those laws have become the 
nark and model which other States are fast adopting as their own. 
Under these laws a savings bank can not buy a railroad bond, and 
ight here I want to say that not only can not a savings bank buy a 
railroad bond, but no trust estate can buy a railroad bond, nobody 
qaving trust funds can buy a railroad bond, because they are al 
imder the same law as the savings banks, unless that bond is issued 
xy a railroad which has an efficient operating and working force, 
svidenced by its having paid a fixed return to its stockholders over a 
‘xed period of years. 

In other words, a savings bank can not buy a railroad bond unless 
it is as safe and secure and as certain of being paid in full at maturity 
as human experience can determine, but human experience affords no 
precedent either in this or any other country for such operations of 
railroads as the past two years have witnessed. Operating costs have 
mounted so far out of proportion to the receipts that the bonds of at 
least eight or nine railroads which were eligible for savings banks to 
buy before the war started are in a fair way to become illegal. It is 
aasy to ask why can not these laws be changed so as to conform to 
existing conditions, but the fact is we do not want the laws changed. 
We have no reason to attempt to camouflage our position. What we 
do want is to have such legislation enacted as will bring these securi- 
ties up to the requirements of the law so that instead of being forced 
to sell the securities we already hold and thereby seriously deflect an 
already depressed market, we may not only be warranted but feel 
justified in investing every dollar of the $2,000,000,000 which are 
intrusted to our care in railroad securities which the laws governing 
our investments will permit us to-do. 

I thank you, gentlemen, for your attention. 
~The CuarrMan. The committee appreciates your presentation of 
the case, Mr. Beach. 


House or REPRESENTATIVES, 
COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE, 
Monday, August 18, 1919. 

The committee met at 10 o’clock a. m., Hon. John J. Esch (chair- 
man) presiding. 

\ The Crarrman. The committee will come to order. 

Mr. Post desires to present this morning a résumé of the referendum 
tecently held by the United States Chamber of Commerce on certain 
phases of the railroad legislation, and the committee will be glad to 
hear Mr. Post now. 


STATEMENT OF MR. GEORGE A. POST, CHAIRMAN OF THE 
RAILROAD COMMITTEE, CHAMBER OF COMMERCE OF THE 


UNITED STATES. 


Mr. Post. Mr. Chairman and gentlemen of the committee, I have 
the honor to be the instrument whereby the Chamber of Commerce 
of the United States seeks to bring to the attention of your honorable 
’ 


a 
4. 


# 
1098 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. - 


a 


body the results obtained by the votes of its organization members 
upon the several recommendations contained in its referendum No, 
28. . 

The plan which I shall present to you to-day has received the 
approval of the members of the Chamber of Commerce of the United 
States and is, up to a certain point, identical with the program of 
railroad legislation presented to this committee two weeks ago by 
representatives of the national transportation conference recently 
held under the auspices of the chamber. The conference program 
goes further, however, and includes certain recommendations which, 
although entirely in harmony with the principles embodied in the 
chamber plan, have not yet been submitted to the members of the 
chamber for approval by referendum vote. : 

It was impossible to place before the members of the Chamber of 
Commerce of the United States any detailed plan, couched, section 
by section, in statutory phrasing, because in our referenda it is neces- 
sary so the frame the questions submitted that they shall be sus- 
ceptible of an answer ‘‘yes” or ‘“‘no’’ to each interrogatory. The 
chamber is made up mostly of business men who can and do grasp 
a business principle, consider it and give adhesion thereto or oppose 
it. You have their judgment on several major points of the railroad 
problem. They have contented themselves with giving expression 
t) their sentiments on a few of the many matters that must engage 
your attention. The chamber has full appreciation of the per 
plexities that confront you in framing the legislation which must 

recede the return of the railroads to their owners. It has aimed to 
be helpful to you in showing the trend of thought of American bust 
ness upon some of the outstanding issues involved m your delibera- 
tions. It feels that was its duty to you as our Representatives i 
the Congress. It knows that deep study is needed of the complex- 
ities inherent in the very existence of a transportation system which 
serves those who needs service which they desire to obtain at the 
lowest possible rates, a service which is rendered possible through 
the labors of those who are entitled to liberal wages for dangerous 
and exacting toil, and requires investment of billions of dollars from 
the savings of thrifty folks, who will invest only if the return is at- 
tractive to them. In such circumstances, no one of the elements 
may reasonably hope to exact the fullest measure of its desires either 
as to lowness of rates, height of wages, or abundance of investment 
return. 

American business is deeply concerned respecting the future of. ow? 
railroads. It has high hopes of a wise outcome of your deliberations: 
It has noted with gratification the earnestness, patience, and fairness 
with which the congressional committees are seeking to secure all 
possible information. Groups of business men differ in the details 
of financial plans, all of which must undergo your careful scrutiny, 
but in one thing they will be found in firm agreement: Government 
ownership must not prevail. 

To you, gentlemen, is confided a great responsibility. As you 
proceed in your work of bringing order out of chaos in the realm o! 
transportation, you are entitle to the friendliest, most zealous coop: 
eration of all. “The Chamber of Commerce of the United State: 
indulges the confident hope that under your guidance the day is neat 
when our railroads shall emerge from the slough of despond m whic’ 


:s 


| 
| RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1099 
on 

whey are now submerged, and, returned to their owners for operation 
amder a comprehensive and beneficent system of governmental su- 
yervision, with assurance of adequate revenue, shall give such eco- 
jomical and satisfactory service as only courageous individual enter- 
yrise, with ample freedom of operation, can vouchsafe. 

Method of taking vote: For your information as to the method of 
‘yrocedure of the chamber in submitting its referenda, I beg to state 
shat when any of its standmg committees, or a special committee 
wreated for the study of any particular subject of national scope, 
jas, after mature deliberation, arrived at certain conclusions with 
‘eference thereto, the committee forthwith renders a report to the 
yoard of directors, making its recommendations, accompanied by 
‘ts reasons for such conclusions, and for the action that it recom- 
mends. If the board of directors considers the findings of the com- 
mittee of such a nature as to warrant the ascertainment of the 
ypinion of the members throughout the country, a referendum is 
ordered, and in due form the machinery of the chamber is set in 
motion, and each and every member organization is called upon to 
hxpress its opmion by a yea or nay vote upon the proposals made. 

- The directors do not record an expression of their opinion. Forty- 
ive days are allowed for the consideration of the proposals by the 
member organizations, all votes to be filed on or before a certain 
jixed date. As the member organizations vary in size of enrolled 
nemberships and income derived therefrom, which is the basis for 
jhe number of votes which each member organization is entitled to 
vast upon all referenda of the chamber, the voting strength varies, 
put each organization, no matter how small, is entitled to one vote, 
and no organization, no matter how affluent in income or strong in 
snrolled memberships, is entitled to more than 10 votes. 

In accordance with the law of the chamber, the railroad question, 
n its various phases, was referred to the railroad committee. Many 
‘neetings of the committee were held, free discussion was had, and a 
‘eport was made to the board of directors at a meeting held in St. 
‘Uouis on April 30, 1919. On June 9, 1919, referendum No. 28 was 
‘ssued calling for judgment upon the several recommendations made 
‘oy the railroad committee. On July 24 the polls closed, and an 
ficial announcement was made of the results of the voting. 

| Under its rules a two-thirds affirmative vote of those voting must 
°e cast upon any proposal submitted to make it effective as a declara- 
ion of the sense of the Chamber of Commerce of the United States. 

- Ten recommendations made: The railroad committee had made 
10 recommendations, and in their numerical order they were as 
‘ollows: . 

- The committee recommends adherence to the policy of corporate 
‘ywnership and operation of the railroads under a comprehensive 
system of Government regulation. 

_ The-vote upon this recommendation was: Yes, 1,458; no, 11. 

‘At the time that this recommendation was madeé there was no 
loubt in the minds of the committee that Government ownership 
‘nd operation was not an issue pressing for attention upon the present 
Jongress. Due to the unfavorable impression made upon the public 
nind by the operation of the railroads under Federal control, for a 
Yeriod of 16 months, there was manifest throughout the country a 
‘strong, even overwhelming, sentiment against a continuance of 


’ . 










1100 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Federal control and operation. Prior to the adventure into the field 
of Federal control (undertaken as a war measure) many men in 
public office and multitudes or private citizens had been harshly 
critical of railroad management and had zealously advocated and 
brought about legislation severely restrictive and punitive respecting 
railroad operations. In their bitterness, engendered by what they 
considered unfair and aggravating practices of the railroads, they 
had declared that Government ownership and operation was the 
only remedy for railroad evils. Later they were so aroused by what 
they deemed the baleful effects of Government operation upon their 
personal convenience and upon the conduct of their business, con- 
sequent upon the indifference of governmental agencies to their 
transportation needs, the elimination of comforts, cooperation, 
facilities, and courtesies to which they had been accustomed, that 
they renounced their previous advocacy of Government ownership 
and became vigorous opponents thereof. So recently as July 15 last 
at the opening of these hearings before this committee, Chairman 
Kisch said: “In view of the widespread sentiment throughout the 
country against Government ownership, I feel we ought not to spend 
very much time on that proposition.” 

The railroad committee of the chamber was of the opinion, however, 
that a declaration should be made by the chamber upon the subject 
at this time so that, as a matter of record, the position of its members 
might be made clear and emphatic thereon. In its statement ac- 
companying its recommendation, the committe presented some of its 
controlling reasons for the consideration of members, and the prac- 
tically unanimous approval accorded the same in the votes recorded, 
shows, unmistakably, that the commercial and industrial interests 
of the country are a unit against Government ownership and opera- 
tion, and against Government ownership with operation by private 
corporations as lessees of the Government. Among the reasons 
urged agains Government ownership and operation are: 

Argument against Government ownership: First, under Govern- 
ment ownership the development of railroad facilities would depend 
upon congressional appropriations which would prevent the anticipa- 
tion of the transportation needs of the country. Appropriations 
would not be made in the amount and at the time needed to insure 
adequate development of the railroads. Political considerations 
might also control the amount of appropriations and the objects for 
which they were made. 

Second, the interest rate which the Government would have to pay 
to secure railroad capital would not be lower than the rate paid by 
corporations. ‘To acquire the railroads the Government would have 
to pledge its credit for eighteen to twenty billions of dollars, at a 
time when other large financiering must be done. It would be 
difficult for the Government to dispose of the securities required to 
purchase the railroads, and it would be necessary for the Government 
to secure from $500,000,000 to $1,000,000,000 of new capital each 
year. If the Government were to assume the burden of financing 
the railroads at the present time when the war debt is so large, its 
interest rate would necessarily be as high as, if not higher than, the 
rate at which corporations could secure capital. r 

Third, Government operation is seldom, if ever, as efficient as cor- 
porate management. Competition, the incentive to efficiency and 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1101 
progress in private enterprises, is absent from the Government ad- 
ministration of affairs. Individual initiative is less, bureaucratic 
methods are more characteristic, and the services rendered are less 
progressively efficient. 

_ Fourth, while the Government would presumably select officers 
and employees by means of efficiency tests, political includes would 
almost certainly be given weight in selecting men for official positions. 

Fifth, unless the Government adopted the policy of fixing low rates 
and fares with the intention that any resulting deficit from operations 
should be placed as an increased burden of taxes upon the general 

ublic, rates and-fares would be higher under Government than un- 

er private operation. Under Government operation expenses rise 
in relation to income and the charges imposed by the Government, 
if a deficit is to be avoided, must be higher than those which it would 
be necessary to permit railroad corporations to make. 

Sixth, the political effect of Government ownership and operation 
of railroads in the United States might be serious. There are now 
about 500,000 civil employees of the Government. The addition to 
the public services of 2,000,000 railroad employees, the majority of 
whom are voters, would constitute a force of about 2,500,000 Govern- 
ment employees interested in controlling the policy of the Govern- 
ment as regards wages, hours, and conditions of service. Such a body 
of employees might easily exercise a controlling influence upon State 
and National politics. 

Speedy return of roads: Being convinced that the public was now 
thoroughly and strenuously opposed to Government ownership and 
operation of the railroads, the natural sequence of thought was that 
Federal control should come to an end as speedily as possible. The 
second recommendation was, therefore, as follows: 

The committee recommends the return of the railroads to their 
owners as soon as remedial legislation can be enacted. 

The affirmative vote upon this recommendation was almost identi- 
cal with that in favor of corporate ownership and operation: Yes, 
1,458; no, 18. 

- Thus, it is conclusively shown that the voice of business is in con- 
sonance with the view of the railroad committee which argued that: 

It would be unwise for the Government to retain the railroads 
longer than is necessary to enact the legislation required for the return 
of the properties under conditions that will be just to the owners and 
will insure to the public adequate transportation facilities by properly 
financed railroads. This legislation should be enacted as soon as 
possible and before the Government retires from railroad operation. 
It would be a hardship to the public and unjust to the owners of the 
roads were the Government to return the properties without first 
removing the obstacles to efficient and economical operation of the rail- 
roads by their owners, without revising past methods and agencies of 
Government regulation, or without adopting measures that will 
enable the carriers to obtain revenues sufficient to provide the public 
with adequate facilities and efficient service. As soon as this legis- 
lation has been enacted, Government operation of railroads should 
end. | 
_ Argument against extension of time: The third recommendation 
Was: : 


152894—19—vo1 1 70 





1102 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


The committee recommends that no extension of the period of 
Government operation should be made until Congress shall have 
found it impossible to enact the required legislation within the period 
possible under the railroad control act. 

The vote cast was: Yes, 1,3394; no, 1143. 

This recommendation was responsive to a recommendation made 
by Director General McAdoo, just prior to his retirement from office 
that the period of possible Government operation of railroads be 
extended until January 1, 1924, in order that a test may be made of 
the possibilities of Government operation of railroads in peace time 
and that the Government may carry on the work it has begun of 
developing the use of waterways, of connecting them with the rail- 
roads and of articulating rail and water traffic. It was also urged 
by the director general that Congress could not frame and pass the 
“necessary legislation to return the railroads to their owners with such 
celerity as to avoid projecting the whole railroad question into the 
presidential campaign of 1920, which he said, would be a calamity 
to be avoided, and which could be avoided by the adoption of the 
plan of a five-year extension of Federal control. 

This proposal by the director general fell upon deaf ears, with the 
exception of those of the railroad brotherhoods, which, having fared 
so generously under Federal control, seemed willing to have 1t con- 
tinued for any length of time. The public at large, however, showed 
no favor toward the appeal made, repelling it vigorously, and the 
project ‘‘died a bornin’,” so to speak. [t was finally nailed in its 
coffin when the President gave notice to Congress that he would 
release the railroads from Federal control at the end of this calendar 
year—the question of an extension of Federal control beyond the 
time of the act of March 21, 1918, is not, therefore, a live one before 
Congress. The vote.of the chamber was overwhelming against the 
extension. | , 

Consolidation on strong competing systems: Fourth in order. 
The committee recommends that, while adhering to the principle of 
railroad competition in service, the railroads be allowed, in the 
public interest, when so declared and as approved by public authority, 
to consolidate to such extent and in such manner as may be necessary 
to enable the existing railroads to unite in a limited number of strong 
competing systems, so located that each of the principal traffic 
centers of the country shall, if possible, be served by more than 
one system. ‘ 

The vote upon this recommendation was: Yes, 1,3095; no, 1253. 

The argument of the committee which proved persuasive to the 
chamber members in support of this recommendation was: 

It is the opinion of the committee that legislation should be enacted 
that will facilitate the early grouping and the ultimate consolidation 
of the railroads in the United States into a limited number of strong. 
competitive systems, the grouping should be about the present large 
systems and not by territorial subdivisions of the country. 

The existence of so many railroad systems as there now are increases 
the difficulty of coordinating their facilities and services to the 
extent necessary to secure.the most economical operation. Moreover, 
some of the present roads are financially weak and their continuance 
as separate systems complicates the Government’s problems of 
rate-making, of the common or joint use of equipment and facilities, 









RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 110% 


of the regulation of security issues and of reestablishing the financial 
wredit of the railroads as a whole. If the railroad systems that are 
Mmancially unstable.and the many systems of minor importance 
tan (subject to the approval of the Government, and under con- 
litions which it may prescribe) be grouped, or consolidated, with a 
‘imited number of strong systems, a better service can be rendered 
and a ree development of lines, terminals, and other facilities will 
.9e possible. 
_ Without sacrificnmg the benefits of competition in service, the 
zovernment should facilitate the coordination of. railroad facilities 
and services, the common use of equipment, and the joint use and 
levelopment of terminal facilities, when in the public interest. 
_ With Government approval: The consolidation of railroads, as: 
well as the coordination of their facilities, should be subject to the 
ppproval of the Government, and, with such authorization required, 
she railroads should be encouraged to work out the natural grouping 
wf systems and to combine their facilities in the interest of traffic 
3conomy and of financial stability. 
_ Many States have laws against the combination of railroads, and 
n the constitutions of several States there are provisions prohibiting 
she acquisition by a railroad of another competing line. ‘The obsta- 
sles which these State laws and constitutional provisions place in the 
way of the associated activities and the LN Ra of railroads may 
oe removed by changing the status of railroad companies from State 
to Federal corporations, as recommended in this report. 
| While favoring the early grouping, and ultimate consolidation of 
the railroads.in the United States into a limited number of strong 
systems, which shall be built upon the large systems which have 
leveloped in response to commercial needs, the committee feels that 
sompetition among these systems, in service (not in rates), is desirable 
tom the standpoint of the public and will lead to greater efficiency 
wf operation on the part of the railroads. In all kinds of business the 
most effective incentive to improvement and to economy of operation 
s competition. In the case of the railroads the same charges must 
9e made for similar services. The rates and, to a large extent, the 
wractices of carriers must be regulated by the Government, but 
“egulation does not preclude the possibility of active competition in 
service. In facilitating railroad consolidation, the Government need 
10t, and in the interest of the public should not, eliminate railroad 
sompetition. 
_ Corporations subject to United States: The committee recommends 
shat railroad companies engaging in interstate commerce shall be 
equired to change from State to Federal corporations, with suitable 
drovisions in the act of Congress providing therefor that the several 
States shall retain the power of taxation and police regulation of the 
oroperties of said railroads. 
' The vote upon this recommendation was: Yes, 1,224; no, 193. 
By referendum 21, which was submitted by the chamber of com- 
nerce in September, 1917, the commercial organizations of the coun— 
ury, with a comparatively few dissenting votes, declared themselves 
n favor of the enactment of a Federal incorporation law and also of 
‘Jaw requiring all carriers now subject to the Radiol of the Inter- 
state Commerce Commission, or which may hereafter be created, to 
organize under a Federal incorporation act. 










; 


4 
" 
1104 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. j 


It has been represented to the committee by jurists who have give 
the matter careful consideration that Congress can enact a statute 
that will provide a simple process of converting State railroad com- 
panies engaged in interstate commerce into Federal corporations 
by methods similar to hose followed in changing State banks into 
national banks. - 

If such a plan shall be found by Congress to be constitutional and’ 
feasible, the committee recommends the Federalizing of railroad 
corporations engaging in interstate commerce, by the enactment of 
a statute similar in principle to that of the national. bank act, which 
provides a direct method of converting States banks into Federal 
institutions. . 

In requiring railroad companies to change from State to Federal 
corporations, Congress should provide that the States shall retain 
the power of taxation and police regulation of the property of the 
Federal railroad corporations. 

Regulation of capital expenditures and security issues: The com- 
mittee recommends that the Interstate Commerce Commission, or 
such Federal agency as may be designated by Congress, be authorized 
to pass upon the public necessity for expenditures of capital in excess 
of a stipulated amount) bycarriers engaged in interstate commerce, 
and to determine the amount and to regulate the other conditions of 
the issuance of securities to obtain the funds required to cover 
authorized capital expenditures; and that a railroad applying to 
the Federal agency for authority to make capital expenditures, or 
to issue securities, shall be required to file with the proper authorities 
of the States in which the railroad is located, copies of the original 
petition; and that the Federal agency be required to notify the said 
State authorities of the hearings upon the petition, in order that they 
may advise the Federal agency as to actions they favor. 

The vote upon this recommendation was: Yes, 1,3344; no, 903. 

The organization members ‘of the Chambers of Commerce of the 
United States, is acting upon referendum 21, voted almost unanti- 
nously in favor of Federal regulation of the issuance of the securities 
of railroad companies engaged in interstate commerce. It is the 
opinion of your committee that Federal authority should also regu- 
late large capital expenditures. 

In acting upon applications of the railroads for the approval of 
security issues, or large capital expenditures, the Federal agency will 
need to inquire as to the public necessity for the work proposed to 
be done, the amount of capital that will need to be expended, and, 
if securities are to be issued, what amount thereof will need to be 
authorized to enable the carriers to obtain the funds required for the 
execution of the work which the Government may find to be of publie 
necessity. ; 

Assistance from State authorities: In order that the State authori- 
ties may assist the Federal agency to obtain as complete knowledge 
as possible of the local needs for additional railroad facilities and of 
the expenditures required to meet those needs, the Federal agency 
should require a railroad company, applying for permission to issue 
securities or to make a large expenditure of capital, to file with the 
authorities of the States in which the railroad in question is located 
copies of the original petition to the Federal agency, which should 


1 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1105 
| 









(notify the interested State authorities of the hearings upon applica- 
‘tion for approval of security issues and capital expenditures in order 
pet they may have full opportunity to advise as to the actions they 
‘favor. ! 

! Seventh in order: The committee renews its previous recommenda- 
tion that the Interstate Commerce Commission be given authority by 
3tatute to regulate intrastate rates, when those rates affect interstate 
/ commerce. 

' The vote upon this recommendation was: Yes, 1,329}; no, 1164. 
» This recommendation was approved by the organization members 
‘of the Chamber of Commerce of the United States in November, 1917, 
\with comparatively few dissenting votes. This action having been 
‘taken shortly before the United States took over the operation of the 
railroads, Congress has had no opportunity to act upon the question. 
‘It is therefore deemed necessary and important by the committee 
|that this recommendation shall be included in its present report as a 
‘part of the plan for remedial railroad legislation. 

| The experience of the past two years has confirmed the committee 
‘in its conviction that regulation by the several States of such intra- 
‘state rates as affect interstate commerce interferes with the effective 
and uniform regulation of interstate rates by the United States. 
Government. Indeed, conflict detrimental to the public interest has 
‘arisen with respect to the jurisdiction of the state commissions and 
‘the Interstate BE acces Commission over intrastate rates even when 
‘it was clear that such rates affected the interstate rates subject to 
‘the regulatory power of the Federal Government. 

Eighth in order: Rule of rate making. 

The committee recommends the enactment of a statutory rule 
providing that railroad rates and fares authorized by the Interstate 
Commerce Commission shall be designed to yield the railroad com- 
panies, in each of the traffic sections that shall be designated by the 
commission, aggregate revenues which will provide (after allotment 
has been made for renewals and depreciation) such net return upon 
a fair value (determined by public authority) of the property devoted 
to the public use as will be sufficient in amount to enable the carriers 
to obtain at reasonable cost the capital required to furnish the 
public with adequate facilities and efficient and economical service. 

The vote upon this recommendation was: Yes, 1,2234; no, 2093. 

If the railroads are to be returned to their owners at the end of this 
calendar year, as the President has signified it to be his purpose, then 
‘the function of Congress is to provide the means whereby they shall 
‘be so returned, with financial safety to the owners and with an 
assurance that they shall be so equipped as to meet adequately the 
traffic demands of our Nation. In the enactment of the necessary 
legislation by Congress the railroads must be provided with eee 
‘revenue wherewith they may perform properly the public service for 
‘which they are intended, and without which performance our coun- 
‘try’s commerce and industry must languish, The welfare of our 
Nation is so closely bound up with its transportation facilities that 
‘any trouble or weakness with which the railroads are afflicted mm- 
“mediately affects injuriously every citizen, 
Regulation in the past: It is urged upon Congress that the time has. 
‘arrived when a revision or augmentation of instructions should issue 
from the law-making body to its regulatory agency, that it may be 








1106 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


apprised that those who are expected to make effective by statute 
the desires of the public, now feel that cognizance must now be taken 
of the physical and fiscal welfare of the railroads. Stern discipline, 
punishment for past sins, stringent rules of conduct, prescriptions for: 
accounting, laws for application of safety appliances, commands fix- 
ing wages, hours and conditions of labor for employees, and all sorts. 
of ‘‘shalts” and ‘‘shalt nots’ have poured forth in steady streams. 
from legislative and regulatory sources for many years. 

A warm tribute of appreciation is due to the vigor manifested, the 
vigilance exercised, and the comprehensiveness of scope of the legis- 
lative activities of those statesmen who, covering a long period of. 
years before the war, dealt heroically and drastically with the pesti- 
lential aspects of railroad deviltry practiced in years long gone by, 
They diagnosed many of the railroad conditions to be diseased and 
dangerous to the public, and then by statutory purgatives and emetics 
they proceeded to purify their mteriors, and by violent and long- 
continued flagellation they thoroughly subdued them. Does anyone 
now doubt the omnipotent power of the people to compel obedience 
to their will by the railroads ? | : 

To-day the owners of the railroads are absolutely powerless as a 
political factor. They have been shorn of the possession of their 
property; it is in the possession of the Government. A vast majority. 
of the people believe that their owners know how to run the railroads 
better than the Government. There should not be the slightest 
change in any regulation that is protective of the public interest, 
But, after all possible safeguards have been erected, there is an mterest 
of the public that is of transcendent importance, viz, that the income 
of the railroads shall be sufficient to enable them to secure readily 
and economically the capital necessary to provide adequate facilities. 

The railroad committee of the chamber frankly said to the members: 

In carrying out this principle special difficulty results from the 
fact that the same rates will yield the more prosperous companies 
greater revenue than they need, while the less prosperous companies, 
due to their unfortunate situation or to their past history, are unable 
to secure income sufficient to enable them either to develop their 
facilities in proportion to the needs of the public, or to perform the 
services required by the section of the country in which the roads are 
located. 

It is believed that the most practicable way to provide the rail- 
roads of the United States, as a whole, with adequate revenue, and 
thus to reestablish railroad credit, is to authorize the Interstate 
Jommerce Commission to divide the country into such traffic sections 
as May seem to the commission wise, and to direct the commission 
by astatutory rule to fix such rates and fares as will yield the railroad 
companies, in each of such traffic sections as shall be designated by 
the commission, aggregate revenues which will provide—after allot- 
ment has been made for renewals and depreciation—a net return 
that will enable the carriers to furnish the public with adequate facil- 
ities and efficient and economical service. | . 

The committee is not in favor of a Government guaranty of 2 
minimum return to each railroad company, either upon its capitali- 
zation or upon the property which it devotes to the public service. 
A Government guaranty would tend to lessen initiative and to cause 
both the prosperous and the unprosperous roads to feel less respon- 
sibility for efficient management. 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1107 





| While not favoring a Government guaranty of a minimum return, 
| the committee believes that Congress ought to adopt a statutory rule 
|providing that the public authority which fixes the railroad rates 
assure reasonable revenues to the railroads as a whole and in each of 
| the natural traffic sections of the country. The committee is of the 
opinion that such a statutory rule can be enforced without placing 
an unjust burden upon the public and without causing individual 
_ailroad companies to obtain excessive profits. 
In connection with the foregoing suggestion must be taken the 
proposition embodied in item 4 of referendum 28 heretofore recited 
providing for railroad consolidations when found and adjudged by 
governmental authority to be in the public interest. 
Item 9 of the referendum did not receive the requisite two-thirds 
‘affirmative vote, and is not therefore pressed upon your attention. 
Federal transportation board, the tenth in order: The committee 
'recommends that a Federal transportation board be created whose 
general duty it shall be to promote the development of a national 
_system of rail, water, and highway transportation, and thus to make 
| possible the articulation and economical use of all the facilites, includ- 
ing tracks, terminals and transfer facilities, of steam and electric 
| roads, waterways, and hard-surface highways. 
| The vote upon this recommendation was: Yes, 1,197; no, 244. 
| Tean not do better than to quote the language of the committee 
‘sustaining this recommendation: 


|| The development of a national system of transportation is a public necessity. Up 
| to the present time the steam and electric railways, the waterways and highways 
| have been developed separately without reference to a common plan and without 
thought of creating, from the various agencies of transportation, a unified system. 

| ‘The time has come when the waterways of the country as a whole should be system- 
| atically developed according to a definite plan. Their larger use should be made 
possible by connecting them with the railroads at river, lake, and ocean ports, and by 
enabling shippers to send their traffic by the most economical combination of rail and 
water routes. 

The work which the Railroad Administration has so happily begun of providing 
for the traffic use of important rivers and canals, and of articulating the railroads with 
| the waterways in a traffic sense, should be continued after the railroads have been 
returned to their owners. 

The development of highways transport should be facilitated with a view to the 
coordinated use of all transportation agencies. While the people of the United States 
have been creating an exceptionally economical system of transportation by rail, 
highways have been pelattvely neglected, and the expenses of carrying freight to and 
from the railroads are, in most instances, greater than the cost of the railroad haul. 
The systematic development and the organized use of hard-suriace highways greatly 
“reduce the transportation burdens borne by the people of the United States. 
| Tt is especially important that provision should be made for the common use. and 
) construction of terminal and transfer facilities at all the larger traffic centers of the 
country; but, unless some Federal authority is vested with power to bring aout the 
| common use of terminal and transfer facilities, and their joint construction by the 
"carriers (in so far as they may be in the public interest). it is practically certain that 
' the present expensive methods of terminal operation will be indefinitely continued. 
_ The development of a unified national system of transportation 1s an executive 
_ task that can be performed only by creating a board primarily administrative 1n pur- 
| pose and organization. The Interstate Commerce Commission, ‘In the regulation of 
rates and in the preformance of the other duties with which it is charged, will have 
as much work as it can successfully perform. It has not been suggested to take from 
- the Interstate Commerce Commission any of the functions it has thus far exercised, 
| but a large addition to the duties of the Commission has been recommended. It 
- would be unwise to impose upon that body the large and exacting task of guiding and 
facilitating. the development of a national system oi rail, water, and highway trans- 
portation... That work should be undertaken by an especially created Federal trans- 
| portation board. 
















—_ * 


1108 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


All of which is respectfully presented for your consideration. 
The Cuarpman. Mr. Post, in the referendum you did not cover 
some of the specific features recommended by the transportation 
conference. , 

Mr. Post. I did not. 

The CHarrMan. Especially those with reference t> the various 
funds. Is it the intention of the chamber of commerce to have 
another referendum ? 

Mr. Posr. I do net think so. The reason for that, Mr. Chairman, 
was this: The annual meeting of the chamber of commerce was to 
be held at St. Louis on April 30, and it was necessary that the rail- 
road committee should report its recommendations to the main pody 
at that time. Simultaneously with the meetings of the Railroad 
committee in making its studies, there had been meetings of the 
National Transportation Conference, its first meeting being on De- 
cember 12 and 13. The railroad committee in framing its recom- 
mendations to the chamber, upon which should be based the refer- 
endum, if thought desirable by the board of directors, could not go 
so far in the matter of details as the conference decided to go. As I 
have said in the main paper [ presented, the answei to a referen- 
dum question must be yes or no. The railroad committee partici- 
pated in the proceedings of the conference even after the committee 
had made its report to the main body. The transportation conter- 
ence was an entirely independent hody; it had no. reason to report 
to the chamber of commerce, and it could go along its way and go 
into detail and formulate a system of contingent funds, which it 
did, but, which, as you can readily see, was not susceptible of a yes 
or no answer for referendum. It could be brought to the attention 
of congressional committees, however, to indicate the conference's 
best judgment as to how a statutory rule might be framed. 

The CHarrnMAN. Is it fair to assume that the chamber of commerce 
is in accord with the plan suggested by the transportation confer- 
ence as to those feautres that were not submitted to referendum ? 

Mr. Posr. I do not think that I would have the right to say that 
the chamber would or would not be in accord, because it has not been 
presented to it for consideration. My province, of course, as chair- 
man of the railroad committee, would be to bring to your attention 
that which the chamber has passed upon and not that which has not. 
been brought to its attention. 

The CuarrMan. I understand that. The referendum had no refer- 
ence to matters of wage disputes, but the transportation conference’s 
plan suggested that ? 

Mr. Post. Yes, sir. 

The CuarmMan. The committee wishes to thank you for your ex- 
planation of the referendum. 

Mr. Srus. Mr. Post, I have an indefinite recollection, and, perhaps, — 
it is Inaccurate, that the chamoer of commerce, in some way or other, 
a few years ago, had hefore it the question of a ship subsidy, and my 
recollection is that it indorsed that plan of building up the merchant 
marine. Is that true, or not? | 

Mr. Posr. I can not answer that question offhand. Whatever 
referendum was shaped up was by another committee entirely, and 
I do not just at the moment recall that particular referendum: 

Mr. Srus. I may be incorrect, and I may be under an erroneous 
impression, but my recollection is that the chamber of commerce 








RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1109 


tn some way took action on this question of ship subsidy and came 
yout strongly in favor of a Government subsidy to assist in the build-. 
ling up of a merchant marine. That was before the European War. 
_ Mr. Posr. I will be very glad to refresh my memory in regard to. 
|\that, and will amplify my answer in the record. 

| Mr. Sims. I do not know that that is necessary in connection with 
your presentation.. That was on the question of transportation and 
with reference to trying to ouild up our water-borne commerce. Now, 
did, or did not, the chamber of commerce in any way whatever 
)tecently take some action with reference to the controversy involving 
the great packing industry of the United States, in which it expressed 
a favorable opinion as to the methods adopted by the great packers 
of the country? I am not saying whether it was right or wrong, but 
did they not take some action on that subject at a comparatively 
‘recent date, or within the last year or two? 

Mr. Post. Not in the nature of a referendum, | think. I think 
‘there was some action taken by the chamber of commerce with 
reference to the Federal Trade Commission, in which some conten- 
‘tion arose as between the Federal Trade Commission and the cham- 
ber of commerce. : 

Mr. Sims. As to facts or as to any recommendation that was made? 

Mr. Post. Not as to any recommendation, out as to the facts 
existing with regard to the controversy. 

Mr. Sims. Of course, transportation is indirectly mvolved in all of 
that matter, and I am not trying to bring in something that is not 
related to the subject before the committee. I did not know but 
that you had studied that end of it with reference to the special 
facilities furnished by carriers, that being a question which also 
arises in part under the Esch bill. If I understand correctly, what 
you have just read, the most fundamental and basic contention 
presented by your body is that Government ownership must not 
prevail. 

Mr. Post. That is our feeling. 

Mr. Sims. That is your position ? 

Mr. Post. Exactly. 

Mr. Sims. That it must not prevail, which means, as a matter of 
course, inversely stated, that private ownership must prevail. 

Mr. Posr. That is the feeling of the chamber and of the members. 

Mr. Sims. And that Congress must do whatever is necessary to. 
enable it to prevail ? 

Mr. Posr. That is the hope. 

_ Mr. Sms. I understand further, that the chamber of commerce is 
opposed to Government ownership and operation and to Government 
ownership and operation by corporations, or otherwise. You seem 
to be as much opposed to one as to the other ? 

Mr. Post. Yes, sir. 

Mr. Sims. Therefore, your chamber is opposed strenuously and 
basically to the Government taking over and owning the fixed 
‘property—not the movable property, but the fixed property of the 
railroads—and permitting the present corporations to continue 
Operation of the properties under State and Federal law, such as 
‘We now have rani may hereafter have. In other words, it would 
oppose Government ownership of the fixed property or the railroad 
structures even though it were operated by private capital or private 
‘corporations ? 







1110 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Mr. Posr. I should say from the chamber’s record that it would 
oppose making two bites of the cherry, and that if it would oppose 
one of them, it would oppose the other. Of course, the question 
you propound has never of itself been submitted for inquiry or. 
submitted to referendum ? : 

Mr. Sms. But that is supposed to be the opinion of the chamber? 

Mr. Post. Yes, sir. 

Mr. Sms. Therefore, logically, it would be against the public 
interest for a station or railroad track to be built on Government- | 
owned land, where the Government had anything whatever to do_ 
with operating the terminal or track, in whatever way it might be 
used for railroad purposes ? 

Mr. Post. I should say that the chamber of commerce views un: 
favorably Government ownership in whole or in part of the railroad 
system. 

Me Sms. In other words, that the Government should not own 
anything in connection with the railroads. a | 

Mr. Post. Yes, sir. 

Mr. Sims. Therefore, they favor private ownership and operation 
of all of the elements of railroad property, including the property 
rights and improvements basically and inherently pertaining to the 
railroads, and they favor that regardless of what effect it may have 
upon the country and its transportation, that being so basic a view 
that it is useless, from the viewpoint of the chamber of commerce, 
to consider anything like a cooperation or partnership in the owner- 
ship and operation of these public utilities ? . 

Mr. Post. Your theory, Judge, is one that you possibly have given 
a great deal of thought to, and it doubtless appeals to you favorably. 
My only reply is that the chamber of commerce apparently does not 
agree with that viewpoint. It might be possible that the question 
of the Government owning the fixed property and of operation by 
private corporations might be properly laid before that body at some 
future time when it was germane to the issue at stake, but up to the 
present time, in dealing with the idea of Government ownership, the 
public mind, or the mind of the chamber of commerce members, has 
been with that general idea of the Government buying the railroads 
and running them, and not turning them over to a private corpora- 
tion to run. Of course they have not divided the question, and they 
have given no expression upon a division of the question. Therefore, 
I should say that the judgment of the chamber of commerce would 
stand as opposed to Government ownership in part or in whole, 
and to private operation under such Government ownership. 

Mr. Sims. In other words, the theory of the chamber of commerce, 
so far as its views have been expressed, is that you must not have any 
Government aid at all for transportation in the way of Government 
ownership of transportation facilities, but, on the other hand, that 16 
is appropriate for the Government to provide through legislation 
regulatory bodies to do such things as are necessary to make private 
ownership a success, although up to the present time it has not been 
a complete success in all respects. As I understand it, that is the 
theory regarding the Government’s liability—that is, that the Govern- 
ment should provide by taxation or by the fixing of rates for successful 
private ownership and operation. ff 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. I111 












_ Mr. Post. I do not understand that that is a question for me to 
‘answer. That is a statement of your own. 
Mr. Sms. That is the idea in every one of the plans that has been 
~submitted—that is, that there must be legislation which shall be in 
‘the nature of a mandate to the rate-making body to do such things 
‘as the Chanber of Commerce believes is necessary to be done in order 
to make’private ownership and operation a success so as to meet the 
resent and future demands of the country for transportation. 
| Therefore, I draw the conclusion that basically and fundamentally 
_ you are opposed to any assistance by way of Government ownership 
or operation of transportation facilities, but are not in favor of ac- 
_ cepting any adverse result that might follow because of its not being 
profitable or sufficiently attractive to bring in private capital in com- 
petition with other investments seeking private capital. Therefore, 
you want a rate structure that will yield not less than 5 per cent on 
/ the value of the railroad property. You are willing to accept Gov- 
ernment aid to the extent of helping you to help yourself, but you do 
I Zt want Government aid through Government ownership of any- 
thing. . 
'- Mr. Post. Judge Sims, our minds may not run along the same 
channels when you use the expression ‘‘Government aid”’ by rates, 
‘because we would not consider that Government aid. That is a 
‘recognition by the Congress of the necessity that the transportation 
‘system should be self sustaining, and that those regulatory agencies 
“which fix the rates should fix such rates as will allow the railroads to 
furnish the necessary transportation to the country, to pay their 
running expenses, and pay 2 reasonable return upon the investment, 
and, also, to be sure that a reasonable wage and & generous wage 1s 
paid to the workmen. 
Mr. Sims. This statement refers to the fact that there was great 
expense in operating the railroads under Federal control on account 
of the generous treatment that the wage earners and employees had 
received at the hands of the Government. Did you mean to imply 
by that it was an unjust and discriminating generosity extended to 
the wage earners ? 

Mr. Post. I do not think that by any means could you infer from 
the statement any implication that the generosity wes unjust or 
unfair. 

_ Mr. Sms. You callea it ‘‘generosity.” 

_ Mr. Post. Yes, sir. 

Mr. Sirus. You mede that as a charge against Government opera- 
tion. 
- Mr. Post. There was no charge at all. . 
Mr. Sims. Or that was one of the reasons why Government operation 
‘ should not continue ? 

Mr. Pos. It was just a statement of fact. 

Mr. Sris. Now, suppose the railroads had not been taken over and 
operated by Government, would the owners have been any less 
generous with the laborers than the Government had been ? : 
~ Mr. Post. Not being in charge of the railroads and not responsible 
for the circumstances arising from the war, it would be very difficult 
for a private citizen to answer that question. 

Mr. Sims. It was not difficult to so characterise 1t--— 
__ Mr. Post (interposing). I want to say this in that connection, that 
when the proposition to extend Federal control for a period of five 





1lllzy RETURN OF THE RAILROADS TO’ PRIVATE OWNERSHIP. 


years from the 1st of January last was made, that proposition fell 
upon deaf ears so far as the public was concerned, but the railroad” 
brotherhoods seemed to be willing that it should continue, and from — 
what we have read, observed, and heard we thought that the wage - 
increases that they had received had been so much greater than they _ 
had received before that they were rather content with any situation 
which had brought that about. 
Mr. Sus. And hope it might continue ? 
Mr. Post. Caitainty: | 
Mr. Sms. And the hope of the organization which you represent is | 
that this generosity or whatever it is, I call it generosity, will not 
continue under private ownership ¢ | 
Mr. Post. I beg your pardon. We have made no such declaration. 
Mr. Sms. Why should labor be induced to go in for private owner= | 
ship if the same generosity which the Government has extended will — 
not continue. < 
Mr. Post. Does not a great deal of the generosity result from the 
necessities that arise by the pressure of demands for increases ? et 
Mr. Sms. In your argument you said that during the war conditions 
it was necessary to pay a higher rate of wages but you putit inlanguage 
characterizing it as generosity which I have always thought was not 
a considerate and economic measure of wages, and that that was the 
reason why labor wanted to continue Government ownership in order 
that the generosity might continue, and if such is the implication—to 
some extent at least—some excuse for it in time of war which there 
would not be in time of peace. : . 
Mr. Posr. This statement is intended to be recitative of an existent 
fact as it appeared to the committee. The word ‘‘generosity”’ as 
nsed there seemed to express the committee’s picture and, perhaps, 
it is a word that does not strike you as proper to be used there or 
elsewhere. 7 . 
Mr. Sims. You used it as a fact. 


CoMMITTEE ON INTERSTATE AND ForREIGN COMMERCE, 
Houser oF REPRESENTATIVES, 
Thursday, August 14, 1919. 

The CuarrMan. I ask to have printed in the hearings at this point 
a letter from the managing secretary of the Tyrone Chamber of 
Commerce, Tyrone, Pa., expressing the views of that chamber with 
reference to railroad legislation, and with particular reference to the 
so-called Plumb plan; also a letter from the chairman of the Cheraw 
Board of Trade, Cheraw, S. C., to the same effect; also a letter from 
Hon. E. W. Gray, former member of the House from the State of 
New Jersey, with a pamphlet giving the Gray-Winship solution of 
the railroad problem and containing the bill which Mr. Gray intro- 
duced in the last Congress. As we are giving hearings on all plans, 
and as no hearing has been requested with reference to the Gray-Win- 
ship plan, we will print their plan and bill as a part of the hearing, 
so that all the plans will be presented. If there is no objection, 
these papers will be put in the record at this point. | 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1113 
__ (The papers referred to follow:) 


LETTER FROM THE TYRONE CHAMBER OF COMMERCE, 





TYPONE CHAMBER OF COMMERCE, _ 
Is Tyrone, Pa., August 9, 1919. 
Hon. Joun J. Escu, 
‘Committee on Interstate and Foreig:: Commerce, 

* House of Representatives, Washington, D. C. 

Dear Srr: Inclosed is a copy of a statement of the attitude of the Tyrone Chamber 
of Commerce in connection with any form of Government ownership of railroads or any. 
legislation which will stultify the promise of the Government to return the railroads 
to those who owned them prior to the war. 

- This was authorized by a special meeting of the board of directors held on August 
8, 1919, and you are requested to consider it in connection with any railroad legisla- 
tion by law-making bodies or suggestions from interested parties which may be made 
‘to Congress. 

) Very truly, yours, 











B. C. Everineum, 
Managing Secretary. 


TYRONE CHAMBER OF COMMERCE, TYRONE, PA, 


| The Tyrone Chamber of Commerce, by authority of its board of directors, wishes 
to be recorded as being definitely opposed to Government ownership of transportation 
lines. It is felt that experiments along that line have been and will continue to be 

‘contrary to the best interests of the public and stifling to the spirit of accomplishment 

which is so distinctive of Americanism. 

- It is the firm conviction of this body that the employees of railroad companies 
should be given voice in regard to matters which concern their welfare, and it would 
seem to be in line with modern thought that means be found through which they could 
' share in the excess profits of the organizations which they serve. 

The Tyrone Chamber of Commerce is opposed to special privileges or class legisla- 
tion of any sort, and, while it believes that a thorough hearing should be given all 
proposals for benefiting the public in connection with the operation of railroads, it 
esa against any attempt by any person or organization to force Congress or any 

ember of it to enact or support legislation under threats, either actual or implied. 

If the majority of the people of the United States decide at any time that they desire 
to have the railroads operated by the Government, this body will cheerfully abide - 
by that decision; but it is felt that the Government has no right to repudiate its given 

: promise to return, in as good condition as when taken, the property of the railroads 
which was confiscated in time and stress of war. 
PRESIDENT. 


RESOLUTIONS OF THE CHERAW BOARD OF TRADE. 


THE CHERAW BOARD oF TRADE, 
. Cheraw, S. C., August 12, 1919. 
CHAIRMAN INTERSTATE COMMERCE COMMITTEE, 

House of Representatives, Washington, D. C. 
_ Dear Sir: We beg to inclose copy of resolutions passed by the Board of Trade of 
| Cheraw, S. C., on the 11th instant, relative to the railroad situation and “Plumb 
plan” and principles as set forth by the railway brotherhoods. 
Respectfully, . 
Rospert CHAPMAN, Chairman. 


THe CHERAW Boarp OF TRADE, CHERAW, S. C., 
August 11, 1919. 
Whereas the Board of Trade of Cheraw, representing 90 per cent of the business 
“interest of the community, regard with great dissatisfaction the railroad service, both 
freight and passenger, they are now receiving under National Administration, 1n 
spite of unprecedented advances in wages to employees; and, whereas, said railroad 
employees are unreasonably demanding advances of similar proportion, and 
Whereas we view with alarm and apprehension the sentiments and policies set 
forth by the representatives of the Railway Brotherhoods in Washington as the policies 
of said brotherhoods, to wit, ““We demand that the owners of capital who represent 


Y 


1114 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


only financial interest as distinguished from operating brains and energy be retired 
from management.’’ And that if their demands are not granted, “We will tie up the 
railroads so tight that they will never run again.”’ 

And, whereas these leaders of the railway unions instead of going before the Congress. 
and the President in a spirit of petitioners have done so in a spirit of dictation in dis: 
regard of the interest of the balance of the American public, therefore, be it 4 

Resolved, That we are opposed to their present demands being granted and are 
se ene opposed to the so-called Plumb plan or any other Government form of 
ownership. | 

We wivaeate that the National Government adhere strictly to the functions of 
Government for which it was formed. 

That the Congress and President be influenced by the sober and calm opinion of 
the vast majority of the Nation and not that of the selfish leaders of this minority, 
ready to abuse their positions as the operating force of the transportation system or 
the Nation, which works to the harm of the public; already general freights are under 
embargo, furthermore, be it ; 

Resolved, That we assure members of Congress and the President of our support, 
and if these Railway Brotherhoods desire to strike the interest of the public can not 
be conserved better than to have the issued determined now. 

That the railroad brotherhoods are not affected more by the high cc t of living than 
others of the American public and the granting of these demands will aggravate 
rather than alleviate the situation; be it 

Resolved, That the railway systems of the country be returned to their owners at 
their earliest date possible. 


THE GRAY-WINSHIP RAILWAY PLAN. 3 


NEWARK ATHLETIC CLUB, 
Newark, N. J., August 12, 1919. 


My Dear CONGRESSMAN: I can not too earnestly ask you to study carefully the 
proposed Gray-Winship solution of the railroad problem, which is set forth in the 
inclosed booktet. (2 

No thoughtful American observant of political and economic conditions can mimi- 
mize the gravity of the crisis now confronting our country. The adoption of Gov- 
ernment ownership of railroads would be a radical step towards socialism, an admission 
that the American system of Government is a failure and must be supplemented by 
a system which would result in destruction of the rights of private property. 

The only way to meet the present crisis, taking all conditions into consideration, 
is by effecting a compromise. The Gray-Winship plan points the way in which this 
can be done. It is naturally susceptible of improvements in detail, but, funda- 
mentally, it presents the only safe course if the object sought is to be accomplished. 

I shall be very glad to hear from you, should you care to discuss the subject with me. 

Very truly, yours, ' 
KE. W. Gray. 


GRAY-WINSHIP Rattway PLAN (H. R. 13298). 


CHIEF PROVISIONS. 


New corporation to effect under congressional authority voluntary consolidation — 
of railways, a prerequisite being combination of sufficient number of roads to constitute 
transcontinental system front east to west and from north to south. 

-Labor requirements met without resort to socialism. 
Strikes unlawful; individual penalties. 

Unification without compulsion. d 

No arbitrary fixing of return on capital. 

No Federal taxation. 

Interest ahead of State and municipal taxes. 

Cumulative dividends on sliding scale. a 

Surplus profits divided: Thirty per cent to Government (out of which comes 
State and municipal taxes); 20 per cent to employees (5 per cent cash, 10 stock, 5— 
per cent insurance fund); 20 per cent to steckholders. 

Representation on board of directors: Stockholders, 8; bondholders, 2; em ployees, — 
2; Government, 7. 


RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1115 


Vote of 15 directors required for acquisitions and issuance of securities. 

| The people of the United States, by reason of the formal demand of organized labor 
for the nationalization of the railroads, are now brought face to face with the proposi- 
tion of abandoning the principles of Government upon which their Nation has at- 
-tained its unparalleled success and greatness and substituting therefor the principles 
‘of Socialism. ‘ 

Even though the so-called Plumb plan be rejected, Government ownership in 
different guise will be pressed with even greater insistence upon the country. Dodg- 
ing the issue now will be merely feeding the flames of disaster. 

_ Jt goes without saying that if the railroads be placed under Government ownership, 
the nationalization of the coal, iron, oil, and other industries will rapidly follow and 
‘the way be cleared for the complete taking over by the Government of all the means 
of production and distribution. Then—chaos! 

If this threatened destruction of America is to be averted, or at least delayed, the 
vitally important thing to do and do now is to prevent the nationalization of the 
railroads. 

But it is a condition and not a theory that conironts us. Any attempt to return to 

the old plan of private ownership would be merely a resort’ to the ostrich delusion of 
Berne one’sheadinthesand. Labor must be met half way, but met on an American 
basis. 
| This-can be done. Every right and demand of the self-respecting and ambitious 
railroad employee can be fully met and private ownership of the properties retained 
by the adoption of the Gray-Winship plan of Federal incorporation and regulation. 
_ This plan was worked out by former Congressman Edward W. Gray, of the eighth 
New Jersey district, and Mr. Glen B. Winship, of New York, after years of careful 
study of the railroad problem. [t was embodied in a bill introduced in the House 
of Representatives by Congressman Gray on December 9, 1918, which was designated 
H. R. 13298 of the Sixty-fifth Congress, third session. 

Besides avoiding the evils of Government ownership the Gray-Winship plan meets 
fairly and justly the requirements of labor, of capital, and of the public without a 
‘surrender of right by anyone, without throwing the railroads into politics and without 
involving the Government in a guarantee of interest or dividends or in an assumption 
of trernendous debt. 












GENERAL SUMMARY. 


Labor obtains an actual voice in management and_ participation in surplus profits, 
but under conditions which place a positive premium upon individual efficiency 
and loyalty, and a positive penalty upon any individual who resorts to coercive or 
violent measures to force concessions of the rights of others. 

- The agitator is placed upon the same plane as the profiteer, and legal means are 
provided for bringing each before the bar of justice, whether he acts alone or In con- 
cert with others. 

Voice in management—Article I, section 8. 

‘Share of surplus earnings—Article V, section 1, paragraph B. 
~ Premium on loyalty—(“ Units of interest” plan), Article V, section 1, paragraph B, 
clause d, and Article I, section 5. 

Wages and working conditions—Article IJ, section 1, paragraph5. = 
- Strikes and lockouts—Unlawful until final determination of question in dispute 
(either side, directors or employees, may refer question to Interstate Commerce Com- 
mission, and an appeal from there may be had to the courts), Article II, section 1, 
paragraph 5. 

Penalties—Article VI, section 2. , 

Capital retains its rights, and obtains assurance that these rights will not be attacked. 

There is no element of compulsion, of condemnation, or arbitrary appraisals. 

Consequently, the disturbing and long-drawn legal battles which these things 
would involve are avoided. : ; 

+ Instead of fixing an arbitrary rate of return on capital, there is a simple, elastic, 
and scientific provision whereby this rate of return will move in response to the 
normal workings of natural economic laws. Becks 

Instead of being restricted to a maximum rate of return, capital will share also in 
‘surplus earnings, and its share can not be subordinated. i 

Capital in general would benefit also through the removal of some of the most serious 
factors now disturbing the business and financial world. 

_ Accumulative dividends—Article V, section 1, paragraph 4. 
. Share in surplus—Article V, section 1, paragraph D. 
, Sinking fund—Article V, section 1, paragraph 3. 


1116 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


Capitalization—Article IV, section 1. 

Acquisitions—Article II, section 1, paragraph 8. ~ 

Taxes—Article V, section 1, paragraphs 2, 5, and A. | 

It should be noted that by these provisions there is only one way for the Govern- 
ment to obtain revenue from the railroads—and that way is to make it possible for 
the railroads to be actually successful. See also ‘‘Organization” below. 

The public is definitely protected from profiteering and from excessive exactions 
of labor, and is assured of maximum service at fair rates, because of the economies 
of unification, the centralization of responsibility, and positive means of preventing 
or at least of correcting all forms of abuse whether attempted by employees, mana- 
gers, Government officials, or political manipulators. 

Freight and passenger rates: Fixed by board of directors—Article II, section 1, 
paragraph 8. . 

Appeal to Interstate Commerce Commission and to the courts—The provision for 
fixing rates is positive, and the intention was to authorize the board to place these 
rates in actual effect pending the final determination of any appeal. Before enact- 
ment of the measure, additional legal opinion should be obtained as to whether this 
point is adequately covered. 

Interstate Commerce Commission—See also Freight and passenger rates above. 

Most of the questions which have arisen as to the future life and powers of this com- 
mission can be determined without involving the success or failure of the Gray- Winship 
plan. It can be made a success whether these questions are determined or not; it can 
be a greater success if the commission is abolished, and if the commission eventually 
is abolished, no amendment of the bill as now drawn will be required. ‘There is, 
however, some justification for retaining the commission until such time as the pro- 
posed consolidation of railways embraces virtually all roads in the United States, and 
an attempt to complicate the Gray-Winship plan by including with it a determination 
of the questions regarding the Interstate Commerce Commission would be in effect an 
attempt to defeat both. 

Organization (see Article I): Consolidation of existing companies is permitted under 
specific provisions and the machinery of organization is set up. 

No road is forced to join the national system, but in order to make the plan effective 
there must be consolidated a sufficient number of roads to constitute a transcontinental 
(North to South, East to West) system. 

Consolidation may be effected through exchange of securities or cash or both. 

In effecting the consolidation, all parties of interest are represented, but no one ele- 
ment can block the negotiations. 

The powers to be enjoyed by the national system, and the resultant benefits to 
stockholders, bondholders, employees, and the public, assure eventual absorption on 
fair terms of atl railways even though some may refuse to join at the start. 

The bugaboo of ‘‘dilution” and the fear of excessive valuations will both be defi- 
nitely dispelled by a careful study of the bill’s provisions. 


[H. R. 13298, Sixty-fifth Congress, second session.] 


A BILL Providing for the establishment of a national railway system to coordinate and protect the respec- 
tive interests therein of the Government, the public, the investor, and the employee, and for other pur- 
poses. 


Beit enacted by the Senate and House of Representatives of the United States of America 
in Congress assembled, 


ARTICLE I. 
ORGANIZATION. 


SecrIoN 1. That for the purpose of organizing the National Railway Corporation, as 
hereinafter provided, the President, immediately after this measure becomes a law, 
shall appoint, by and with the adyice and consent of the Senate, three persons who 
shall serve as an organization committee, hereinafter to be known as the committee, 
and shall make public announcement that stockholders or owners ot railways may file 
with this committee written proposals tor the sale of stock or bonds or other evidences 
of indebtedness, or for the sale or lease of the properties of existing railroads, or notices 
that they are willing to negotiate for such sale or lease. 

Sec. 2. That upon receipt of such proposals or notices of willingness to negotiate 
from a sufficient number of stockholders or owners to represent control of properties, 
which together would form a transportation system connecting ports of the northern 
and southern and the eastern and western boundaries of the United States, they shall 
so advise the President and make public announcement thereof.: 


| 

. , 

| RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1117 
| 








_ Sec. 3. That thereupon, the President, by and with the advice and consent of the 
Senate, shall appoint four additional members of the committee, and the committee 
‘so enlarged shall prepare a tentative financial plan for the acquisition of control of the 
said properties by the exchange ot bonds or stock or by the payment of money or by 
|any combination of these or other means; and the committee shall at the same time 
| invite the stockholders or owners of all properties who have made proposals as provided! 
| in section 2, to submit to the committee tentative financial plans of like purpose, and 
.to elect delegates as provided in section 6. Copies of all such plans shall be made 
immediately available to all proposing stockholders or owners of the said properties 
_referred to in section 2. 
Sec. 4. That the committee shall at the same time announce a methed by which 
| bondholders of the said properties may elect two persons who shall become addi- 
| tional members of the committee, which election shall be within one month after said 
,announcement. Said method of election shall not deny to any holders of either 
| coupon or registered bond the right to participate in said election. 
_ Sec. 5. That the committee shall at the same time announce a method whereby 
all employees of the said properties may elect two persons who shall become additional 
,members of the committee, such election also to be within one month after said 
}announcement. The number of votes which each of the said employees shall be 
entitled to cast in the said election shall be determined on a units of interest basis, 
by multiplying the number of dollars received in salary or wages during the pre- 
ceding fiscal year by the number of years of continuous service. 
_ Sec. 6. The committee shall at the same time invite all stockholders or owners: 
of the properties referred to in sections 2 and 3 to elect three delegates representing 
each oi the said properties, the stockholders of each property voting separately, 
each share being entitled to one vote. The three receiving the highest number of 
votes shall be elected. 

Sec. 7. That all the elections provided for in sections 3, 4, 5, and 6 shall be held 
on the same day. Two weeks after the date of the said elections the members of the 
committee and the said delegates shall meet in joint conference. Said conference 
shall hold its sessions daily, and may appoint committees to facilitate negotiations. 
It shall also be open to the public, and stenographic reports thereof shall be made a 
public record. 


Src. 8. That when a plan for the acquisition of a control of a sufficient number of 
properties to constitute a transportation system as provided for in section 2 is agreed 
upon by at least seven members of the committee and by a majority of the delegates 
representing each property included in the agreement.the seven members of the 
committee appointed by the President shall become a body corporate to be known as 
the National Railways Corporation, and the President shall announce the term for 
which each of the said seven members shall serve as a director of the said corporation. 
Within one month thereafter, the bondholders and the employees of the properties 
included in the agreement shall each elect two directors of the said corporation in 
accordance with the provisions of sections 4 and 5 for the election of members of the 
committee. | 

Src. 9. That within three months from the date of said agreement, all stockholders 
and bondholders of the properties included in said agreement shall have the right to sell 
their holdings to the corporation on the same terms as other stockholders or bond- 
holder of the same properties. Upon the expiration of the said three months the 
-the stockholders of the said corporation shall elect eight directors, who, with the 
eleven directors already elected, shall constitute the complete board of directors. 

- Src. 10. That if any time more than a sufficient number of properties are repre- 
sented in the conference to conform to the minimum requirements provided for in 
section 2, failure to draft a plan agreeable to all the properties represented shall not 
defeat the purpose of the conference. In the event of such failure, any plan agreed 
upon by the seven members of the committee appointed by the President and by a 
‘Majority of the delegates representing each of such properties as together would meet 
the minimum requirements provided for in section 2 shall be accepted as conforming 
-to the requirements for an agreement as provided for in section 8; but if such plan 
shall be agreed upon by seven members of the committee but all of the seven members 
of the committee, but not by all of the seven members of the committee appointed 
‘by the President, then, before such agreement can be ratified, new elections shall be 
held in accordance with the provisions of sections 4 and 5 by the bondholders and the 
employees of the properties included in the agreement. : 

« Sec. 11. That if at the expiration of two months from the date of the convening of 
‘the said conference, no plan for the acquisition of control as set forth in section 3 has 
‘een agreed upon by at least seven of the members of the committee and by a majority 
of the delegates representing the stockholders or owners, of each of the properties 


152894—19—vot 1 tL 














1118 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


mentioned in sections 2 and 3, the President may, with the advice and consent of the | 
Senate, appoint other persons to serve for a term of two months as members of the com- — 
mittee to take the place of the members previously appointed by him, and new pro- 
posals shall be invited. Ifso many delegates withdraw from the conference to make 
it apparent that the members of the committee who were previously elected by bond- | 
holders and employees do not substantially represent the majority of the bondholders — 
and employees of the properties represented in the conference, new elections shall | 
be held in accordance with the provisions of sections 4and 5. If. no plan shall have - 
been agreed upon within three years from the date of the approval of this act, the pro- 
visions of this act shall be no longer operative. 

Src. 12. That the delegates herein provided for shallserve without compensation, 
The members of the committee shall receive as such compensation as shall 
hereinafter be provided for as compensation for directors, for which purpose and 
for other purposes necessary for carrying out the provisions of this act the sum of 

is hereby appropriated: Provided, however, That if the corporation 
shall be organized it shall reimburse the Government for any expenditure so made. 


ArticLe II. 


POWERS. 4 


Srcrion 1. That the board of directors of the National Railways Corporation, in 
addition to any other powers conferred by this Act, shall have the power— 

First. To adopt and use a corporate seal. 

Second. To have perpetual succession. 

Third. To make contracts. 

Fourth. To sue and be sued, complain, and defend in any court of law or equity. 

Fifth. To appoint such officers and employees as are not otherwise provided for in | 
this Act, to fix their compensation, to define their duties, to require bonds of them, 
and to fix the penalty thereof, and to dismiss at pleasure such officers or employees: 
Provided, That all questions relating to wages and working conditions of employees 
may be referred to the Interstate Commerce Commission by either the employees | 
affected or by the directors, and any question so referred shall be subject to the same 
methods of procedure and appeal that govern other questions presented to that board; 
and it shall be unlawful for the directors to permit a lockout or for any employee to 
participate in any strike until the question in dispute has been finally determined 
as herein provided. 

Sixth. To prescribe by-laws regulating the manner in which its general business | 
may be conducted and the privileges granted to it by law may be exercised and 
enjoyed. 

Seventh. To exercise such incidental powers as shall be needed to facilitate the 
business of transporting passengers and goods. 

Eighth. Particularly, it shall have power to acquire by purchase, lease, or otherwise 
the physical property, franchises, rights, and other assets of any and all railroad cor- 
porations now or hereafter existing under the laws of any State or Territory, to consoli- 
date, equip, and operate such properties, to fix rates subject to the provisions of section 
1, Article VI, to establish operating rules, to borrow money, to acquire rights of way, 
to own, construct, equip, and operate new lines of railroad: Provided, That for the acqui- 
sition by purchase, lease, or otherwise of the physical property, franchises, rights, and 
other assets of any railroad corporation, or for the issuance of stocks or bonds, the 
amount and terms of payment shall be agreed upon by at least fifteen members of the 
board of directors. 

Ninth. To wind up its affairs and dissolve itself. 


ArticLeE III. 
DIRECTORS. 


Secrion 1. That the directors shall have entire management of the affairs of the said 
corporation. The term of office of all directors, except those appointed by the Presi- 
dent, shall be for one year. The said directors appointed by the President each shall 
be appointed for a term of seven years: Provided, That in the first instance one person 
shall be appointed for one year, one for two years, one for three years, one for four 
years, one for five years, one for six years, and one for seven years: And provided further, 
That vacancies occurring shall be filled for the unexpired term only. The salary of 
every director shall be $ per annum, or such other sum as from time to time ma 
be fixed by the stockholders, to be paid by the corporation. They may estab 
executive officers or boards of managers or both with such regional or departmental 
duties and powers within the scope of this act as they may deem wise. 


“RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1119 


ARTICLE IV. 


CAPITALIZATION. 






Section 1. That the directors by a three-quarters vote, and with the approval of: 
‘the Interstate Commerce Commission, may cause to be issued new capital stock, 
bonds, or other evidences of indebtedness in such amounts and on such terms as they 
may deem necessary, but all stock shall be of one kind with equal rights and privi- 
ee, and each share of stock shall have a face value of $100. 


ARTICLE V. 


DISTRIBUTION OF EARNINGS. 





: Section 1. That operating expenses, including maintenance of property at a 
standard of efficiency approved by the Interstate Commerce Commission, shall be 
paid from gross earnings. The balance oi gross earnings shall be known as net earn- 
ings, and annually shall be apportioned in the following manner: 

(1) Interest and other fixed charges shall be paid; 

(2) An amount sufficient to pay all accrued municipal and State taxes shall be 

advanced to a tax fund provided for in subdivision (a) of paragraph 5 of this article; 
' (8) An accumulative sinking fund, amounting annually to 1 per cent of the largest 
‘amount of bonds and notes at any one time issued or assumed by and outstanding 
‘against the corporation, shall be created. This fund shall be used for the purchase, 
redemption, and retirement of outstanding bonds, notes, or other evidences of indebt- 
edness which may have been issued to run for a longer period than one year: Provided, 
That none of these evidences of indebtedness may be purchased for more than the face 
‘amount thereof and that, unless such purchases are made in the open market, they 
‘shall be made only after due advertisement and at the lowest price at which such 
‘securities are offered for sale in pursuance therewith: Provided further, That if part 
‘and not all of any issue of bonds, notes, or other evidences of indebtedness are to be 
‘redeemed at prices fixed at the time of issuance of such securities and set forth on the 
face thereof, the bonds so redeemed shall be selected by lot; 

(4) Accumulative dividends at a rate exceeding by | per cent the average interest 

rate paid by the corporation in the preceding fiscal year, that is to say, if the average 
‘interest rate is 4 per cent the accumulative dividend rate shall be 5 per cent; 
| (5) The balance of the net earnings plus the amount advanced for that fiscal year 
to the tax fund, as provided in paragraph 2 in this section, shall constitute surplus 
earnings for that fiscal year, to be distributed as follows: 

(A) Thirty per cent of said surplus earnings shall be credited to a tax fund nereny 

ereated. The balance remaining in the said tax fund after the payment of all 
accrued State and municipal taxes, and after the return to the corporation of all 
amounts advanced by it to the said fund, as provided in paragraph 2 of this section, 
shall be paid to the Government in lieu of all Federal taxes or licenses of any kind and 
all kinds whatsoever, except impost duties; ; 
 (B) Twenty per cent of said surplus earnings shall be distributed as follows: (a) One- 
‘quarter of said 20 per cent of said surplus earnings shall be paid in cash to the em- 
_ployees of the corporation; (b) one-half of said 20 per cent shall be paid in capital 
stock of the corporation to the employees thereof, said stock to be issued at the market 
price prevailing at the time of payment of said stock; (c) one-quarter of the said 20 
“per cent shall be paid into a permanent insurance fund, hereby created, for the ex- 
clusive benefit of the employees, said fund to be administered by an insurance com- 
‘mittee to be created by and operated under the supervision of the board of directors 
in accordance with accepted insurance and trust fund principles; (d) the individual 
interest of employees in the distribution of said 20 per cent of the surplus earnings shall 
be determined at the end of each fiscal year by ascertaining the respective units of 
interest of said employees in the manner set forth in section 5 of Article I. All per- 
‘sons in the employ of the corporation, including the directors thereof, shall be con- 
‘sidered as employees and shall participate in the said distribution; | 
(C) Twenty per cent of surplus earnings shall be expended in payment for addi- 
' tions and betterments of the corporation’s properties; aa = 
* (D). Twenty per cent of surplus earnings shall be declared as an additional dividend 
to stockholders, payments of such additional dividend to be made in equal quarterly 
y amounts during the ensuing fiscal year; 
(E) Ten per cent of surplus earnings shall be set aside as an emergency reserve fund; 
(F) Provided, however, That if at the end of any fiscal year the amount due to the 
‘corporation from the tax fund, as provided in subdivision (a) of paragraph 5 of this 
article, exceeds 40 per cent of the surplus earnings in that fiscal year, no distribution 
of surplus earnings shall be made until the end of the ensuing fiscal year. 
















, 


1120 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


ArtTIcLE VI. 


GENERAL PROVISIONS. 


Section 1. That the acts of Congress and the rules of the Interstate Commerce Com- 
mission regarding the regulations of interstate commerce not inconsistent with this act 
shall be applicable to this corporation. 

Src. 2. That whosoever willfully violates any of the provisions of this act shall, 
upon conviction in any court of the United States of competent jurisdiction, be fined 
not more than $10,000 or imprisoned for not more than one year, or both; and whoever 
knowingly participates in any such violation shall be punished by a like fine or im- 
prisonment, or both. 


COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE, 
Houskr or REPRESENTATIVES, 
Monday, August 18, 1919. 


The CHarrMAN. I wish to offer for printing in the hearings a 
communication received by me from Congressman Wocdyant of 
West Virginia, inclosing a letter addressed to him by Mr. W. R&. 
Thurmond, chairman of the legislative committee, Logan Coal 
Operators’ Association, Logan, W. Va., accompanying resolutions 
adopted by that association with reference to the Sims bill, incor- 
pal yee the Plumb plan, and also a letter received by me from 
resident Loree, of the Delaware and Hudson Co., accompanied b 
a statement in which he answers the charge made by ae Plum 
regarding stock issues with reference to this company. 
If there is no objection, these documents will be made a part ol 
the record. | 
(The documents submitted by the chairman follow:) 


RESOLUTION OF THE LOGAN COAL OPERATORS’ ASSOCIATION. 


House or REPRESENTATIVES, 
Washington, D. C., August 14, 1919. 


Respectfully referred to Committee on Interstate and Foreign Commerce, House 
of Representatives. . 
Very respectfully, 
Harry ©. Woopyarp, 
Member of Congress, Fourth District, West Virginia. 


Logan Coat OpEeRATORS’ ASSOCIATION, 
LEGISLATIVE COMMITTEE, ~ 
Logan, W. Va., August 11, 1919. 
Hon. Harry Woopyarp, 
House of Representatives, Washington, D. C. 
Dear Sir: Inclosed herewith find copy of resolution adopted by the Logan Coa. 
Operators’ Association, Saturday, August 9, 1919. 
We hope that it will be your pleasure to present this to the proper committee and 
give it such other attention as you can consistently do. 
Yours, very truly, 
Logan CoAL OPERATORS’ ASSOCIATION, 
W. R. THuRMOND, 
Chairman Legislative Committee. 









RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 1121 


“RESOLUTIONS ADOPTED BY LOGAN COAL OPERATORS’ ASSOCIATION, SATURDAY, AUGUST 
9, 1919. 


Whereas there has been presented to the Congress of the United States a plan known 
‘as the Plumb plan for the nationalization of railroads and, 
» Whereas it is believed that any legislation looking toward Government ownership 
of railroads or of any other industry is not in keeping with the true American ideas of 
‘free government or personal enterprise, and that the same would be dangerous and 
_deterimental to the progress of American ideas and institutions; therefore be it: 
Resolved, That the Logan Coal Operators Association desires to go on record in oppo- 
‘sition to any and all legislation tending to Government ownership; be it further 
' Resolved, That copies of this resolution be forwarded to the Senators and Repre- 
he from West Virginia, with a request that they oppose such legislation; be it 
urther 

Resolved, That the Logan Coal Operators Association approve, commend, and indorse 
‘the letter of the Hon. John J. Cornwell, governor of West Virginia, addressed to the 
‘governors of the several States, relative to Government ownership of railroads, and 
‘that he be informed of our position relative to the matter. 
LoGaN CoAL OPERATORS ASSOCIATION. 


) 


COMMUNICATION FROM MR. L. F. LOREE, 


THE DeLAwARE & Hupson Co., 
OFFICE OF THE PRESIDENT, 
) August 15, 1919. 
‘Hon. Joun J. Escu, 
Chairman Committee on Interstate and Foreign Commerce, 

: House of Representatives, Washington, D. C. 
| Dear Sir: Referring to the testimony of Mr. G. E. Plumb before the House Inter- 
state Commerce Committee on August 12, 1919, as published in the daily papers, I 
beg to inclose herewith, for the information of your committee, a statement of the stock 
issues of the Delaware & Hudson Co. for the period from 1900 to 1910. 

If consistent with your practice, I would be very glad to have this statement incor- 
porated in the minutes of your meeting. 
Yours, truly, 

L. F. Loresr, President. 
Dictated but not read by Mr. Loree. 


| [New York Sun, Aug. 14, 1919—L. F. Loree’s figures answer G. E, Plumb—New stock issues retired 
bonds, says Delaware and Hudson president.] 






L. F. Loree, president of the Delaware & Hudson Co., issued a statement yesterday 
outlining the financial transactions and the financing of his road since 1900, in answer 
to the charge made by Glenn E. Plumb before the House Interstate Commerce Com- 
mittee on Tuesday that the Delaware & Hudson, among other roads, had issued much 
new stock between 1900 and 1910 at less than its market value, or had given it away 
as bonuses to its stockholders. 

_ At the beginning of 1900, says the statement, the authorized and outstanding capital 
stock was $35,000,000. In 1904 the company authorized an increase in this capita[ 
| stock of $10,000,000, of which $7,000,000 was offered to stockholders of record March 
19, 1904, at $135 a share, each stockholder having the right to subscribe for one share 
of new stock for every five shares owned. The balance of $3,000,000 of authorized 
‘ stock is still unissued. 

This $7,000,000 of capital stock was issued to retire $5,000,000 of New York and 
Canada Railroad Co. bonds maturing May 1, 1904, to defray the cost of standard gaug- 
ing the Chateaugay and Lake Placid Railway and to reimburse the treasury for ad- 
vances for construction work. At the subscription price $9,450,000 was realized on 
its sale. 

_ The average market price of the Delaware & Hudson Co.’s stock in March, 1904, was 
$152.45. The lowest price in that month was $149, on March 12. 

In May, 1905, the company authorized an increase in its capital stock of $5,000,000 
for the purpose of exchanging same prior to April 1, 1916, for Albany & Susquehanna 
Railroad 34 per cent bonds, due in 1946, at the rate of five shares for each $1,000 bond. 
There has been exchanged thereunder $1,778,000 of this issue for $3,556,000 of Albany 


| & Susquehanna bonds, the balance, $3,222,000, remaining unissued. 


1122 RETURN OF THE RAILROADS TO PRIVATE OWNERSHIP. 


In January, 1906, the company authorized an increase of $7,000,000 in its capital : 
stock for the purpose of exchanging same for its issue of $14,000, 000 of 4 per cent con- 
vertible debentures, due June 15, 1916, at the rate of five shares for each $1,000 de- 
benture; $13,500 of capital stock was issued under this authority in exchange for 
$27,000 of these bonds, the balance of the authorized increase, $6,986,500 still remain- 
ing ‘unissued. 

Capital stock of the company was retired and canceled between the years 1900 and 
1910 by the operation of sinking fund, as follows: 








Par Par 
Year. Shares. aati Year. Shares, value. 
TQ00.. een cece tee ee ccman ens 2,000 |:$200, 000 1]-1905. ..... 2.505 alae steamer 500 | $50,000 
ROO ee Set SoSte Ss Pa ees ee 1, 543 154, 300)|| 1906522425 5. .e ceca eens 2, 285 228) 500 
1902. 2 siclccees teen. stew eecn ce 1,386 138, 600 | 
1905 So eee ants a eae oe Dea oats 1,000 | 100,000 12,885 |1, 288, 500 
1004. ee en ee Oe 4,171 | 417,100 4 





To those who can intelligibly interpret financial transactions the financing of the 
Delaware & Hudson Co. through capital stock during the 11 years from 1900-1910 must 
appear most fortunate. 

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